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Anand Rathi
Hero MotoCorp (Buy)
CMP: ₹2,249.95
Target: ₹2,475
HeroMoto Corp has firmed up plans to set up manufacturing plants in Colombia and Bangladesh. The combined investment involved would be up to ₹900 crore (according to media), including the brand-building outlay. While Colombia plant is likely to be via a subsidiary, the one in Bangladesh would be with a joint venture partner. Setting up manufacturing bases across geographies would help HMCL meet its long-term growth targets.
The company is already on course to sell a range of motorcycles in Bangladesh through the initial 50 retail outlets, including HF Dawn, Splendor+, Passion Pro, Glamour, Hunk and Pleasure. At CMP, HMCL trades at a PE of 15.6x FY15e and 12.9x FY16e. Tapping of newer markets to propel volumes and good earnings growth trajectory versus listed peers are near-to-mid-term positives for HMCL. Risks: Lower-than-expected volumes, failure to meet cost reduction targets.
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