PL Stock Report - Hero Motocorp (HMCL IN) - Analyst Meet Update - Focus in right direction - BUY

Hero Motocorp (HMCL IN) - Himanshu K Singh - Research Analyst, Prabhudas Lilladher Pvt Ltd

Rating: BUY | CMP: Rs2,930 | TP: Rs3,200

Analyst Meet Update - Focus in right direction

Quick Pointers:

§ Model launches may rejuvenate portfolio; but rivalry could play a spoilsport.

§ Focus on digitalization to drive in volumes, margins and customer experience.

We attended a session organized by Hero MotoCorp (HMCL) top management, and see HMCL making strategic decisions in the right direction. We agree with the management with regards to continued premiumisation in 2W industry and see their increased focus on the same to be positive. New leadership could bring in new energy at company level and help increase odds of success which has been limited in scooters and premium segment. HMCL aims at robust 2W growth and is looking at new launches, premiumisation and financing as forerunners of this growth. The company also laid out a “Changing gears” strategy to focus on 1) core business segment growth; 2) win in premium segment and 3) build leadership in EV segment. Mgnt. indicated that it wanted to adopt frugal engineering to reduce fixed costs, achieve step change in EV costs through localization and improve model mix.

We are positive on HMCL as we see c11% CAGR revenue growth and margin expansion (c170bps) over FY23-FY25. Maintain ‘BUY’ rating with a TP of Rs 3,200 at 15x Mar-25E standalone EPS (Rs 87 for Fincorp and Rs 78 for Ather). The company trades at nearly half the PE multiple compared to peers. However, we will wait for things to start moving on ground before considering prospects on re-rating the stock.

Favorable macro to help 2W industry: HMCL noted favorable macro-economic factors such as govt. led capex push, strong rabi crops, robust GST collection, good water reservoirs levels etc. which should not only help consumer sentiment but also employment and thereby benefit overall 2W industry. Accordingly, the company plans to capitalize this opportunity by 1) launching highest number of models in FY24, 2) using financing to increase affordability and premiumise portfolio and 3) expanding international volumes.

Hero MotoCorp revealed its 3-point strategy: 1) Grow the Core: Focus is on core 100-125cc segment and market share recovery in 125cc segment. It will also increase share in scooter segment and grow newer revenue streams. The company aims to first scale up its business in top 10 global markets and continue to prepare other markets for entry. It also plans to launch products in the 125cc motorcycle and 125cc scooter segment; leverage its Xtec features and launch other brands to fortify its position. 2) Win in Premium: Focus is on a) building premium portfolio with vehicle segmentation in core premium and upper premium, b) elevating buying experience with exclusive stores with phy-gital experience, c) launching mobile application for an engaged buying experience. 3) EV Leadership: The company plans to focus on premium segment EV scooters first and then move down to economical segment starting FY25. The company also plans to open “VIDA Hubs” exclusive stores and “VIDA Pods” within Hero 2.0 stores and premium outlets. Plans are to bring down costs through localization. Margin focus: Management noted a) adoption of frugal engineering, b) localizing resources and c) optimization of plant opex.

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