Hero MotoCorp Ltd. is focusing on growing its core segments by expanding its product portfolio and gaining market share in premium segments through more launches and variants, according to brokerages.
The motorcycle and scooter manufacturer company remains bullish on the domestic two-wheeler market, driven by a positive economic growth outlook against a backdrop of low penetration in the segment, Morgan Stanley said in a June 12 note.
"The company is focused on expanding the categories in its core business of the commuter segment (100 cc motorcycle). This is primarily due to the limited potential for further growth in its already dominant market share of 80%," Motilal Oswal Financial Services said in a note.
Shares of the company were trading 0.44% lower at Rs 2,916.05 apiece, compared to a 0.49% rise in the Nifty 50 as of 10:08 a.m. on Tuesday.
Out of the 47 analysts tracking the company, 24 maintain a 'buy', 13 recommend a 'hold', and 10 recommend a 'sell', according to Bloomberg data. The average 12-month consensus price target implies an upside of 0.7%.
Here are the key takeaways from the meetings with brokerages:
Morgan Stanley:
The brokerage is 'underweight' with a target price of Rs 2,344 implying a downside potential of 20%.
It aims to attract first-time buyers through targeted marketing initiatives, the availability of retail financing, and leveraging its distribution network.
Hero MotoCorp targets market share expansion in the 125cc segment.
It plans to improve the buying experience of customers by enhancing its dealerships. Over the next eight quarters, it plans to upgrade 500 dealerships across the country.
The company aims to rapidly scale up its business in its top 10 international markets, including Mexico, Columbia, Nigeria, etc.
In the EV segment, Hero MotoCorp's strategy aims at scaling its 2W,
Vida V1 Pro, in the premium segment, has planned expansion into 100+ cities by FY24 end.
Starting from FY25, the company aims to expand its product line-up into multiple categories. Management also believes the reduction of incentives will bring opportunities to partner with smaller players.
From FY24, it aims to drive margins through continued cost savings, developing additional revenue streams, and optimising operating expenses.
Risks to Upside
-Successful scaleup of its E2W model.
-Premium portfolio does well.
Risks to Downside
-In EVs, Hero MotoCorp is unable to gain market share.
-Gains from easing of commodity pressures are passed onto the consumer; thus, margins do not expand.
Nomura:
The research house remains 'neutral' with a price target of Rs 2,870.
The company aims to deepen its product penetration with the launch of Xtec variants. It has launched the Glamour Xtec, Super Splendor Xtec and Passion Xtec models.
Hero MotoCorp will be launching a new 125cc sporty model and a new premium 125cc model with the aim of recovering the 125cc market share.
In scooters, it plans to launch two new scooters: a new 125-cc scooter and an entry-level Destini. It plans to have more than 500 exclusive stores in the next eight quarters.
The company plans to scale up Vida's geographical reach to 100+ cities by March 2024.
It plans to expand the Vida product portfolio in multiple form factors in FY25E.
The company expects EV penetration to be more skewed towards scooters, at least over the next five to seven years
It will look at acquisition opportunities in the EV space.
Management indicated that target long-term Ebitda margins should be in the range of 14–16%.
The capex of Rs 10–15 billion will continue in the coming years, but the allocation will be more skewed towards EVs and premium products.
To improve profitability, the company will focus on consolidating indirect buying, increasing localization in EVs (Tier 1 and 2), expanding the model-specific Ebitda program, and working with new supply chain partners.
Motilal Oswal Financial Services:
Motilal Oswal Financial Services has a 'buy' rating with a target price of Rs 3,500, implying an upside potential of 20%.
In the scooter segment, the company has received a positive response for its new model, the Xoom. The company is actively working on several new models in both the 100-cc and 125-cc scooter categories.
In the premium motorcycle segment, the company has just a 3% market share, and it is focused on building a product portfolio across sub-segments. The company has lined up a series of upcoming launches, which include a collaboration with Harley Davidson—set to launch in the first week of July 2023.
Further, it would elevate the buying experience by having over 100 exclusive stores for premium products in the next 12 months.
It would set up exclusive EV stores in top cities as well as Vida Pods at Hero 2.0 stores, a new retail format, and premium outlets. It would also be sold online through Flipkart.
Hero MotoCorp is targeting to grow non-vehicle revenues to Rs 80–100 billion in the next three years, up from Rs 50 billion in FY23, by expanding its portfolio of spares and accessories and leveraging its reach.
Phillip Capital:
The brokerage has maintained a 'buy' rating with a target price of Rs 3,359, implying an upside potential of 15%.
Recover market share in 125 cc and plan new launches, as well as increase the value proposition via industry-first features and enhanced connectivity.
Hero MotoCorp will enhance the experience via the phy-gital (physical and digital) mediums with an engaged buying experience.
The company also plans to launch one product every quarter in FY24, the highest in any year, which would help address much-needed white spaces in its portfolio.
The plan was to launch in the premium segment first to develop the premium image, and then move to the middle segment and then to the economy segment.
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