Hero MotoCorp Bets On Xoom And Rural Market Boom For A Smooth Ride
Hero MotoCorp has earned more on every vehicle sold than ever before, thanks to premiumisation in India’s two-wheeler industry and signs of revival in the rural economy.
The Indian two-wheeler market has been been shifting gears as sales have been in an overdrive. Hero MotoCorp Ltd., which announced its quarterly results on May 8, plans to ride the momentum on the back of premiumisation and revival in the rural economy.
In January–March 2024, the operational profitability of India’s largest two-wheeler maker grew 25% year-on-year to Rs 1,359 crore—an all-time high. Earnings per vehicle sold rose to 5% sequentially, reaching a new record of Rs 9,800, even as volumes surged 10% over the year earlier. That came on the back of better realisations and higher gross margins, analysts said.
Going forward, a Citi report says that the first half the current fiscal should see launches of Xoom 125 and Xoom 160cc premium scooters and this should augure well for the company.
Navuma points out the same. "HMCL (Hero MotoCorp Ltd.) is set to bring new products in the premium and EV space can potentially add sales of 30,000 to 40,000 units per month,” said Raghunandan NL of Nuvama Research in a May 9 research report.
A revival in the hinterland—where Hero MotoCorp still accounts for nearly one out of two motorcycles sold—is yet another plus. Its widest network is the cherry on top.
“FMCG companies, such as Marico and Dabur, are seeing early signs of an uptick in rural demand and are expecting an acceleration in volume growth in FY25,” Nitij Mangal and Sagar Sahu, equity analysts at Jefferies in India, said in a May 9 note. “A pickup in rural demand should be positive for Hero. The company expects two-wheeler industry revenue to grow in double digits in FY25.”
Still, there are immediate challenges, such as eroding market share.
The wholesale market share of the Splendor maker has slipped from an average of 36% in FY18–22 to 29% in FY24, according to Jefferies. At the same time, Hero MotoCorp did gain market share (74–78%) in the commuter segment, but no one’s buying those bikes anyway. Its share in the 125 cc class—the sweet spot in India’s two-wheeler space—has shrunk to 17% from 39%. There are even fewer takers for its scooters (7% market share from 10% earlier), and until recently it was virtually non-existent in the 250 cc-plus segment—the fastest growing cohort in the world’s largest two-wheeler industry.
“Hero’s market share decline and adverse demand profile shifts are concerns, although any success in premium motorcycles, scooters and EVs can enhance growth,” Jefferies said. “We continue to like Hero because we believe two-wheelers are poised for strong double-digit growth over the next three years.”
Hero MotoCorp Q4 Results: Key Highlights (YoY)
Revenue up 14.6% to Rs 9,519 crore (Bloomberg estimate: Rs 9,401.29 crore)
Ebitda up 25.5% to Rs 1,359 crore (Bloomberg estimate: Rs 1,322.93 crore)
Ebitda margin at 14.3% versus 13% (Bloomberg estimate: 14.10%)
Net profit up 18.4% to Rs 1,016 crore (Bloomberg estimate: Rs 1,048 crore)
For the full fiscal, net profit rose 36% year-on-year to Rs 3,968 crore on the back of revenue that increased 11% to Rs 37,456 crore—both all-time highs. The operating profit—or earnings before interest, tax, depreciation and amortisation—rose 32% year-on-year to Rs 5,236 crore, even as the company enjoyed a profitability margin of 14.03%.
What Brokerages Have To Say
Emkay Research
Rating: Buy | Target Price: Rs 6,000 | Potential Upside: 31%
The performance in the January-March quarter was in line
Management highlighted return of first-time buyers in rural markets
Product actions, distribution network, premium/electric portfolio key
The TP is based on 23 times price-to-earnings multiple for FY26
Citi Group
Rating: Buy | Target Price: Rs 5,500 | Potential Upside: 19%
Healthy realisations and margin trends, focus remains on premiumisation
H1 FY25 should see launches of Xoom 125 and Xoom 160cc premium scooters
Management’s efforts at premiumisation and core-margin expansion commendable
Jefferies
Rating: Buy | Target Price: Rs 5,650 | Potential Upside: 22%
Poised for strong double-digit growth over the next three years
Ebitda/Vehicle reached new high of Rs 9,800 in Q4 FY24
Overall market share slipped from 36% in FY18-22 to 29% in FY24
Any success in EV, premium bikes and scooters can enhance growth
17% CAGR likely over FY24-26 on the back of rural revival
