Buy Hero Motocorp Ltd For Target Rs. 5,030 - Axis Securities Ltd
Est. Vs. Actual for Q4FY25: Revenue – INLINE; EBITDA – INLINE; PAT – MISS
Change in Estimates post Q4FY25
FY26E/FY27E: Revenue: -0.5%/-0.5%; EBITDA: 1%/2%; PAT: -0.7%/1.1%.
Recommendation Rationale
Industry Growth Outlook: The domestic economy has begun FY26 on a positive trajectory, supported by tapering inflation, declining interest rates, income tax cuts, strong marriage season and expectations of a favourable monsoon. These macroeconomic tailwinds are fueling optimism in the two-wheeler market. The 2W industry growth for FY26 is projected to be in the mid-to-high single digits, despite some headwinds from OBD 2 norms and related price increases.
Product Launches: In Q4FY25, Hero MotoCorp rolled out a series of product launches across key segments, reinforcing its focus on both commuter and premium motorcycles. The company launched Splendor+ XTEC 2.0 and updated its commuter lineup with the 2024 Hero Glamour. In the premium segment, it introduced the Xtreme 250R and Xpulse 210 at Bharat Mobility 2025, along with the Mavrick 440 Thunderwheels and the Xpulse 200 4V Dakar Edition. The 2024 Harley-Davidson lineup, including the Breakout 117, Road Glide, and Street Glide, was also unveiled. In the scooter segment, Hero launched the new Destini 125 and the Xoom 125 and 160 models. These launches highlight Hero’s ongoing efforts to strengthen its product portfolio and address a wider range of customers.
Focus on growing the EV vertical: Hero ended Mar’25 with 7% EV market share; and also acquired 34.1% stake in Euler Motors for Rs 510 Cr, marking entry into the EV 3W space (e3W industry is valued at Rs 17,000 Cr, is expected to grow to Rs 22,000 Cr over the next 5 years, with 20%+ EBITDA margin potential). Overall profitability in EVs is expected to improve with localisation, cost reductions, and PLI benefits and the management projects EV break-even at 25k–30k units/month (currently 7k-8k/month).
Sector Outlook: Positive on 2W.
Company Outlook & Guidance: Hero has enhanced its premium offerings, which are supported by a strong framework for scaling up its premium business. Additionally, its global business is rapidly expanding, highlighting its continued growth potential. Hero maintains a long-term EBITDA margin guidance of ~14-16%.
Current Valuation: 17x on core FY27E EPS (earlier 19x), plus a share in Ather Energy Ltd and Hero Fincorp 1x at FY24 P/B.
Current TP: Rs 5,030/share ( Earlier TP : Rs 5,285/share).
Recommendation: We maintain our BUY rating on the stock on resonable valuations.
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