Hero MotoCorp - 14th March

Today's Opening - 2813

Today's High - 2818

Today's Low - 2744

Today's Closing - 2752
 

Negative closing on yesterday and today, however the volumes were on the lower side. The lower volumes on negative closing days is a good sign.
From being below -100 on 31st Jan, the 12, 26-day Moving Average Convergence Divergence has climbed up to almost zero over these two days.

The stock has been closing above the 5-day Exponential Moving Average since 1st Mar. The 14-day Positive Directional Index has managed to remain ahead of the Negative Directional Index since 5th Mar.
The 20-day Commodity Channel Index has been positive since 5th Mar. The 2-day Relative Strength Index value has gone past 50 over the past four sessions.

Corporate Activity:
Hero MotoCorp is India's largest two-wheeler manufacturer, controlling 36% of the domestic market. The two-wheeler industry as a whole has seen sales drop for three months in a row now - Dec, Jan & Feb. The impact is the rising inventory level at the dealers which has now shot up to more than eight weeks, resulting in the companies offering a longer credit period to the dealers.
Honda Motorcycle & Scooter India (HMSI), the second largest two-wheeler manufacturer, is the only company that does not offer credit to dealers. The company receives upfront payment from its dealers even before the stock is dispatched. This is the reason why Honda appeared to be the worst hit among all two-wheeler manufacturers, with sales dipping 17% YoY during Dec-Jan.
Bajaj Auto remained the outlier in the industry, reporting high double-digit growth in Dec & Jan. Will cover more on this later.
There's a switch happening in the consumer purchase pattern. During 2017-18, sales of 125cc bikes rose faster at 16%, compared to the growth of 100cc bikes, whole sales rose by 15%. During Apr-Jan FY '19, sales of 125cc segment bikes fell 8% while the lower cc bikes grew by 17% during the same period. With fuel prices hovering around Rs 80 for most part of FY '19, budget bikes of 100cc/ 110cc engines which offer higher mileage are more preferred than the 125cc bikes. Thus, there's a downgrade happening because of the higher overall cost of ownership of bikes.
During Apr-Jan period, Bajaj Auto has managed to garner greater share in the lower segment with sales zooming 57% in the 100cc-110cc bike segment, with models such as CT100 and Platina. They have been able to do this by providing higher value added features like LED lamps, tubeless tires and Nitrox suspension on their 110cc bikes, which are usually seen on 125cc bikes.

Stock Movement:
In my post dated 26th Feb, I had mentioned that Hero Motocorp has a strong support at 2561 and that the stock has a resistance at 2960. The stock had actually gone up to 2849 on 12th March but could not continue the momentum to cross 2960. Having lost almost 17% over the last three months, the stock seems to be creating a base at 2740-2745 and getting ready to make another attempt at overtaking the 2960 level. With the pain of poor Q3 result behind, use every drop till 2561 as an opportunity to accumulate this stock for good returns in the near-term.
Below is the dividend trend of the company for the past five years.
2014-15 - 3250% + 1500% (interim) = 4750%
2015-16 - 1500% + 2000% (interim) = 3500%
2016-17 - 1600% + 2750% (interim) = 4350%
2017-18 - 1500% + 2750% (interim) = 4250%
2018-19 - 2000% + 2750% (interim) = 4750%
Face value of the stock is Rs 2. Even assuming a bare minimum dividend of 3500% next year (lowest of the past five years), the dividend works out to Rs 70 per share. The advantage of buying such a high-dividend stock at low levels is that, even if the return in terms of stock value growth is not great, the return on account of dividend itself will be 2.5%. So, that's another reason to buy Hero MotoCorp at the current levels.