UNVEILING HERO MOTOCORP'S INVESTMENT POTENTIAL

 

ABOUT HERO MOTOCORP

Step into the world of Hero MotoCorp, where innovation meets reliability on two wheels. Established in 1984 through a visionary collaboration between Hero Cycles and Honda, Hero MotoCorp has since soared to unparalleled heights, becoming the epitome of excellence in motorcycle and scooter manufacturing.

Following the departure from its partnership with Honda in 2011, Hero MotoCorp emerged as a symbol of independence and ingenuity. Today, it proudly stands as the unrivaled titan in the industry, crafting a diverse range of two-wheelers from commuter essentials to premium marvels.

Spanning across the vibrant landscape of over 40 countries, Hero MotoCorp's presence is not just global, but ubiquitous. With cutting-edge manufacturing facilities sprinkled throughout India, every machine that rolls out bears the hallmark of quality, affordability, and durability.

But Hero MotoCorp isn't just about crafting machines; it's about embracing a vision for a brighter, more sustainable future. Through unwavering dedication to innovation and technology, the company constantly pushes boundaries, redefining what's possible in the world of two-wheelers.

Yet, beyond its business pursuits, Hero MotoCorp remains deeply committed to its social responsibility initiatives. From empowering communities to championing environmental causes, every turn of the wheel propels progress and prosperity.

So, whether you're a seasoned rider or a newcomer to the road, Hero MotoCorp invites you to embark on a journey where each ride isn't just a means of transportation but a testament to the relentless pursuit of excellence and adventure. Join us, and let's ride towards a future where the road knows no bounds.

VISION AND MISSION

Vision:

Pioneering the Future of Mobility

Mission:

- Innovate to Deliver Unmatched Value for Our Customers

- Foster Collaboration with Co-workers and Partners, Drawing Energy and Inspiration

- Inspire a New Generation, Leading the Path Towards a Greener, Safer, and More Equitable Future

FINANCIAL RATIOS:

Profitability Ratios:

Profitability ratios provide insight into a company's ability to generate profits.

Liquidity Ratios:

Liquidity ratios evaluate a company's ability to meet short-term obligations, reflecting its financial health and stability.

Common Stock Ratios:

Common stock ratios assess the performance and valuation of a company's common stock, aiding investors in understanding its market position and potential for growth.

Activity Ratios:

Activity ratios indicate how efficiently a company utilizes its resources, including assets and liabilities, to generate revenue and manage operations effectively.

Leverage Ratios:

Leverage ratios measure the amount of debt used to finance a company's operations, helping investors gauge its financial leverage and risk exposure.

ACTIVITY RATIOS:

1. Inventory Turnover:

   Inventory turnover measures how quickly a company sells and replaces its inventory. A higher turnover ratio indicates efficient management of inventory and potentially lower carrying costs.

Inventory Turnover Ratio= Average Inventory/Cost of Goods Sold

 

- 2023: 16.53

- 2022: 14.22

   Analysis:

   - In 2023, Hero MotoCorp's inventory turnover ratio increased to 16.53 from 14.22 in 2022. This suggests that the company sold and replaced its inventory at a faster pace in 2023, indicating improved inventory management efficiency. It may also imply strong demand for Hero MotoCorp's products, leading to a shorter inventory holding period.

 

2. Accounts Receivable Turnover:

   Accounts Receivable Turnover assesses how efficiently a company collects payments from its customers. A higher turnover ratio implies better credit and collection policies, resulting in faster conversion of receivables into cash.

Accounts Receivable Turnover Ratio= Average Accounts Receivable/Net Credit Sales

 

- 2023: 1.48

- 2022: 1.31

   Analysis:

   - Hero MotoCorp's Accounts Receivable Turnover ratio stood at 14.01 in 2023 and 13.69 in 2022. The increase in this ratio indicates that Hero MotoCorp improved its collection efficiency in 2023 compared to the previous year. This could be due to effective credit management practices or enhanced customer payment terms, leading to quicker cash inflows and improved liquidity.

 

3. Asset Turnover:

   Asset Turnover evaluates how effectively a company utilizes its assets to generate revenue. A higher ratio indicates efficient asset utilization, resulting in higher revenue generation per unit of assets.

Asset Turnover Ratio= Average Total Assets/Revenue

 

- 2023: 16.53

- 2022: 14.22

   Analysis:

   - Hero MotoCorp's Asset Turnover ratio increased from 1.31 in 2022 to 1.48 in 2023. This indicates that the company generated more revenue per unit of assets in 2023 compared to the previous year. The increase in asset turnover suggests improved operational efficiency and effectiveness in utilizing its assets to drive revenue growth. It could be attributed to factors such as increased production capacity utilization or improved sales and marketing strategies.

Overall, the analysis of Hero MotoCorp's activity ratios indicates improved efficiency and effectiveness in managing its inventory, collecting payments from customers, and utilizing its assets to generate revenue. These improvements reflect positively on the company's operational performance and financial health, contributing to its overall growth and profitability.

