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Launch blueprint, rural gains can help Hero MotoCorp turn the corner

By Ram Prasad Sahu
May 15, 2023 12:07 IST
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India’s largest two-wheeler maker by volume — Hero MotoCorp (Hero) — posted a better-than-expected operating performance in the January-March (fourth quarter, or Q4) quarter of 2022-23 (FY23).

Hero MotoCorp

Photograph: Danish Siddiqui/Reuters

Riding on higher average selling prices which were up 5 per cent year-on-year (YoY) and volume growth of 7 per cent, the company registered a 12 per cent growth in revenue to Rs 8,306 crore.

The company sold 127,000 units in the quarter, largely driven by domestic sales which were up 11.6 per cent, while exports saw a sharp fall of 57 per cent over the year-ago quarter.

Overall volume growth for peers — Bajaj Auto (Bajaj) and TVS Motor Company (TVS) — was lower (flat to declining), given the sharp fall in exports.

While exports of Hero were negligible, the segment accounted for 40 per cent of Bajaj and 21 per cent of TVS volumes in the quarter.


Notwithstanding weak exports, both companies posted robust sales growth on the back of strong domestic volume growth and higher realisations (premium portfolio and better product mix, including three-wheelers).

While Hero’s revenue performance was broadly in line with Street estimates, the company beat expectations on the profitability front.

Operating profit margins came in at 13 per cent and were up 189 basis points (bps) YoY and 153 bps on a sequential basis.

Growth in operating profit and margins was on account of lower raw material costs, ongoing cost-savings programme, and operating leverage.

The metric — as a proportion of sales — fell 132-bps YoY to 68 per cent.

Research analysts Mitul Shah and Aarti Gupta of Reliance Securities believe that a better product mix, regular price hike, and likely recovery in the two-wheeler industry, coupled with declining commodity cost, will support Hero’s margin expansion.

As was the case with Hero, margin performance for Bajaj and TVS, too, was better than analyst expectations.

Lower raw material costs and improving mix helped the two companies deliver a better margin show.

At 10.3 per cent, TVS reported its highest-ever margins.

Analysts of Motilal Oswal Research, led by Jinesh Gandhi, believe that margins are likely to remain stable in the quarter ahead as a moderate increase in raw material prices in the first quarter of 2023-24 (FY24) should be offset by a 2 per cent price hike.

In addition to traction in the electric two-wheeler segment, Nuvama Research is positive on the stock, factoring in the consistently improving positioning in growth categories of premium motorcycles, scooters, and exports.

While Bajaj’s margins hit an eight-quarter high at 19.3 per cent, analysts do not expect significant margin expansion as the benefits of favourable foreign exchange and improved mix are already reflected in Q4FY23 performance.

While some of the headwinds from lower exports are factored in the valuations of the stock, Nomura Research believes that a rerating hinges on recovery in export on a low base and the success of the Triumph launch.

Current valuations, too, are supportive as they are at the lower range of the price-to-earnings trading range.

Volume growth and market-share gains will be key triggers for Hero.

The company is looking at its highest-ever launches in a year and is targeting one launch per quarter.

The launches will also include the first motorcycle from the alliance between Hero and Harley-Davidson.

The company hopes to gain market share on the back of these launches and expectations of double-digit sector growth in FY24.

While there may be near-term demand weakness, Reliance Research has a ‘buy’ rating on the stock, given attractive valuations.

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Ram Prasad Sahu
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