Hero MotoCorp, a major player in the two-wheeler market, has seen a 9 per cent rise in its stock since the beginning of the month.
This increase, driven by the largest motorcycle company by volume, is attributed to expectations of a revival in rural sales due to normal monsoons, government measures to boost consumption, recent market share gains, and a large valuation discount compared to peers.
In the near term, the company’s volume performance and growth trajectory, particularly in rural markets and entry-level segments, are expected to be key drivers.
Following 35 per cent year-on-year (Y-o-Y) volume growth in April, growth for Hero (and its peers) was subdued in May due to elections, resulting in a 4 per cent decline compared to the previous year.
However, volumes for April and May combined are up 12.5 per cent.
Emkay Research believes that the government’s potential focus on rural areas and improved affordability will act as catalysts for the stock.
Analysts at the brokerage, led by Chirag Jain, note, “We believe the rural economy could receive greater focus from the government in the coming times; this, combined with improved affordability in the entry/economy segment (with the bulk of regulatory-led price hikes now behind), would be added positives for Hero.”
The company holds a 78 per cent market share in the 100-110 cc motorcycle category.
Hero remains optimistic about its outlook and expects double-digit revenue growth in 2024–25 (FY25).
This optimism is premised on a potential recovery in rural demand due to normal monsoons and sustained urban market demand.
The company could gain market share, given the sector’s estimated single-digit growth for FY25.
New launches and their success could help Hero achieve its growth targets for FY25.
The recent launch of the Xtreme 125R has strengthened its position in the 125-cc motorcycle segment.
The Xtreme 125R, which has a one-month waiting period, has helped Hero increase its market share from 9 per cent in December last year to about 17 per cent as of April.
The company plans to scale up the 125R’s capacity to 30,000 units per month.
Hero is also expected to launch electric two-wheelers from the VIDA range in the affordable/mid-range at multiple price points.
In the scooter segment, it has gained market share in 110-cc scooters and plans to introduce new internal combustion engine-based scooters in the 125-cc and 160-cc segments during FY25.
Elara Capital believes that with upcoming electric vehicle launches, the ramp-up of the Karizma and HD X440, and new models such as the Mavrick 440 and Xtreme 125R, Hero could reclaim some lost market share.
Analysts at the brokerage, led by Jay Kale, expect that a recovery in rural demand will positively impact Hero, given its extensive network.
The brokerage has given the stock an ‘accumulate’ rating.
JM Financial Research also sees Hero on the cusp of a market share recovery, supported by a new product cycle.
They expect the company to benefit from the impending rural recovery, leading to 8.5 per cent annual volume growth over 2023-24 through 2025-26 (FY26).
Hero is their top pick in the two-wheeler segment.
The higher volumes are expected to positively impact Hero’s margins in the future.
The company posted a 13.4 per cent operating profit margin in the January-March quarter, up 130 basis points Y-o-Y, due to lower commodity costs and a better product mix.
Analysts Vivek Kumar and Ronak Mehta of JM Financial Research anticipate that positive operating leverage and cost control initiatives will continue to support margins.
Additionally, the stock’s valuation is favourable.
Hero trades at about 20.7x its FY26 earnings per share of Rs 269, a discount of 23–33 per cent compared to other listed two-wheeler manufacturers.
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