IGI Logo

Hero 2.0: Thrust on digital initiatives at the core

Valuation and View – Executions remains key to watch for

We interacted with the senior management of Hero MotoCorp (HMCL) wherein co reiterated post recent changes at the leadership, its focus is to, 1) drive the change in the base business of ICE 2Ws, 2) enable right to win in premium MC segment by new launches and elevating the retail buying experience (including launch of Harley product) and 3) work towards building a leadership in EVs. For the base business, the management reiterated its priority to drive market share gains in 125cc MC and overall scooter segment, exports scale up and to accelerate non-motorcycle revenues. Within Premium MC segment, co to not only launch products in upper premium segment but also to elevate retail buying experience through 100+ exclusive stores over 4 quarters. For EVs, Vida V1 will be scaled up to 100+ cities by Mar-24. There will be exclusive EV stores (VIDA hubs) in big cities in addition to VIDA pods at Hero 2.0 stores & premium outlets. HMCL targets new launches with EV (multiple form factor) for FY25 and beyond.

The outcome of changes at the leadership remains key to watch for ahead as it would be the key catalyst for rerating. Consequently, we increased target multiple to 15x (vs 14x earlier) as improving factors such as 1) strong product launch pipeline (management indicated FY24 to see highest launches by HMCL in its history), 2) fast EV ramp-up and recent price actions to gain share (though we believe it would not be sufficient) and 3) increased focus on premium portfolio with launch of Harley Davidson co-developed product round the corner. Maintain ADD with TP of Rs3,233 (Rs3,025 earlier) based on ~15x Mar’25 S/A EPS plus Rs109 for Hero FinCorp. Our FY24/25 EPS remain unchanged. We build in revenue/EBITDA/Adj.PAT CAGR of 12%/20%/20% over FY23-25E

Key management meet and interaction highlights: (PPT Link)

To grow the core ICE 2W business - HMCL’s strategy is to grow base business by deeper brand penetration of entry/executive segments. This will be done by 1) attracting younger customers through more hyper local campaigns, new product launches (such as Passion Plus (125cc MC), New Destini (commuter scooter), new 125cc scooter (sports scooter). 2) upgrade the buying experience through enhanced visual identity through Hero 2.0 500+ exclusive stores to be rolled out in next 8 quarters. 3) to accelerate SPAM business to Rs80-90b (v/s Rs50b in FY23) and 4) to rapidly scale up exports in top 10 markets such as Mexico, Columbia and ASEAN.

Market share gain focus in premium MC continues– HMCL is targeting market share gains in premium MC segment led by 1) new product launches in upper premium segment (will launch 2 more brands in addition to Xpulse, Xtreme and Harley). Co indicated launches in premium segment in every quarter in FY24E. 2) Elevate retail buying experience through roll out of 100+ premium exclusive stores over 4 quarters. 3) Digital initiatives such as engaged buying and service experience (pre and post).

EVs – targeting scale up ahead – Vida V1 to be scaled up in 100+ cities by Mar-24. There will be exclusive EV stores (VIDA hubs) in big cities. At Hero 2.0 stores and premium outlets there will be EV dedicated space such as VIDA pods. New product lineup – FY25 and beyond (in multiple form factors).

Margin expansion through supply chain optimization through current initiatives such as Material cost (design), material cost (sourcing), logistics and packaging. FY24 and beyond initiatives such as consolidate indirect buying, expand model specific EBITDA program, EV costs (localizations not only for tier 1 but also tier 2 and 3 sourcing and negotiations), extend supplier engagement, additional revenue channels (engine and fork oils) and optimize plant opex (model mix optimization). Co continues to guide for long range EBITDA margins of 14-15%.

To Read Complete Report & Disclaimer Click Here

Please refer disclaimer at https://yesinvest.in/privacy_policy_disclaimers
SEBI Registration number is INZ000185632

Above views are of the author and not of the website kindly read disclaimer