Buy Hero Motocorp Ltd For Target Rs. 5,220 by Axis Securities Ltd
Est. Vs. Actual for Q1FY26: Revenue – MISS; EBITDA – INLINE; PAT– BEAT
Change in Estimates post Q1FY26
FY26E/FY27E: Revenue: -0.2%/-1.1%; EBITDA: -1.3%/-1.1%; PAT: -0.2%/-2.1%.
Recommendation Rationale
Market Share Recovery: Hero’s VAHAN market share increased to 30.9% in Q1FY26, reaching an 11-quarter high with a 100 bps sequential gain. Recovery is being driven by strong traction in the Deluxe 100cc segment and renewed momentum in the 125cc scooter and motorcycle categories (Destini 125, Xoom 125, Xtreme 125). In the EV segment, market share doubled YoY to 7% in Q1FY26 and further rose to 10% in July, supported by the successful rollout of VIDA VX2.
EBITDA Margin Improvement Despite EV Investments: Hero’s ICE EBITDA margin improved to 16.8% in Q1FY26, driven by a stronger mix and cost efficiencies, while overall margins remained stable at 14.4% despite EV investments of approximately Rs 189 Cr. The recent PLI certification for VIDA V2 Pro is expected to enhance EV profitability. Although margins may remain at the lower end of the 14–16% range in the near term, structural levers and incentive support position the company for medium-term improvement.
Global Business: Hero MotoCorp's global business grew 27% YoY in Q1FY26, continuing the strong momentum seen in FY25. With a focus on 10–12 strategic markets, the company is introducing localised, premium-oriented products to drive market share gains. Hero targets scaling its global operations to contribute ~10% of overall revenue and volumes, positioning exports as a critical growth and diversification lever over the medium term.
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 and EV vertical are rapidly expanding, highlighting its continued growth potential. The management maintains a long-term EBITDA margin guidance of ~14-16%.
Current Valuation: 17x core FY28E EPS (earlier 17x on FY27 EPS), adding share in Ather Energy Ltd (38% holding in listed entity) and Hero Fincorp 1x at FY25 P/B.
Current TP: Rs 5,220/share; (Earlier TP: Rs 5,030/share).
Recommendation: We maintain our BUY rating on the stock on reasonable valuations.
Financial Performance
In Q1FY26, Hero reported revenue of Rs 9,579 Cr (2% miss), down 5.6%/3.6% YoY/QoQ, primarily impacted by weaker volumes, partially offset by higher ASP. EBITDA stood at Rs 1,382 Cr (inline), down 5.3%/2.4% YoY/QoQ. EBITDA margin remained flat at 14.4%, supported by lower input costs and ongoing cost-saving initiatives despite continued EV investments. PAT came in at Rs 1,126 Cr (9% beat), up 0.3%/4.1% YoY/QoQ, aided by higher other income and disciplined cost control.
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