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Prabhudas Lilladher Report
Hero MotoCorp Ltd.'s employee cost over the years have risen sharply when compared with other two-wheeler original equipment manufacturers and there was a need to keep it in check.
Fixed cost for Hero MotoCorp increased substantially over the years while volumes did not pick-up which became a drag on the margins (increased by ~270 basis points from 3.7% in FY14 to 6.4% in FY23E).
We analysed cost structure of all major two-wheeler ICE OEMs (except Eicher Motors Ltd.) to access the scope available for Hero MotoCorp to reduce the cost and we arrived at an estimate of 80 bps to 120 bps as percentage of revenue, which could be derived in cost savings through the Voluntary Retirement Scheme.
We expect Hero MotoCorp to show double-digit revenue growth in FY24 benefiting from a low base, improving consumer sentiment, stable pricing environment (as commodity prices stabilise) and helped by internal factors like product launches in premium/scooter segment, and higher exports.
HeroMoto Corp has fallen ~11% year-to-date 2023, currently trading at 13.6 times (-1SD one year forward price-to-earning) and offers a dividend yield of 4.3%.
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