Hero MotoCorp Valuation Excel Model and Intrinsic Value of Shares

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Hero MotoCorp Valuation : About the Company

Hero Motocorp Ltd., formerly Hero Honda, is a motorcycle and scooter manufacturer based out of New Delhi. The company become the world’s largest two-wheeler manufacturer in 2001 and continues to hold the title for 18 consecutive years and counting. Hero MotoCorp has sold over 90+ million motorcycles and scooters in cumulative sales so far and has a global footprint in over 37+ countries across Asia, Africa, South and Central America. The company’ shares have 52 weeks high of INR 3022 and a total market capitalization of INR 331 billion, which makes it a Large-Cap company.

Hero MotoCorp operates in an asset-heavy industry where market dominance is achieved with economies of scale, innovation and distribution. The company has 7 globally-benchmarked manufacturing facilities, including 5 in India and one each in Colombia and Bangladesh. The current capacity is of 9+ Million units and once the 8th plant in Andhra Pradesh is operational, it will go up till 11+ million units. This is the largest scale for any two-wheeler company in the world. From here, we go ahead with Hero MotoCorp Valuation and Intrinsic Value of its shares.

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Read more here: Hero MotoCorp Shares Fundamental Analysis 

Methodology Used:

Discounted cash flow (DCF) is a valuation method used to estimate the value of an investment based on its expected future cash flows. DCF analysis attempts to figure out the value of an investment today, based on projections of how much money it will generate in the future. The following step by step procedure is followed.

  1. Determining the Revenue Growth Rates
  2. Forecasting the Financial Statements
  3. Deriving the FCFF and FCFE
  4. Calculating the Terminal Value
  5. Calculating the Discount Rate
  6. Discounting the Cashflows
  7. Arriving at the Intrinsic Value of the Shares

You can also get the formula based DCF Excel Model from below:

Step 1: Determining the Revenue Growth Rates

We arrive at the below table by using the past and expected future performance of both the company and the economy. This along with adjustments to changes in the management expectations, extraordinary events and other macro factors give the revenue growth rates for Hero MotoCorp Valuation.

Financial Year Revenue Growth Rate
Year 1 -17%
Year 2 -2%
Year 3 19%
Year 4 16%
Year 5 14%
Revenue Growth Rates: Hero MotoCorp Valuation

Step 2: Forecasting the Financial Statements

The financial statements are forecasted for a period of 5 years using the annual report data of the company. The assumptions used for forecasting are tabulated below. The Excel model is completely editable and can be adjusted for specific changes which may happen over a period of time.

Financial Statements Forecast : Hero MotoCorp Valuation
Financial Statements Forecast : Hero MotoCorp Valuation

Step 3: Deriving the FCFF and FCFE

Free cash flow to the firm (FCFF) represents the amount of cash flow from operations available for distribution after accounting for depreciation expenses, taxes, working capital, and investments. FCFF is a measurement of a company’s profitability after all expenses and reinvestments. It is given as follows.

Free cash flow to equity (FCFE) is a measure of how much cash is available to the equity shareholders of a company after all expenses, reinvestment, and debt are paid. FCFE is a measure of equity capital usage.

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F/S Items (INR Millions) Mar-20 Mar-21 Mar-22 Mar-23 Mar-24
Free Cash Flow to Firm 54109 31169 23484 29127 40163
Free Cash Flow to Equity -4374 20005 28162 31669 40498
FCFF and FCFE values: Hero MotoCorp Valuation

Step 4: Calculating the Terminal Value

Terminal value (TV) is the value of a business or project beyond the forecast period when future cash flows can be estimated. It assumes that a business will grow at a set growth rate forever after the forecast period. Terminal value often comprises a large percentage of the total assessed value.

Terminal Value Calculation Units INR Millions
Free Cash Flow to Firm 40163.14
Growth Rate 5.00%
Cost of Capital 11.30%
Terminal Value 669214.23
Terminal Value: Hero MotoCorp Valuation

Step 5: Calculating the Discount Rate

DCF analysis helps assess the viability of a project or investment by calculating the present value of expected future cash flows using a discount rate. Here we use the Weighted average cost of capital (WACC) to discount the cash flow. The below table from the excel model shows the calculation of WACC for Hero MotoCorp Valuation.

WACC Calculation for Hero MotoCorp Valuation.
WACC Calculation for Hero MotoCorp Valuation.

Step 6: Discounting the Cashflows

The WACC and the Cost of Equity for the company calculated in the above step are then used to discount the FCFF, FCFE and Terminal Value calculated in Step 3 and 4. In our case, we’ll only consider the FCFF based Intrinsic price of the shares as it represents the cash flow to all the suppliers of capital and not only to the equity shareholders. Thus we arrive at Present value of future FCFF for Hero MotoCorp Valuation. (Units are INR Millions)

PV of FCFF and FCFE  for Hero MotoCorp Valuation.
PV of FCFF and FCFE for Hero MotoCorp Valuation.

Step 7: Arriving at the Intrinsic Value of the Shares

Dividing the PV of the FCFE and Terminal Value (the Value of the entire firm) by the number of outstanding shares we get the per share intrinsic value. We can compare this price with the current market price of the stock to get the Discount or Premium to its intrinsic price.

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Hero MotoCorp Valuation Units
PV in INR Million 468783
No of Shares Outstanding (In Million) 200
Intrinsic Value 2343.92
Current Market Price of Share 2842
Current Discount/Premium 21%
Intrinsic Value of the Shares: Hero MotoCorp Valuation

Hero MotoCorp Valuation and Intrinsic Share Price = INR 2343.92

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References: Investopedia
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You can read more about the company on its website!
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(Note: All the research done by me is only for educational purposes and should not be seen as Investment recommendations. I am a Research analyst and not a SEBI registered Investment Advisor. My research completely reflects my personal opinions and not of my employers. Kindly do your own due diligence before Investing)

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