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Rural demand to gather pace; risk-reward attractive

HMCL reported a healthy quarter (~4% EBITDA beat), driven by increase in ASPs (up 4% QoQ) on better mix (higher spare sales), with underlying ICE margins expanding by 160bps YoY to 16.5% (stable QoQ). HMCL expects continued growth in the 2W industry with outperformance seen amid returning rural demand, ramp-up in 125cc motorcycles, and upcoming product actions across segments (multiple launches across ICE and EVs over the next 6 months). Near-term outlook is improving amid rural revival and ongoing festive season; however, we trim our FY25E/26E/27E EPS by 4%/7%/6%, factoringin gradual demand improvement on account of the generally moderating economic outlook. We maintain BUY with revised SoTP-based TP of Rs6,200 at 22x Sep-26E core EPS (vs Rs7,000, 23x earlier). Risk-reward remains attractive; HMCL trades at ~15x Sep-26E core PER vs ~24-27x for peers).

Strong operational performance; underlying ICE margins up by 160bps

Revenue grew ~11% YoY to Rs104.6bn (above estimates), driven by higher ASPs (up 4% QoQ); volumes were up ~7% YoY at 15.2mn units. EBITDA grew 14% YoY to Rs15.2bn with margin stable QoQ at 14.5%. Underlying ICE margins improved by 160bps YoY to 16.5% on softer commodities, better product mix, and cost savings. PAT grew ~14% YoY to Rs12bn on higher other income.

Earnings call KTAs

1) The management remains optimistic about the prospects for the underlying 2W industry beyond the festive season (16% growth for HMCL during festive as per the company) amid ongoing rural demand recovery; it has guided for ahead-of-industry performance driven by the 125cc segment ramp-up, new model launches, and continued brand-building activities. 2) HMCL logged double-digit growth in rural and urban during festive, with rural leading due to pent-up demand; the management expects momentum to continue on the back of ongoing marriage season, improving entry-level buyer participation, and boost from rainfall as well as government capex over the next 4-8 quarters. 3) HMCL to launch three premium models (Xpulse 210, Xtreme 250R, and Karizma XMR 250) within six months and three ICE scooters by Mar-25; HMCL’s 125cc segment share is seen improving continually on strong traction for Xtreme 125R (Glamour and Super Splendor also doing well) and improving semi-urban/rural penetration of the model amid capacity increase to 40K units/month. 4) In EV scooters, Vida continues to gain market share (~5% overall; ~20% in 4 towns, and ~10% in 10 locations); new additions are planned across all price points within the next six months, with products for new categories to be introduced next year; PLI income would come into the books from FY26. 5) Company opened 58 Premia stores – would cross 100 by endFY25; 600 ’Hero 2.0’ stores are live now, with 800 planned by end-FY25. HMCL now offers five premium brands (Xpulse, Xtreme, Karizma, Maverick, and HD) and aims to strengthen these with new variants. The company will focus on building power brands, and increasing marketing efforts to enhance brand awareness. 6) Dealer inventory at less than 4 weeks currently. 7) Maintains 14-16% margin-band guidance despite accelerated investments in EVs and premium segments, amid benign commodities, continued premiumization, and cost efforts. Management believes that as EVs and premium scooters reach ~8-10% market share (vs ~5% now), these would also align with the blended margin profile. 7) Capex guidance maintained at Rs12bn.

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