Valuation report, the automotive industry

Sector Overview.

• The automotive industry comprises a wide range of companies and organizations involved in the design, development, manufacturing, marketing, and selling of motor vehicles.
• Strong Market in terms of both, the domestic demand and exports.

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• India has significant cost advantages; auto firms save 10-25 per cent on operations.
• Two-wheelers are by far the most popular form of vehicle in India, taking an 80 per cent share in 2015-16. India became the largest two-wheeler market in the world after selling 17.7 million two-wheelers in 2016.
• Two-wheelers and passenger vehicles dominate Indian auto market . Sales of two-wheelers are expected to grow 8-10 per cent.
• Focus shifting on electric cars to reduce emissions.
• Innovation is likely to intensify among engine technology & alternative fuels.
• Government aims to build India into an R&D hub.

Company Overview

• Hero Motocorp Ltd., formerly Hero Honda, is an Indian motorcycle and scooter manufacturer based in New Delhi, India. The company is the largest two-wheeler manufacturer in the world, and also in India,
• It has a total market share of 36% in 2- wheeler industry and 50% market share in Motorcycles category and 10% market share of scooters.
• Motorcycles form the major chunk of revenue, contributing about 90% to volumes, while scooters contribute 10% to volumes.
• Hero is a domestically focused company deriving about 97% of volumes from the Indian market. Entry-level motorcycles (75 cc to 110 cc) form a major chunk of about 78% of overall volumes.
• It has 4 globally benchmarked manufacturing facilities; two of these are based at Gurgaon and Dharuhera which are located in the state of Haryana in Northern India.
• The third manufacturing plant is based at Haridwar, in the hill state of Uttrakhand.
• The latest addition is the state-of the-art Hero Garden Factory in Neemrana, Rajasthan.

Valuation

Assumptions

• The sales growth in this valuation was taken as 6.8% because as two wheeler sector in the year 17-18 grew by almost 8%.
• So it is assumed that Hero Motocorp being a market leader will grow atleast by 6.8%.
• Following are the assumption of expenses which are considered as percent of sales i.e same as per year 2018.

• Tax was assumed as 29.5%.

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