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Market Share Gains; EV Profitability & Premiumisation

Est. Vs. Actual for Q2FY27: Revenue – BEAT; EBITDA – INLINE; PAT– MISS Change in Estimates post Q2FY27

FY27E/FY28E: Revenue: 2.3%/1.6%; EBITDA: -3.6%/-5.4; PAT: -7.3%-5.4%

Recommendation Rationale

* Capacity Expansion & Portfolio Premiumisation: Hero MotoCorp is accelerating investments across EVs, scooters and premium motorcycles. EV production capacity doubled from 15,000 units/month at FY26-end to 30,000 units/month in September, with targets of 45,000 units/month by Q4FY27 and over 80,000 units/month by Q2FY28, supported by strong demand and dealer inventory of just one day. ICE scooter capacity has nearly doubled to 80,000 units/month, with further expansion planned for the Xoom 160. The company plans 3-4 premium motorcycle launches in H2FY27 across the Xtreme, Xpulse, Karizma and HarleyDavidson portfolios, while expanding its premium dealership network beyond 150 stores and investing Rs 700+ Cr in Global Parts Center 2.0.

* Strong Demand Momentum & Market Share Gains: Hero continues to gain traction across ICE scooters, EVs and commuter motorcycles, supported by healthy urban and rural demand. ICE retail market share improved every month in Q2FY27, with retail growth of 24% YoY, ahead of industry growth of 23%. ICE scooter market share crossed 10%, gaining around 160 bps in H1FY27, while Vida retail volumes grew 105% YoY and market share improved by 170 bps in H1FY27. Splendor volumes increased over 20%, with its XTEC variant contributing more than 25% of sales. The parts business recorded 27% YoY revenue growth for the second consecutive quarter, while management expects industry growth of mid-to-high single digits in H2FY27 and export wholesale growth to return to double digits in Q3 and Q4FY27, supported by improving logistics and expansion into Brazil, Mexico and Africa.

* Margin Recovery Supported by Cost Optimisation & Improving EV Economics: Hero MotoCorp reiterated its medium-term EBITDA margin target of 14-16%, with Q2FY27 EBITDA margin improving 10 bps QoQ to 13.4%, despite approximately 1% QoQ material cost inflation. Margin resilience was supported by calibrated pricing, favourable product mix, LEAP-led cost savings, operating leverage and discretionary cost control. Management expects margins to remain broadly stable in Q3FY27, supported by cost rationalisation and the approximately Rs 1,000/unit price hike implemented in October. The EV business achieved positive gross margins ahead of expectations, with EBITDA loss narrowing to Rs 168 Cr in Q2FY27 from Rs 232 Cr in Q1FY27. PLI benefits increased to Rs 63 Cr in Q2FY27, covering around 70% of the EV portfolio, with certification secured for nearly 100% of the portfolio in October, supporting further improvement in unit economics as volumes scale up.

Sector Outlook: Positive on 2W

Company Outlook & Guidance:

Hero MotoCorp expects healthy demand in H2FY27, supported by premium launches, scooter and EV expansion, and export recovery. Management expects industry growth of mid-to-high single digits in H2FY27 and reiterated its medium-term EBITDA margin target of 14-16%, with Q3FY27 margins expected to remain broadly stable, supported by pricing actions and cost optimisation.

Current Valuation:

15x core FY28E EPS (Earlier: 16x core FY28E EPS), adding share in Ather Energy Ltd (30% holding in listed entity) and Hero Fincorp at 1.5x FY25 P/B.

Current TP:

Rs 6,025/share (Earlier TP: Rs 6,500/share)

Recommendation: We maintain our BUY rating on the stock, supported by reasonable valuations

Financial Performance

In Q2FY27, Hero MotoCorp reported revenue of Rs 14,687 Cr, beating estimates by 2% and growing 21.1% YoY and 13% QoQ, primarily driven by strong volumes and a higher ASP (+9.6% YoY). EBITDA stood at Rs 1,968 Cr, up 8% YoY and 14% QoQ. EBITDA margin came in at 13.4%, impacted by higher raw material costs. PAT stood at Rs 1,456 Cr, missing estimates by 4%, up 4.6% YoY but remained flat QoQ, impacted by lower other income.

Outlook

We remain constructive on Hero MotoCorp’s growth outlook, supported by healthy domestic demand, premium motorcycle launches, scooter and EV capacity expansion, and a gradual recovery in exports. Key monitorables include (1) EV capacity ramp-up and improving profitability, (2) execution of 3-4 premium motorcycle launches in H2FY27, (3) export recovery and expansion into Brazil, Mexico and Africa, and (4) margin resilience amid commodity inflation, supported by pricing actions, cost optimisation and PLI benefits. Management expects mid-to-high single-digit two-wheeler industry growth in H2FY27 and reiterated its medium-term EBITDA margin target of 14-16%, with margins expected to remain broadly stable in Q3FY27. Consequently, we estimate an 11% CAGR in EBITDA over FY26-28E.

Valuation & Recommendation

We thus value the stock at 15x core FY28E EPS (Earlier: 16x core FY28E EPS), adding a share in Ather Energy Ltd (30% holding in the listed entity) and Hero Fincorp at 1.5x FY26 P/B, to arrive at a TP of Rs 6,025/share (Earlier TP: Rs 6,500/share). We maintain our BUY rating on the stock, with an 18% upside from the CMP.

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