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New launches to expand premium positioning

Valuation and View

We attended HMCL's Hero World 2024 event centered around 1) New product launches such as, Xtreme 125R motorcycle (all new engine) at Rs95k (ex-show, non ABS variant) and Maverick X440 (rebadged of HD X440), 2) EV - product road-map showcase in scooters with targeted launch in varied form factors by 1HFY25. HMCL also showcased the concept EV motorcycles (product development underway) and near production ready ICE scooters such as Xoom 125 and 160. 3) Reiterated focus on premiumization across products (for both ICE and EV), distribution (ongoing store upgrades of Hero 2.0 and Hero Premia), complemented by digital initiatives for pre and post purchase functions. 4) Scale up global business by strengthening distribution. 5) Faster adoption of digital initiatives including retail financing where co is piloting the same in NCR. The co would focus on 4S strategy (Speed, Scale, Synergy and Simplification) to drive up next stage of growth. While we await Maverick pricing, the pricing of Xtreme 125R is competitive given overall customer value proposition. We maintain ADD with TP of Rs5,021 based on ~19x Mar’26 S/A EPS plus Rs118 for Hero FinCorp post 30% hold-co discount. We have raised target multiple to 19x (v/s 18x) to factor in for improving positioning in premium portfolio. Any success on newly launched ICE and VIDA supported by Ather’s continued brand acceptance can be a key re-rating catalyst for the stock to watch for.

Key management meet and R&D center visit highlights:

New products to speed-up premiumization of portfolio – Led by healthy response to recent new launches such as HD X440 (~25k bookings) and Karizma (~13.6k bookings), HMCL has further hosted its premium portfolio with the launch of 2 new bikes in a fast growing segment of 1) 125CC where it launched Xtreme 125R with all new EBT (engine balancer tech) engine at base price of Rs95k (ex-show) and 2) Maverick 440 (rebadged from HD 440X). We think with the launch of Xtreme 125R is in a sweet spot of premium 125 segment, given it would be a volume play (average monthly size of ~240k units per month in YTD FY24 with all LED, single channel ABS (segment first) and claimed fuel efficiency of up-to 66kmpl). 2) On the other hand, while the Maverick is rebadged from HD 440, the product seems more urban friendly and sporty in design. The pricing of the same is key to watch for to ensure significant volumes.

Gradual supply chain augmentation and distribution of recent launches – The management indicated gradual ramp-up in production of premium models especially HD and Karizma as they are running an order book of 2-3 months. HD capacity ramp-up to ~6k per month in Jan’24 from 2k units earlier. Similarly, the distribution is ramped up to HD sales happens through ~200 stores now vs 100 stores earlier.

Charging up EV play as VIDA to launch 3 products by 1HFY25 – HMCL to extend VIDA portfolio with the launch of 3 EV scooters in mass, mid-priced and B2B segment in 1HFY25 and a new launch towards 2HFY25. Further, EV motorcycle portfolio too is under development (independent and tie-up with Zero motorcycles). The near term focus will be to expand distribution from ~100 cities (which include 150 dealerships, VIDA exclusive network in 28 cities).

Digital penetration to increase significantly across business functions – After revamping pre-booking and post-booking customer experience through digital initiatives (refer slide 33-42 of attached link above), HMCL has brought in retail finance platform eFin (currently piloting in NCR). By April, the same to scale up to pan India. There are 5 financiers and ~500 sanctions with average sanction time is 4.2 mins.

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