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Hero MotoCorp Q3 Review: Market Share Gains Critical To Benefit From Recovery, Say Analysts

Hero MotoCorp's two-wheeler wholesale market share has slipped from 36% between FY17 and FY21 to 32% in the current fiscal.

<div class="paragraphs"><p>Hero MotoCorp bikes. (Source: Company website)</p></div>
Hero MotoCorp bikes. (Source: Company website)

Hero MotoCorp Ltd. needs to address issues of concentrated product portfolio and market share losses to benefit from the impending recovery in industry volumes, analysts said.

The company’s sales fell 4% year-on-year and 13% sequentially to 12.4 lakh units in the third quarter ended December as demand for two-wheelers in the rural market remained weak. Profit, however, rose 4% aided by price hikes and lower expenses.

While the industry is ripe for a big recovery in volumes after a steep decline in the last few years, analysts said India's largest two-wheeler maker needs to plug these gaps in its strategy to exploit this cyclical recovery.

The company’s management said in its post-earnings call for the December quarter that it intends to gain market share through product launches in every quarter and by improving channel efficiencies to increase inquiry-to-sale conversion rates.

Hero MotoCorp's two-wheeler wholesale market share has slipped from 36% between FY17 and FY21 to 32% in the current financial year, Jefferies said. Over this period, the maker of Splendor motorcycle has gained share in the slowing segment of 100-110cc from 74% to 78%, but slipped in 110-125cc bikes and in internal combustion engine scooters, it said.

Nomura said it will no be easy for the company’s electric vehicles to achieve a market share similar to that of its conventional vehicles.

Shares of Hero MotoCorp were trading 1.7% lower at 10.06 am compared with 0.1% fall in the benchmark Nifty 50.

Here’s what analysts had to say about Hero MotoCorp’s Q3 Results:

Jefferies

  • Maintains a ‘buy’ with a price target of Rs 3,200 apiece, a potential upside of 22%.

  • Indian two-wheelers are ripe for a big recovery after an abnormal decline, but Hero MotoCorp’s market share loss is a concern.

  • Expect volumes to rise 36% and earnings per share to jump nearly 90% over FY22–25.

  • Its price-to-earnings ratio of 13x the FY24 estimates is attractive compared with the 16x long-term average.

Nomura

  • Maintains a ‘neutral’ rating with a price target of Rs 2,963 a share, an implied profit of 13%.

  • The revival of the rural segment is a positive, but the company’s market share is important and monitorable.

  • Lower volume estimates by 5–6% for FY23–25 to factor in market share loss.

  • Hero MotoCorp trades at 10.4x FY25 earnings per share estimates, which is expensive.

Motilal Oswal

  • Reiterates a 'buy' rating with a target price of Rs 3,100 per share and a potential upside of 19%.

  • Demand recovery and stable commodity prices will drive earnings in the next two to three years.

  • The company has low vulnerability to EVs with just 8% volumes from scooters.

Nirmal Bang

  • Maintain a 'buy' rating with price target of Rs 3,169 per share, an implied upside of 22%.

  • Remains positive about company’s prospects in EVs despite late entry due to ability to scale production.

  • Channel checks indicate rural demand continues to lag urban.

  • Expect earnings per share CAGR at 21% over FY22–25, led by 8.7% compounded growth in volume and 230 basis points of expansion in margins.