What Worked For Hero MotoCorp In Post-Covid Era
India’s largest two-wheeler maker has seen a dramatic turnaround as the country reopened the economy slowly after imposing one of the world’s harshest Covid-19 lockdowns. Yet, analysts caution that it may be too early to say that things have fully recovered.
Numbers, on their own, point to a turnaround. Within a month of the reopening of the economy, Hero MotoCorp Ltd.’s sales were within 4% of the pre-lockdown levels.
The next three months saw volumes of the maker of Xpulse and Splendor grow 8%, 17% and 35%, respectively, including its highest sales of more than eight lakh units in October.
The recovery also includes a 58% and 28% growth in the company’s exports in September and October, respectively.
A better geographic mix, pent-up demand, higher market share in entry-level segment aided Hero MotoCorp’s outperformance, according to Mitul Shah, head of research at Reliance Securities. “People preferred to not buy expensive vehicles during the pandemic, and the resultant downtrading benefitted Hero.”
Hero MotoCorp attributed 35% growth in its October sales to a positive turnaround in customer sentiment—particularly for motorcycles—continued government policy support and a credible resumption of the supply chain.
Shah said rural markets prefer motorcycles compared to scooters and that was one of the factors for Hero MotoCorp's outperformance.
The rebound reflected in its earnings for the July-September period. The company reported a 9% growth in net profit, while revenue rose 24% over the previous year. Sales volumes for Hero MotoCorp were up 7% in the July-September period.
Yet, according to JM Financial’s channel checks, retail sales during the first half of the festive season was neutral, while wholesale is driven by inventory build-up for Diwali. “While OEMs like Hero have posted strong domestic wholesales during the month of October, we remain cautious on retails during November.”
Shah said this “supernormal” growth cannot be sustained and attributed the elevated growth levels to the festive season and pent-up demand. “This may go on for a month or two but going forward growth will taper down.”
Hero MotoCorp had announced an agreement with Harley-Davidson for the Indian market under which it will sell and service Harley-Davidson motorcycles and sell parts, accessories, general merchandise and riding gear.
Hero MotoCorp will also develop and sell a range of premium motorcycles under the Harley-Davidson brand, as part of the licensing agreement.
“The deal will help Hero build the brand globally after tying up with a global premium brand like Harley-Davidson,” Shah said.
Of the 51 analysts tracking Hero MotoCorp, 30 have a ‘Buy’ recommendation, 13 suggest a ‘Hold’, while the rest have a ‘sell’ rating. The average of 12-month price targets tracked by Bloomberg suggests a potential upside of 12.6%.