Hero MotoCorp Downgraded To Underperform By Jefferies Amid Fading GST Boost — Check Revised Target Price

Jefferies has downgraded Hero MotoCorp Ltd. to Underperform from Hold and cut its target price to Rs 4,950 from Rs 5,550, implying a downside of around 15%. While the brokerage remains positive on the medium-term outlook for two-wheeler demand, it believes near-term triggers have weakened and valuations now look stretched after a sharp rally in the stock.

Jefferies acknowledges that the two-wheeler industry is still in a recovery phase after one of its worst downturns in decades. Even in financial year 2025, industry wholesales remained around 6% below pre-pandemic financial year 2019 levels. However, it flags that the recent demand boost driven by the Goods and Services Tax cut appears to have faded faster than expected.

The two-wheeler industry saw a slow start to financial year 2026, with registrations growing just 2% year-on-year between April and July. The GST cut announced in September provided a sharp but short-lived boost, with volumes rising 26% over August to October.

Since then, registrations have turned flat again on a year-on-year basis in November and December month-to-date, although registrations for April to November are still up 10% year-on-year. According to Jefferies, this trend suggests that the GST-driven demand uptick is losing momentum.

Market share concerns have also resurfaced for Hero MotoCorp. The company’s domestic two-wheeler wholesale market share has declined from 36%–37% during financial years 2017 to 2021 to around 28% in April to November 2025, marking a 25-year low.

While Hero remains dominant in entry-level motorcycles and has gained some traction in electric vehicle scooters in financial year 2026, it has been impacted by an adverse shift in demand away from entry-level motorcycles.

In addition, market share losses in the 110–125 cubic centimetre motorcycle segment and in internal combustion engine scooters over recent years have weighed on performance.

Even on the registration side, recent gains appear seasonal rather than structural. Hero’s registration market share improved from 27% during April to September to 33% in October and November, broadly in line with historical festive season trends.

However, this share dropped sharply to just 21%t in December month-to-date. Year-to-date financial year 2026 registration market share stands at 29%, similar to financial year 2025 levels and significantly lower than 36 % seen in financial year 2021.

Jefferies also views the recent rally in the stock as largely valuation-driven and therefore unsustainable. Hero MotoCorp shares are up around 40% calendar year-to-date, with Jefferies showing that nearly two-thirds of this performance has come from expansion in the one-year forward price-to-earnings multiple.

Only about one-third of the gains are attributable to an improved earnings outlook. In fact, consensus earnings per share estimates for financial years 2026 and 2027 have risen by just 1% calendar year-to-date, despite the GST cut.

As part of the downgrade, Jefferies has cut its earnings per share estimates for financial years 2026 to 2028 by 2%–7%, mainly to factor in lower expected volumes. It now expects a modest 5% volume compound annual growth rate and an 8% earnings per share compound annual growth rate over financial years 2026 to 2028. The revised estimates are 2%–6% below Street expectations.