Hero MotoCorp - Focus On Growing Core; Building Premium, EVs: Motilal Oswal

Motilal Oswal Report

We have upgraded our earnings per share estimates for FY24E/FY25E by 5%/6% to factor in sustained volume recovery in the domestic market.  Two-wheeler demand recovery in the domestic market is expected to sustain on a low base, led by good recovery in the urban market and gradual recovery in the rural market.

Hero MotoCorp Ltd. is a pure play domestic two-wheeler industry and its core strength lies in the 100cc motorcycle segment. The company has low vulnerability to electric vehicles.

Scooters account for just 8% of the company’s volumes. Moreover, 100CC Motorcycle, which is the core product of the company, is considered less prone to being disrupted by EVs.

We estimate revenues/Ebitda/profit after tax to register a compound annual growth rate of 11%/18%/19% over FY23-25E.

Our estimates do not factor in any material ramp-up in scooters and premium motorcycle.

The stock currently trades ~15.7 times/14.3 times FY24E/FY25E EPS. We increase our target multiple to 16 times (versus 14 times earlier) to reflect the recovery in earnings growth.

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