Buy Hero MotoCorp Ltd For Target Rs.6,450 by Choice Institutional Equities Ltd
Strong Q1FY27 performance driven by volume growth and premiumisation:
HMCL delivered a strong Q1FY27 performance, with revenue growing 36% YoY, supported by 23% volume growth, premiumisation and favourable mix. EBITDA grew 25%, while margin stood at 13.3%, despite commodity inflation. Core 100cc volumes grew 11.5% YoY, taking market share to 85.8%, while 125cc volumes surged 45.4% YoY, indicating improving traction in premium commuters. We expect refreshed products and an improving premium mix to support sustained growth
Scooters, EVs and exports strengthen growth visibility:
ICE scooter volumes increased 84% YoY to 123k units, raising market share to 6.9%, while VIDA EV volumes grew 151% YoY and retail sales increased 163% to 57k units. EV market share improved to 10.9%, with capacity being scaled from 15k to 45k units/month by FY27-end. Exports grew 63% YoY to 105k units, supported by expansion into Germany and emerging markets. New VIDA variants, flex-fuel commuters and the Zero Motorcycles partnership further strengthen the product pipeline.
Capacity expansion supports medium-term growth and margin:
Capex of INR 15,000 Mn for FY27E to remain focused on EVs, motorcycles, scooters and parts infrastructure, including INR 7,500 Mn for GPC 2.0. We expect sustained growth across motorcycles, scooters, EVs and exports, although near-term margin may remain constrained by commodity inflation. Cost optimisation, operating leverage and premiumisation should support gradual recovery towards management’s 14–16% medium-term EBITDA margin target
View and valuation:
We continue to be positive on the stock considering strong visibility across entry-level motorcycles, scooters, EVs, exports and launches, enhancing medium-term earnings growth. However, we lower our FY27E/28E EPS estimate by ~5.5%/4.9%, respectively, factoring the ongoing margin pressure. We value the company on a PE multiple of 18x (maintained), along with valuing Hero Fincorp and Ather at INR 59/669 per share (30% holdco discount), respectively. Accordingly, we reiterate our ‘BUY’ rating with a TP of INR 6,450.
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