Hold Hero Honda, target of Rs 851: Asit C. Mehta

Asit C. Mehta has recommended a hold rating on Hero Honda Motors with a target price of Rs 851 in its January 9, 2009 research report. "Considering a slowdown in the domestic two wheeler industry in FY10E, we expect Hero Honda Motors Ltd.’s revenues to grow at a CAGR of 11% over the period FY08 -FY10E, compared to a CAGR of 12% over the period FY05-FY08. Taking into account the decline in raw material prices and lower tax rates, net profit is expected to grow at a CAGR of 15% over the same period."

"We value the core earnings of the company and investments plus cash balances separately, as investment plus cash balances are significant portion of the total capital employed. We initiate coverage on Hero Honda Motors Ltd. with a “HOLD” recommendation and a price target of Rs. 851. Our target price implies a 13x multiple on core earnings (i.e. excluding other income) of Rs 53.4 in FY10E and cash per share of Rs 157," says Asit C. Mehta's research report
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