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Ramp-up in new launches, the key

Margins largely in-line

Hero MotoCorp’s (HMCL IN) revenue stood at INR 95bn, flat QoQ/ up 15% YoY, driven by a 10% volume growth YoY. EBITDA grew 26% YoY to INR 13.6bn in Q4. EBITDA margin was up 130bps YoY to 14.3%, in line with our estimates and driven by product mix and moderation in commodity cost. The underlying EBITDA margin for the ICE business was 15.6% versus 16.0% in Q3FY24, excluding the impact of the EV business (ensuing impact of 130bps on margin).

Demand – Positive trends unfolding

Management’s FY25 outlook remains positive, driven by potential recovery in rural demand aided by normal monsoons and sustained urban demand. Management expects Hero to deliver double-digit revenue growth in FY25. Xtreme 125R capacity is expected to increase to 1,000 units per day by July 2024. In H1FY25, HMCL may launch two new EV Vida products in the affordable and mid segments and may then be present at three price points. The management expects to gain market share in the scooter segment via new product launches in the Xoom series to focus on increasing presence in the premium segment in the long term.

Valuation: Maintain Accumulate with TP unchanged at INR 5,312

HMCL's FY24 Vahan retail market share stood at 30.8%, down 130bps YoY and may be keenly monitored going forward. Margin performance has been robust, with EBITDA per vehicle scaling new highs despite losses from the 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 regain some lost market share. We expect recovery in rural demand to be positive for HMCL given its robust network. While we expect Xtreme 125R to ramp-up going forward, owing to underperformance of 110cc segment, we do not expect any major market share gains for Hero in FY25. We maintain Accumulate with an unchanged TP of INR 5,312, on 19x (unchanged) FY26E P/E and ~INR 93 for Ather stake.

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SEBI Registration number is INH000000933