Hero MotoCorp Q1 Review: Analysts See Two-Wheeler Demand Recovery Driving Performance

Shares of Hero MotoCorp Ltd. rose in early trade as brokerages expect the India's biggest motorcycle maker to benefit from recovery in demand for two-wheelers, particularly in the rural markets.

The positive commentary came despite the company missing street’s estimates in the quarter ended June 30.

The net profit of the Splendor maker stood at Rs 624.5 crore in the quarter compared with Rs 627 crore in the preceding three months, according to an exchange filing. That compares with the Rs 766-crore consensus estimate of analysts tracked by Bloomberg.

According to the analysts, stablising costs of commodities will also lead to improvement in operating margin beginning from the current quarter.

Here's what brokerages had to say about Hero MotoCorp’s Q1 results:

Motilal Oswal

• Witnessing initial signs of a demand recovery in the domestic two-wheeler industry, which will boost Hero MotoCorp’s performance.

• Low vulnerability to electric vehicle penetration as only 8% of volumes come from scooters.

• Core segment of 100-cc motorcycles is less prone to be disrupted by electric vehicles.

• Maintains ‘buy’ rating with a target price of Rs 3,225 per share, implying a return 17%.

Reliance Securities

• Better product mix and regular price hikes along with declining commodity costs to aid margin expansion.

• Attractive valuation leads to favourable risk reward scenario.

• Reiterates ‘buy’ recommendation with revised target price of Rs 3,125 a share, implying an upside of 13%.

Prabhudas Lilladher

• Festival season is expected to be healthy due to normal monsoons and rise in crop prices.

• Increasing focus on premiumisation through XTec models and exports to aide performance in future.

• Maintains ‘buy’ with a target price of Rs 3,130 apiece, implying potential return of 13%.