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Steady results; Xtreme 125 on brink of success

HMCL’s Q4 performance was largely in line with reported EBITDA margin of 14.3% (underlying ICE margins at 15.6%). Volumes/Revenue/EBITDA/PAT grew ~9%/15%/26%/18% YoY. Management highlighted return of first-time buyers in rural markets and strong response to its recently launched Xtreme 125cc motorcycle. HMCL will continue with its efforts around product actions, upgrading/expanding distribution network, and scaling up the premium/EV portfolio. We raise FY25E/FY26E EPS by 3.5%/4.2% on continued healthy growth and margin outlook. HMCL is our top pick in Autos  We retain our BUY rating, hiking up our TP to Rs6,000/share (23x FY26E Core PER vs 27x for BJAUT) from Rs5,100 earlier; we believe the stock could re-rate with new launch success similar to that of 2W peers.eady results; Xtreme 125 on brink of success

Largely in-line performance

Revenue/EBITDA grew ~15%/26% YoY to Rs95.2bn/Rs13.6bn (largely in-line). Volume increased 9.4% YoY to 1.4mn units. EBITDA margin expanded by 27bps QoQ to 14.3% (in-line), led by gross margin expansion of ~90bps QoQ. As per Management, margin improvement on YoY basis (by 124bps) was mainly driven by product mix, lower commodity costs, higher savings, and judicious price increases. Accordingly, Adjusted PAT grew 18% to Rs10.2bn (vs Emkay / Consensus estimate of Rs10.4bn / Rs10.5bn). Final Dividend of Rs40/share has been declared in the board meeting. For FY24, total dividend stands at Rs140/share, including interim and special dividend.

Earnings call KTAs

1) Management is confident of double-digit revenue growth in the 2W industry and highlighted a comeback of first-time buyers in rural areas aided by improving market sentiments (despite relatively fewer marriage dates in May-June) and retail finance. 2) HMCL is witnessing major traction in its newly-launched Xtreme 125cc motorcycle, and will ramp up production to 1K units/day by June (~22K units/month) on the back of extremely good reception and demand running ahead of production. 3) Upcoming launches in the premium segment in H1FY25 (Xoom125 and Xoom 160 in scooters) are expected to drive growth in FY25. 4) HMCL has ~1,000 stores overall (off which 400 have been upgraded to Hero 2.0 stores) and targets establishing ~150 Premia stores in FY25. 5) Market-share gains expected in the premium segment are propped by increase in total monthly production capacity of Karizma and the 440cc platform (HD and Mavrick) to 10k units in coming few months. 6) Upcoming EV launches in H1FY25 will be PLI compliant (Vida not eligible currently), and a steep growth is anticipated on the back of further expansion of the product portfolio, wider reach, reduction in production costs, and improvement in profitability. 7) The Spares / accessories / merchandise business has grown more than 4x in the last two years (14.5% of revenue vs 10-11% earlier), with further headroom for growth. 8) Estimated Capex for FY25 stands at ~Rs10-15bn

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