Hero MotoCorp Q2 Review - Inline Ebitda Margins; Recovery In Market Share Remains Critical: Axis Securities

Axis Securities Report

Hero MotoCorp Ltd.’s revenue/Ebitda stood largely in line with our estimates, while profit after tax stood ahead by 7%, led by higher-than-expected other income. Revenue grew by 4%/8% YoY/QoQ to Rs 9,445 crore, largely in line with our estimate. Ebitda grew by 28%/10% YoY/QoQ (inline) to Rs 1,328 crore, while Ebitda margins reached the 14% mark, up 262/30bps YoY/QoQ, led by lower raw material costs (gross margins at 31%, up 337 bps YoY), price hikes and better sales mix.

Profit after tax grew by 47%/28% YoY/QoQ, a 7% beat against our estimate, which was mainly led by higher other income.

Outlook:

We closely monitor-

1. Hero MoroCorp’s roadmap in the EV product portfolio – investments in Ather, ramp up of VIDA, and association with Gogoro.

2. Foray into the mid-weight motor cycle segment (Karizma and Harley X440) amid the landscape of increasing competition where both existing and new players are seeking to gain market share.

Actual volume growth across key segments will be the key monitorable ahead. We expect rural recovery (specifically the entry segment) to play in favor of Hero.

We therefore conservatively build in 5% compound annual growth rate in all revenue/Ebitda/profit after tax over FY24-26E respectively.

Valuation and recommendation:

We currently value the stock at 14 times core September-25 earnings per share (from June 2025) and Ather Energy and Hero FinCorp at one time H1 FY24 price/book, to arrive at the target price of Rs 3,370/share (Rs 3,150/share earlier).

The target price implies an 11% upside from the current market price and we revise our rating from 'Hold' to 'Buy'.

Key risks to our estimates and target price

• Slower than expected rural demand, will pose a downside risk to our target price.

• Failure to grow volumes in the 125cc segment and EV space could drive de-rating.

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