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Underlying ICE margins continues to be healthy

Valuation and View – Operating performance continues to be steady

HMCL’s 4QFY24 reported results were in-line with our/street estimates as EBITDA margins expanded 130bp YoY (+30bp QoQ) at 14.3%. However, underlying ICE margins were healthy at 15.6% (vs 16% in 3QFY24), supported by higher spare sales (SPAM) at ~Rs14b at 14.7% of sales (vs Rs14.6b in 3Q and Rs50.9b in FY24). Gross margins surprised at 33.6% (+150bp YoY/ +90bp QoQ), was partially offset by higher staff cost at Rs6.4b (+7% QoQ, est Rs6.1b). The management indication of signs of first-time buyers coming back as reflected in positive rural momentum over past 2-3 months, is positive. Going ahead while the management remain hopeful of broad-based volumes recovery within 2Ws, HMCL is aiming at market share expansion especially in the premium segment led by new product launches. The intended new product launches in the scooter (125cc and 160cc) should help improve positioning and market share gains. The positive customer feedback to Xtreme 125R resulted in demand outstripping supply (we highlighted the same in our recent channel check) to result in capacity being ramped to ~1k units per day and ~25k units per month (vs current monthly supply of ~10k units). Maintain ADD with revised TP of Rs5,333 (vs Rs5,327) based on ~20x Mar’26 S/A EPS plus Rs133 for Hero FinCorp. We have maintained FY26E while have cut FY25E EPS by 3.4% to reflect lower other income and higher staff costs. Management’s action to overhaul brand strategy supported by Ather’s continued brand acceptance provide an additional lever for the stock. We build in revenue/EBITDA/Adj.PAT CAGR of 10.8%/12.4%/12.7% over FY24- 26E.

Result Highlights – EBITDA/unit continues to be healthy at ~Rs9.8k

* Revenues grew 14.6% YoY (-2.1% QoQ) at Rs95.2b (est Rs95.1b) as volumes/ASP grew 9.6%/+4.6% YoY and -4.6%/+2.6% QoQ respectively at 1.39m units and Rs68.4k/unit (est ~Rs68.3k/unit). Gross margins came better at 33.6% (+160bp YoY/+90bp QoQ). However, this was partially offset by higher staff cost at ~Rs6.43b (est Rs6.1b, +7% QoQ).

* Consequently, EBITDA grew 25.5% YoY (flat QoQ) at Rs13.6b (est Rs13.4b), leading to margins expanding by 130bp YoY (+30bp QoQ) at 14.3% (est 14.1%). Hence EBITDA/vehicle came in at ~Rs9.8k/vehicle (+14.5% YoY/+4.6% QoQ). ? Steady operating performance was partially offset by lower other income at Rs1.8b (est Rs2.7b, -25% YoY/QoQ) restricted Adj.PAT at Rs10.2b (est Rs10.7b), which grew 18.3% YoY (-5.3% QoQ). Dividend of Rs140/share (incl. special dividend of Rs100/share vs Rs100/share in FY23), resulting in dividend yield at ~3%.

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