Buy Hero Motocorp Ltd For Target Rs. 5,285 by Axis Securities
Est. Vs. Actual for Q3FY25: Revenue - INLINE; EBITDA – BEAT; PAT - BEAT
Change in Estimates post Q3FY25
FY25E/FY65E: Revenue: -1%/-1.5%; EBITDA : -0.3%/-0.4%; PAT: -0.9%/-0.6%.
Recommendation Rationale
Long-term Growth Strategy: Hero MotoCorp’s (Hero) strategy for 2030 is built on four key growth pillars: strengthening its core business, excelling in the premium segment, leading in electric vehicles (EVs), and diversifying revenue streams. Anchored by the 4S mantra-speed, scale, synergy, and simplification-the strategy also focuses on creating a future-ready organisation and advancing environmental, social, and governance (ESG) initiatives. As part of its ongoing portfolio reshaping, the company introduced four new models at Bharat Mobility, positioning itself for sustained growth.
New Product Launches: Product launches in premium scooters and EVs will drive growth, with new models planned for Q4FY25 and FY26. The company is expanding its sub-Rs 1 Lc EV lineup with the Vida V2 platform, reinforcing its position in the mass-market scooter segment. New premium motorcycles like the Xpulse 210 and Xtreme 250R have received strong market feedback, while upcoming launches, including the Xoom 125, Xoom 160, and Destini 125, will further strengthen Hero’s scooter portfolio.
EBITDA Margins: Hero achieved over Rs 10,000 EBITDA per vehicle, driven by a richer product mix and judicious pricing strategies. The EBITDA margin for the ICE segment stood at 16%, down 50 bps QoQ, primarily due to higher marketing and advertisement expenses linked to the festive season. The company aims to maintain overall EBITDA margins in the range of 14-16% in the medium term, supported by a richer product mix-EVs and higher cc motorcycles, continued product premiumisation, lower material costs, and improved operational efficiencies, especially in the EV segment.
Sector Outlook: Positive on 2W.
Company Outlook & Guidance: The company has strengthened its domestic position in the 125cc segment, increasing its market share from 14% to over 21%. Hero has also enhanced its premium offerings, which are supported by a strong framework for scaling up its premium business. Additionally, its global business is rapidly expanding, with parts, accessories, and merchandise segments delivering record revenue, highlighting its continued growth potential. Hero maintains a long-term EBITDA margin guidance of approximately 14-16%.
Current Valuation: 19x on core FY27E EPS (unchanged), Ather 1.5x FY24 and Hero Fincorp 1.5x at FY24 P/B.
Current TP: Rs 5,285/share; ( Earlier TP : Rs 5,250/share ).
Recommendation: We maintain our BUY rating on the stock.
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SEBI Registration number is INZ00016163
