Buy Hero MotoCorp Ltd For Target Rs6,650 By JM Financial Services
During 2QFY26, Hero MotoCorp’s (HMCL) EBITDA margin stood at 15% (+50 bps YoY, +60 bps QoQ), 30 bps above JMFe. The ICE business reported a margin of 17.7% in 2Q compared to 16.5% in 2QFY25. Realisations grew c.4% YoY (+2.4% QoQ), primarily driven by a favourable mix and pricing. Management indicated that demand post-festive season remains strong, with inventory at its lowest in recent years and receivables reduced to 12 days from 30 days earlier, reflecting buoyancy in the market. HMCL expects the domestic 2W industry to grow by 8–10% in 2HFY26, supported by GST rate cuts, a pickup in first-time buyers, rural recovery, a healthy monsoon, RBI rate cuts, income tax reductions, and lower inflation. Management believes HMCL will outperform the industry in both domestic and export segments, driven by recent and upcoming product launches and expansion into new geographies. The company has maintained its long-term EBITDA margin guidance at 14–16%. We are revising our estimates upwards, driven by launches (both in ICE and EVs) and improved operating efficiency. Volume estimates for FY26E/FY27E have been raised by 0.3%/3% respectively. Consequently, EPS estimates have been revised upward by 1.6%/4.8%. We roll forward and apply a 19x PE multiple (versus 17x earlier) on average FY27E/28E EPS to arrive at a TP of INR 6,650. We maintain BUY.
* 2QFY26 - margin above JMFe: HMCL reported net sales of INR 121.3 bn (+15.9% YoY, +26.6% QoQ), in line with JMFe. Volumes during 2Q grew 11.3% YoY (+23.7% QoQ) to c. 1.69 mn units. Realisations improved by 4.2% YoY (+2.4% QoQ), primarily driven by a favourable mix and pricing. EBITDA stood at INR 18.2 bn (+20.3% YoY, +32% QoQ), 2.9% above JMFe. EBITDA margin was 15% (+50 bps YoY, +60 bps QoQ), beating JMFe estimates by 30 bps. PAT came in at INR 13.9 bn (+15.7% YoY, +23.7% QoQ), 2% below JMFe. Spares revenue stood at INR 15.3 bn (+5% YoY), accounting for approximately 13% of revenue during 2Q.
* Market share performance: Management highlighted that HMCL maintained its leadership position in retail sales, with Vahan market share at 31.6% in Oct’25 (+370 bps YoY). During the festive season (23rd Aug’25 to 12th Nov’25), HMCL’s ICE Vahan registrations grew 16.2%, outpacing industry growth of 14.7% and driving a 40 bps market share gain. This was led by strong traction in the entry segment (MS expanded 300 bps in 2Q), as well as the deluxe and scooter categories. Recent launches, Destiny 125 and Xoom 125, helped HMCL capture approximately 10% share in the 125cc segment, largely from strong scooter markets such as Kerala, Karnataka, Maharashtra, and Gujarat. Management remains confident of building on this momentum with the upcoming launch of Xoom 160, a premium scooter
* Demand outlook: Management indicated that demand has sustained post-festive season, supported by GST rate cuts, an influx of first-time buyers, and strong traction for newly launched products. The company currently holds its lowest inventory levels in recent years, corroborating robust demand. Moreover, receivables have declined to 12 days from 30 days earlier, reflecting market buoyancy. Management expects the domestic 2W industry to grow by 8–10% in 2HFY26, driven by positive sentiment from GST rate cuts, first-time buyer additions, rural recovery aided by a healthy monsoon, income tax reductions, and lower inflation. HMCL is expected to outperform the industry, leveraging its deep presence in the entry-level segment, which is witnessing strong demand, along with recent product launches.
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