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For 4QFY23, HMCL delivered a sharp EBITDA beat (margin up 180bps/150bps YoY/QoQ to 13% vs. our 12.1% estimate), on lower commodity prices, mix, and product price-hikes. HMCL is set to launch the highest number of products ever in a single year in FY24 – one launch per quarter. Demand in Rural is seen to improve now, sustaining momentum in Apr-May (being the wedding season).

In our view, current valuations at ~12.8x FY25E PER/5.5% dividend yield are compelling, given: i) potential cyclical recovery in rural-centric commuter motorcycles, with early signs visible, ii) multiple initiatives in play, to address strategic portfolio gaps (premium motorcycles, scooters, exports, EVs; refer our recent update: Valuations attractive amid growth revival). We reaffirm BUY on HMCL, with TP of Rs3,040/share (vs. Rs2,970 earlier) based on 14x core FY25E EPS and value of investments/cash at Rs533/share, for a potential ~19% upside from CMP of Rs2,547/share.

Strong EBITDA beat in Q4FY23: Market share grew 160bps/300bps to 34.2%. Revenue grew 12% YoY to Rs83.1bn (in line with our estimates), on ~7% higher volumes and ~5% increase in ASPs (+1% QoQ) to ~Rs65.4k/unit. EBITDA grew 31% YoY to Rs10.8bn (at 10%/9% beat to consensus/our estimates), with EBITDA margin at 13% (+150bps QoQ; our est. of 12.1%), on the back of higher-than-expected gross margin (+140bps QoQ), which was driven by lower commodity prices, higher savings, and judicious price increases. Other income grew by 70% to Rs2.4bn, with adjusted PAT up 37% to Rs8.6bn (our est.: Rs7.2bn). HMCL declared final dividend of Rs35/share, taking the total dividend to Rs100/share for FY23.

Earnings-call KTAs: a) Double-digit 2W industry revenue growth guided for FY24, on the back of improving macros and pent-up/replacement demand; demand in Rural is seen to improve now, and is maintaining momentum over Apr-May, which is typically a wedding season; b) HMCL has been gaining retail market share and has planned aggressive product actions, incl. the 125cc category, for further improvement (highest-ever launches in a single year); this year would see a new launch each quarter. Actions have been planned across the product range, from the Passion Plus re-launch to the Harley-branded product at the premium end; c) aims to enhance exports to 10-15% of revenue in coming years vs ~5% currently; d) the recent price cut in Vida E-2W (refer press release) is in line with similar developments across the industry; reduced pricing and plans for distribution ramp-up (to cover >100 cities by year-end vs. 8 now) would drive accelerated EV penetration; d) EVs would remain a cash-burn business for a while; delivering on cost efficiencies across the chain would be an important/long-term success driver; e) the worst of the commodity inflation is behind; HMCL retained its longer-term margin guidance of 14-16%. Total price hikes in FY23/Apr-23 stood at ~Rs4k/~Rs600 per unit; f) export revenue for the year stood at Rs11.5bn; g) channel inventory is at ~6 weeks now; h) share of retail financing is ~59%.

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