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Volume supports revenue, outlook positive

Hero MotoCorp (HMCL) is India’s leading two-wheelers manufacturer, with nearly 32% share of the domestic motorcycle market in volume terms. The company has eight manufacturing facilities — six in India and one each in Colombia and Bangladesh.

* In Q1FY25, its standalone revenue rose 15.7% YoY to Rs. 10,144cr, primarily owing to rural demand.

* EBITDA grew 21.0% YoY to Rs. 1,460cr and EBITDA margin expanded 60bps YoY to 14.4%, aided by better product mix and cost savings.

* HMCL reported positive trends in domestic, electric vehicle (EV), and global businesses, and anticipates increased momentum in Q4 due to positive customer sentiment, a favourable monsoon and upcoming festive season. Additionally, the company is expected to launch products in internal combustion engine (ICE) as well as Electric vehicle (EV) categories. Hence, we retain our BUY rating on the stock with a revised target price of Rs. 5,877, based on 22.5x FY26E adjusted earnings per share (EPS).

New model and strong rural demand drive sales

Standalone revenue rose 15.7% YoY in Q1FY25, surpassing Rs. 10,000cr for the first time to Rs. 10,144cr, supported by 13.5% YoY increase in sales volume to 15.35 lakh. Sales of motorcycles grew 14.1% YoY to 14.41 lakh and those of scooters rose 4.7% YoY to 94,200. The strong revenue growth was led by recovery in the 125cc segment, driven by its new model, Xtreme 125 cc, and sharp uptick in rural demand. To ensure long-term growth, HMCL’s strategy hinges on investing in expanding capacity and building brands in the premium segment.

EV spends dents EBITDA margin

EBITDA rose 21.0% YoY to Rs. 1,460cr owing to superior product mix, improved operating leverage and cost savings. However, spending on the EV business of Rs. 181cr affected further improvement in margins during the quarter – overall EBITDA margin rose 60bps YoY to 14.4%. Consequently, adjusted PAT grew 14.0% YoY to a new peak of Rs. 1,123cr

Key concall highlights

* The positive response to Xtreme 125cc has prompted the company to increase the manufacturing capacity of the model to 40,000 units/month from 25,000 units/month to fulfill demand and increase market share.

* HMCL is expected to introduce more motorcycles in FY25, focusing on growing its premium portfolio, as well as new launches of both ICE and EV scooters.

* HMCL is actively engaged in the development of scooters, with focus on Destini, which is expected to be unveiled soon. This will be accompanied by the introduction of Xoom models, with 110 cc, 125 cc and 160 cc capacities.

Valuation

HMCL has seen favourable trends across its domestic, EV and global businesses in the last quarter, with the company anticipating an acceleration in the subsequent quarters, attributed to positive customer sentiment, a favourable monsoon and upcoming festive season. Furthermore, the company has announced a series of product launches in the ICE as well as EV categories. Hence, we retain our BUY rating on the stock with a revised target price of Rs. 5,877, based on 22.5x FY26E adjusted EPS

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