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Launches electric 2-W under Vida brand as V1 Pro, Plus

About the stock: Hero MotoCorp (HMCL) is the world’s largest 2-W manufacturer by volume, with domestic market share at 34.5% as of FY22. Its suite of popular models includes Splendor, Passion, Glamour, etc. ? Rural geographies form ~50% sales; 48.3% FY22 motorcycle market share ? Debt-free b/s with strong return ratios; healthy >50% dividend payout ratio ? Apart from its own product offering under Vida brand, HMCL is approaching electrification through collaborative investments in Ather Energy, Gogoro (swappable battery sol) & Zero Motorcycles (premium electric motorcycles)

Key Highlights:

? The company launched its maiden captive offering in the electric vehicle space i.e. Vida V1 available in two variants i.e. Vida Vi Pro and Vida V1 Plus. Both variants have a top speed of 80 km/hr with certified range of 143-165 km and acceleration of 3.2-3.4s for 0-40 kmph ? Vida V1 Plus (battery size: 3.44 kwh) is priced at | 1.45 lakh (ex-showroom) while Vida V1 Pro (battery size: 3.94 kwh) is priced at | 1.59 lakh (exshowroom), both prices are inclusive of centre driven FAME-2 subsidy while exclusive of state specific subsidies. They are powered by Li-On battery – NMC chemistry ? The company plans to launch it in three cities in phase 1 i.e. Bengaluru, Delhi and Jaipur with bookings set to commence from October 10 with deliveries set to commence in the second week of December ? It has first in industry, buy-back option wherein a customer can return the product back to HMCL in 16-18 months for 70% of the ex-showroom price ? HMCL’s focus through Vida is also to develop ecosystem of services and charging network around it, providing digitally enabled end-to-end solutions

What should investors do?

HMCL’s share price has lagged Nifty Auto Index in the past five years, de-growing at ~7% CAGR from ~| 3,763 levels in September 2017. ? We maintain HOLD rating on HMCL amid muted volume recovery prospects in 2-W segment, HMCL’s focus to target the premium segment in EV space through its offering under brand Vida with premium pricing despite being a mass market mother-brand & slower than anticipated rollout pan India Target Price and Valuation: We value HMCL at a revised target price of | 2,870 (14x P/E on FY24E EPS & 2.5x P/B to its long term strategic investments in FY24E).

Key triggers for future price performance:

? Expect sales, PAT to grow at 12.1%, 16.5% CAGR, respectively, in FY22-24E

Alternate Stock Idea:

Besides HMCL, in our auto OEM coverage, we like M&M. ? Capital consciousness, UV distinction & EV ready. BUY with target of | 1,590

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