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Cost Savings and Premiumization Supports Margins

HMCL reported decent Q2FY27 numbers as better mix and judicious pricing actions each contributed ~5% to the revenue growth. Operating leverage and the ongoing LEAP savings program,reduced discretionary spending, premiumization, improving EV unit economics and non-vehicle revenue growth are helping drive its bottom-line. The 125cc motorcycle segment saw customers move to more fuel efficient 100cc segment (where HMCL gained market share) or upgrade to higher cc post GST 2.0 rationalization. HMCL continues to be focused on growth and market share expansion without cutting down on investments as was visible in Vahan share gain every month in Q2. We estimate volume/realization CAGR of 4.7%/5.6% over FY26-29E translating to revenue/EBITDA/APAT CAGR of 10.5%/9.3%/9.3%. Retain ‘Accumulate’ rating with TP of INR5,850 (previous INR5,700). We value the core business at P/E of 16x Sep’28E and its stake in Hero Fincorp at INR42 and Ather Energy at INR402.

Standal op. revenue of INR146.9bn (+21.1% YoY, +13.0% QoQ) beat BBGe/PLe by +1.5%/+0.9%:

Realization was INR78.6k (+9.6% YoY, +1.4% QoQ), driven by mix and op leverage. Gross margin was 28.2% (-505bps YoY, -35bps QoQ) missing BBGe/PLe by - 50bps/-10bps. EBITDA margin was 13.4% (-165bps YoY, +10bps QoQ) beating BBGe/PLe by +10bps/+20bps. Cost savings helped in other expenses decline YoY. EBITDA stood at INR19.7bn (+7.9% YoY, +14.0% QoQ), while Adj PAT stood at INR14.6bn (+4.6% YoY, flat QoQ) missing BBGe/PLe by -2.2%/-3.8% due to lower other income. H1FY27 (YoY): standal op. revenue of INR276.9bn (+27.6% YoY); gross margin was 28.4% (-490bps YoY); EBITDA margin was 13.3% (-140bps); Adj PAT at INR29.1bn (+15.6% YoY)

Stable e2W retail market share at 11.0% in H1FY27 (+170bps YoY):

VIDA had a market share of 20%+ in 57 towns and was amongst top 2 in 74 towns, while overall dealer inventory stood at ~1 day. PLI benefits of INR0.63bn received from ~70% of the portfolio. As of Oct'26, ~100% of the portfolio received PLI certification, and should see PLI benefits of ~13% of EV revenue from Q3 onwards. This along with INR0.7bn in optimization of spends arising from structured BOM cost reduction, healthier margin across new product launches, acceleration of non-vehicle and software revenue streams, and judicious price increases across the portfolio should continue to improve its unit economics. EV revenue stood at ~INR10bn. ICE EBITDA margin was fairly stable QoQ at 15.6%.

Capex guidance of INR15bn reaffirmed for FY27 (FY26a: INR9bn vs. guidance of INR10-11bn): INR6bn of this has already been deployed in H1 in key projects. Overall capacity will increase to 9.2mn units p.a. by Mar’27 (vs 8.63mn in FY26). In Q2, capacity expansion of Splendor and dedicated premium assembly line at Neemrana plant was completed along with doubling of ICE scooter capacity in H1FY27 sequentially to ~80k units p.m. (Destini in Q1 and Xoom in Q2). VIDA capacity expanded to 30k units p.m. in Q2FY27 (2x QoQ) and will be further expanded to ~45k/80k units p.m. by Q4FY27/Q2FY28. The GPC 2.0 (investment of INR7bn+) should be fully operational by CY27-end. HMCL will address whitespaces in premium portfolio via 3-4 launches in premium segment in FY27.

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