Hero MotoCorp shares drop on earnings concerns

The company reported a net profit of Rs 604 cr for the Jan-March quarter

Shares of Hero MotoCorp dropped 5.6% on Thursday, a day after it narrowly lagged estimates with net profit of Rs 604 crore for the Jan-March quarter.

Investors were also disappointed with the outlook from the world's largest two-wheeled vehicle manufacturer, and expect Hero to pare its dividend payout ratios in a bid to improve its balance sheet, analysts said.

"We expect the Street to de-rate the stock in coming months," Morgan Stanley said in a report on Thursday, citing the dividend cut and a "muted" outlook as key reasons.

The investment bank said that Hero's stock is trading at 17 times forward 2013 earnings, a level it called "unjustified," and adding it would remain "underweight" on the stocks.