Add Hero MotoCorp Ltd for the Target Rs 6,000 by Emkay Global Financial Services Ltd
HMCL reported a healthy 2Q, with revenue up 21% yoy led by 10.5% yoy volume growth and ~1% qoq ASP growth, broadly in line with our estimates. EBITDA grew 8% yoy, with EBITDAM at 13.4% (up by ~10bps qoq; largely in line with estimates), despite RM pressure (impact of ~1% qoq). The management expects the domestic 2W industry to reach at mid-to-high single-digit pace in 2H despite a high base, while HMCL’s growth is expected to be driven by sustained demand (supported by new launches and model refreshes), capacity expansion, and a lean dealer inventory. HMCL remains focused on market-share gains, with domestic share at ~27.3% in 2Q vs 27.4% in 1Q. While it gained ~30bps sequentially in commuter motorcycles, the declining industry commuter motorcycle mix (~60bps qoq), which accounts for ~82% of HMCL’s volume mix, remains a key monitorable. Commodity inflation continues to be a headwind, with impact of ~5.5% in FY27TD – around 50% has been passed on, while balance has been mitigated via cost-saving initiatives, improving Vida unit economics (GM turned positive in 2Q), and premiumization. While inflationary pressures are expected to persist in 3Q, Management expects to sustain EBITDAM and reiterated its medium-term EBITDA guidance of 14-16%. We largely maintain FY28E/FY29E EPS but lower our valuation multiple to 14x (18x earlier; current Sep-28E core PER at ~11x with dividend yield of ~4%), factoring in the declining industry commuter motorcycle mix, normalization of growth following the GST-cut led demand boost, and rising macroeconomic risks (El Niño). We maintain ADD and cut our TP by ~10% to Rs6,000 from Rs6,700 at 14x Sep-28E core EPS.
In-line result; EBITDAM sustains sequentially despite GM contraction
Revenue rose ~21% yoy to Rs147bn led by ~10.5% volume growth and 1.4% sequential rise in ASPs. EBITDA came in at Rs19.7bn. EBITDAM came in at 13.4%, higher by 10bps qoq, despite ~30bps GM contraction. APAT grew ~5% yoy to Rs14.6bn (Emkay: Rs15.1bn).
Earnings call highlights
1) Management expects mid-to-high single-digit 2W industry growth in 2HFY27 (ICE: low single digit, with EVs lifting overall growth) despite a high base.
2) Growth is expected to be broadbased, led by sustained demand (backed by new launches/model refreshes), capacity expansion, and lean dealer inventory. Exports are expected to grow at a DD pace in 2H, aided by normalization of logistics post earthquake-related disruption in LatAm and recovery in Bangladesh post slowdown due to higher fuel prices.
3) Vida capacity has doubled to 30k units/month and is expected to rise to 45k and 80k units/month by 4QFY27 and 2QFY28, with current dealer inventory at only 1 day.
4) ICE scooter capacity has nearly doubled yoy to ~80k units/month, with further Xoom capacity planned for exports.
5) The management reiterated its medium-term EBITDAM target of 14-16%, with 3QFY27 margins expected to be broadly stable qoq amid elevated commodity costs.
6) Of the ~5.5% input cost inflation in 1H, ~50% has been recovered through price hikes, with the balance mitigated via cost initiatives, improving Vida unit economics, and premiumization. 7) The EV business turned gross margin positive in 2Q, while PLI covering ~70% of the portfolio in 2Q is expected to reach 100% from Oct-26, translating into ~13% of EV revenue eligible via PLI (vs ~6% currently, on revenue of ~Rs10bn.
8) HMCL plans 3-4 premium launches in 2H across Xtreme, Xpulse, Karizma, and the Harley-Davidson.
9) FY27 capex guidance is maintained at Rs15bn (~Rs6bn spent in 1H)
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