 

PROFITABILITY RATIOS:

1. Gross Profit Margin:

   Gross Profit Margin indicates the efficiency of a company in production and pricing. It reflects the percentage of revenue that exceeds the cost of goods sold, showing how effectively the company manages its production costs and sets prices. A higher gross profit margin generally indicates better efficiency and profitability. The formula for calculating gross profit margin is:

Gross Profit Margin= Gross Profit/Total Revenue ×100%

 

- 2023: 13.65%

- 2022: 13.53%

 

Analysis:

   The slight increase in gross profit margin from 2022 to 2023 indicates improved efficiency in production and pricing strategies. This suggests that the company may have optimized its manufacturing processes or adjusted pricing strategies to enhance profitability.

 

2. Net Profit Margin:

   Net Profit Margin shows the overall profitability of a company after deducting all expenses and taxes from its total revenue. It provides insight into how efficiently the company operates and manages its expenses relative to its revenue. A higher net profit margin indicates better profitability. The formula for calculating net profit margin is:

Net Profit Margin= Net Profit/Total Revenue ×100%

- 2023: 8.18%

- 2022: 8.55%

 

Analysis:

   The decrease in net profit margin from 2022 to 2023 suggests a slight decline in overall profitability after accounting for expenses and taxes. This could be attributed to various factors such as increased operating costs, changes in taxation, or shifts in market conditions affecting revenue.

 

3. Return on Assets (ROA):

   Return on Assets measures a company's ability to generate profits from its assets. It indicates how efficiently the company utilizes its assets to generate earnings. A higher ROA implies better asset utilization and overall profitability. The formula for calculating ROA is:

ROA= Profit After Tax (PAT)/Average Total Assets ×100%

 

- 2023: 11.74%

- 2022: 10.30%

 

Analysis:

   The increase in ROA from 2022 to 2023 indicates improved profitability relative to the company's average total assets. This suggests that the company has become more efficient in utilizing its assets to generate profits, potentially through better resource allocation or improved operational efficiency.

 

LIQUIDITY RATIOS:

 

1. Current Ratio:

The Current Ratio is a measure of a company's ability to pay its current liabilities using its current assets. It assesses the company's short-term liquidity position, indicating whether it has sufficient assets to cover its short-term obligations. A ratio of 1 or higher is generally considered favorable, as it suggests that the company can meet its short-term debts without difficulty. The formula for calculating the current ratio is:

Current Ratio= Current Assets/Current Liabilities

 

- 2023: 1.57

- 2022: 1.92

 

Analysis:

   The decrease in the current ratio from 2022 to 2023 indicates a potential decline in the company's short-term liquidity. This could be due to various factors such as an increase in short-term liabilities or a decrease in current assets. While a current ratio above 1 indicates that the company can cover its short-term obligations, a declining trend may warrant further investigation to ensure adequate liquidity management.

 

2. Quick Ratio:

The Quick Ratio, also known as the Acid-Test Ratio, measures a company's ability to meet its short-term obligations using its most liquid assets, excluding inventory. It provides a more stringent assessment of liquidity than the current ratio, as it excludes inventory, which may not be easily converted into cash. A quick ratio of 1 or higher is generally considered favorable, indicating that the company can meet its short-term obligations using its most liquid assets. The formula for calculating the quick ratio is:

Quick Ratio= Current Assets-Inventory/Current Liabilities

 

- 2023: 1.28

- 2022: 1.65

 

Analysis:

   The decrease in the quick ratio from 2022 to 2023 suggests a potential deterioration in the company's ability to meet its short-term obligations using its most liquid assets. This could indicate a decrease in cash reserves or other highly liquid assets relative to current liabilities. While a quick ratio above 1 indicates adequate liquidity, a declining trend may warrant further scrutiny to ensure the company's ability to cover its short-term liabilities without relying heavily on inventory.

 

COMMON STOCK RATIOS:

 

1. Price/Earnings Ratio (P/E Ratio):

The Price/Earnings Ratio assesses a company's value as an investment by comparing its market price per share (MPS) to its earnings per share (EPS). It provides insight into how much investors are willing to pay per dollar of earnings. A lower P/E ratio may indicate that the stock is undervalued, while a higher ratio may suggest that the stock is overvalued. The formula for calculating the P/E ratio is:

P/E Ratio= Market Price per Share (MPS)/Earnings per Share (EPS)

 

- 2023 MPS: 16.69, 2022 MPS: 19.78

- 2023 EPS:  2.42, 2022 EPS:  4.75

 

Analysis:

   The decrease in the P/E ratio from 2022 to 2023 indicates a potential decline in investor sentiment or expectations regarding future earnings growth. A lower P/E ratio may suggest that the company's stock is relatively cheaper compared to its earnings, potentially making it more attractive to investors seeking value.

 

2. Dividend Yield:

Dividend Yield indicates the dividend returns on investments by comparing the annual dividend per share to the market price per share. It provides insight into the cash returns that investors receive from holding the stock. A higher dividend yield may indicate that the stock offers attractive dividend returns relative to its market price. The formula for calculating dividend yield is:

Dividend Yield= Dividend per Share/Share Price  ×100%

 

- 2023 Dividend per Share: 16.87%, 2022 Dividend per Share: 14.62%

- 2023 Share Price: 71.11%, 2022 Share Price:  81.92%

 

Analysis:

   The decrease in dividend yield from 2022 to 2023 may indicate a reduction in dividend payouts relative to the company's share price. This could be attributed to various factors such as changes in dividend policy, financial performance, or investment priorities. Investors seeking income from dividends may perceive a lower dividend yield as less attractive.

