Reviews

Reviews

In this edition, we have reviewed Hindustan Oil Exploration Company and Hero MotoCorp We suggest our reader-investors to HOLD in Hindustan Oil Exploration Company and Hero MotoCorp.

We had previously recommended Hindustan Oil Exploration Company Limited in Volume 34, Issue 26, dated November 25, 2019, to December 8, 2019, in the ‘Low Scrip’ section. The stock was then trading at Rs 92.45 and was recommended based on the company’s robust expansion initiatives, strong balance-sheet, debt-free status and a marked improvement in return ratios. Hindustan Oil Exploration Company Limited is an oil exploration and production company having participating interest in nine oil and gas fields in India’s Cambay Basin, Cauvery Basin, Assam Arakan Basin and Rajasthan Basin, which are in varying stages of exploration, development and production.

On a consolidated quarterly front, a decline in net sales of 33.23 per cent to Rs 49.50 crore was reported in Q3FY20 from Rs 74.14 crore in Q3FY19. Operating profit was reported at Rs 39.85 crore in Q3FY20 from Rs 50.89 crore in Q3FY19. Due to a rise in income from exceptional sources, net profit increased by 43.25 per cent to Rs 52.92 crore in Q3FY20 from Rs 36.94 crore in Q3FY19.

On an annual basis, net sales increased substantially by 444.29 per cent to Rs 265.14 crore in FY19 from Rs 48.71 crore in FY18. Operating profit increased to Rs 198.20 crore in FY19 from Rs 42.50 crore in FY18. Net profit saw a similar growth of 317.75 per cent and was reported at Rs 155.32 crore in FY19 from Rs 37.52 crore in FY18. The company can sustain the current economic conditions due to its high margins and return ratios with bare minimum debt. The long term growth prospects of the company look good. Hence, we recommend a HOLD

We had previously recommended Hero MotoCorp in Volume 34, Issue 26, dated November 25 to December 8, 2019, in the ‘Choice Scrip’ section. The stock was then trading at Rs 2,469.80. The two-wheeler manufacturer, previously known as Hero Honda, was first established as a joint venture between Hero Cycles and Japanese company Honda and currently is known as Hero MotoCorp post Honda’s exit from the joint venture in 2010. It is known for manufacturing fuel-efficient bikes and scooters.

On the consolidated financial front, the company posted net sales of Rs 7,074.86 crore for Q3FY20, down by 10.87 per cent from Rs 7,937.33 crore in Q3FY19. The PBDT was Rs 1,230.41 crore, a decrease of 4.71 per cent in Q3FY20 from Rs 1,291.16 crore posted in Q3FY19. The company gained a net profit of Rs 880.13 crore in Q3FY20, rising by 16.4 per cent from Rs 756.13 crore, gained in Q3FY19.

On the annual front, the net sales came in at Rs 33,972.23 crore in FY19, up by 2.63 per cent from Rs 33,100.94 crore in FY18. The PBDT in FY19 decreased by 2.57 per cent to Rs 5,667.98 crore from Rs 5,817.42 crore in FY18. Its net profit in FY19 was Rs 3,405.59 crore, down by 7.27 per cent from Rs 3,672.51 crore posted in FY18.

At the beginning of the lockdown, the company had halted production at all it manufacturing facilities for the safety of its employees. The workforce was then shifted digitally for whom it was possible. Post easing of lockdown, the pent-up demand for the company’s products is expected to pick up as well as refilling of the BS VI inventory. Hence, HOLD

(Closing price as of May 06, 2020)

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