Accumulate Hero MotoCorp Ltd. For Target Rs. 5312 By Elara Securities India
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Market share trajectory remains key
Margins largely inline with estimates
Hero MotoCorp’s (HMCL IN) EBITDA grew 47% YoY and 3% QoQ to INR 13.6bn in Q3. EBITDA margin was flat QoQ to 14.0%, in line with our estimates and driven by product mix and moderation in commodity cost. The underlying EBITDA margin for the ICE business was at 16.0% versus 15.0% in Q2FY24, excluding the impact of the EV business (ensuing impact of 200bps on margin). Q3 revenue rose 21% YoY and 3% QoQ to INR 97.2bn, in-line. Net realization was flat QoQ at INR 66,600, led by better spares sales.
Two new EV launches in Q1FY25
The management expects 2W industry to deliver double-digit revenue growth in FY25, led by premiumization trend. HMCL may grow ahead of industry growth. In Q1FY25, HMCL is launching two new EV Vida products in the affordable (priced <INR 100,000) and mid segments (priced ~INR 125,000) and will now be present in three price points. The top end variant is currently priced at INR 150,000. Management expects to gain market share in the scooter segment via new product launches and focus on increasing presence in the premium segment in the long term. Expect overall impact on EV margin of ~150bps for full year FY24, which may decline with scale-up of EV volumes in FY25.
Valuation: maintain Accumulate with a higher TP of INR 5,312
HMCL's YTDFY24 Vahan retail market share is still down 90bps YoY to 31.2% and may be keenly monitored going forward. Margin performance has been robust, with EBITDA per vehicle scaling new highs despite losses from EV business. With upcoming EV launches, ramp-up of Karizma, HD 440X and new launches such as Maverick 440 and Xtreme 125cc, expect HMCL to arrest the declining market share. We expect 20-40bp market share increase for HMCL over FY24-26E. Sustainance of 2W demand will be a key monitorable as we expect 2W growth to be highest in FY25 compared to other auto segments. We expect a revenue CAGR of 12% in FY23-26E, with an EBITDA margin of 15.3% in FY26E. We maintain Accumulate with a higher TP of INR 5,312 from INR 3,938, based on 19x (earlier 16x) FY26E P/E and ~INR 90 for Ather stake.
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SEBI Registration number is INH000000933