 

3. Return on Equity (ROE):

Return on Equity measures the profitability of a company's shareholder equity by comparing net income to shareholders' equity. It indicates how efficiently the company generates profits from the capital invested by shareholders. A higher ROE suggests better profitability and effective utilization of shareholder funds. The formula for calculating ROE is:

ROE= Net Income/Shareholders’ Equity ×100%

 

- 2023 Net Income:16.87%, 2022 Net Income: 14.62%

- 2023 Shareholders' Equity: 71.11%, 2022 Shareholders' Equity: 81.92%

 

Analysis:

   The increase in ROE from 2022 to 2023 indicates improved profitability relative to shareholders' equity. This suggests that the company is generating higher returns for shareholders' investments, potentially through improved operational efficiency or higher net income.

 

4. Payout Ratio:

Payout Ratio indicates the percentage of earnings that a company distributes to shareholders in the form of dividends. It reflects the company's dividend policy and its commitment to returning profits to shareholders. A lower payout ratio may suggest that the company retains more earnings for reinvestment or growth opportunities. The formula for calculating the payout ratio is:

Payout Ratio= Dividends/Earnings per Share (EPS) ×100%

 

- 2023 Dividends: 71.11%, 2022 Dividends: 81.92%

- 2023 EPS: 2.42,  2022 EPS: 4.75

 

Analysis:

   The decrease in the payout ratio from 2022 to 2023 indicates that the company is distributing a lower percentage of its earnings as dividends. This could be due to various reasons such as retaining more earnings for reinvestment or a change in dividend policy. Investors may interpret a lower payout ratio as a sign of financial strength or potential for future growth.

 

LEVERAGE RATIOS:

 

1. Debt to Equity Ratio:

The Debt to Equity Ratio indicates the proportion of a company's financing that comes from debt compared to equity. It provides insight into the company's capital structure and financial risk, with a higher ratio indicating greater reliance on debt for financing. A lower ratio may suggest a more conservative approach to financing. The formula for calculating the Debt to Equity Ratio is:

Debt to Equity Ratio= Total Debt/Total Equity

 

- 2023: 0.02

- 2022: 0.02

 

Analysis:

   The consistent Debt to Equity Ratio from 2022 to 2023 indicates that the company's capital structure has remained stable, with a minimal reliance on debt financing compared to equity. This suggests a conservative approach to financing, potentially reducing the company's financial risk and providing stability in its operations.

 

2. Interest Coverage Ratio:

The Interest Coverage Ratio measures how many times a company can cover its interest expenses with its earnings before interest and taxes (EBIT). It indicates the company's ability to meet its interest obligations from its operating earnings, with a higher ratio suggesting better financial health and lower risk of default. The formula for calculating the Interest Coverage Ratio is:

Interest Coverage Ratio= EBIT/Interest Expenses

 

- 2023: 44.46

- 2022: 75.33

 

Analysis:

   The decrease in the Interest Coverage Ratio from 2022 to 2023 suggests a potential decrease in the company's ability to cover its interest expenses with its operating earnings. This could indicate higher interest expenses relative to earnings, potentially increasing the company's financial risk. Investors and creditors may view a declining interest coverage ratio as a sign of increased financial leverage and heightened risk of default. It would be advisable for the company to closely monitor its interest expenses and profitability to ensure sustainable financial health.

 

FINAL VERDICT:

 

Hero MotoCorp epitomizes excellence in managing its inventory and receivables, boasting efficient operational strategies. Its robust profitability margins reflect a company finely tuned to deliver value. Coupled with a healthy liquidity position, Hero MotoCorp stands as a beacon of financial stability.

 

The conservative capital structure adopted by Hero MotoCorp further underscores its prudent approach to financial management. This, combined with the company's stellar financial indicators, paints a picture of a company well-positioned for sustained growth and success.

 

Given these positive signals and the low financial risk indicated by its leverage ratios, investing in Hero MotoCorp shares emerges as a compelling proposition. Investors seeking stable returns and minimal risk would find Hero MotoCorp shares an attractive addition to their portfolios.

 

Nevertheless, prudent investors are encouraged to delve deeper, considering market conditions, industry trends, and the company's growth trajectory. Conducting thorough research ensures informed investment decisions, safeguarding against unforeseen challenges and maximizing potential returns.

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Article Compiled by:-

Himanshu  Goel

(LegalMantra.net Team)

 

Disclaimer: Every effort has been made to avoid errors or omissions in this material in spite of this, errors may creep in. Any mistake, error or discrepancy noted may be brought to our notice which shall be taken care of in the next edition In no event the author shall be liable for any direct indirect, special or incidental damage resulting from or arising out of or in connection with the use of this information Many sources have been considered including Newspapers, Journals, Bare Acts, Case Materials , Charted Secretary, Research Papers etc.

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