Hero MotoCorp Ltd is expected to increase its two-wheeler market share in the premium segment with the introduction of the Harley-Davidson X440, a mid-size bike developed in collaboration with the American major.
The starting price for the Harley-Davidson X440 is set at Rs 2.29 lakh, which is likely to attract consumers in the 350cc segment, analysts said. This price point represents only a 15 percent premium compared to the Royal Enfield Classic 350cc and Meteor 350cc.
Analysts also believe that Hero MotoCorp's extensive dealer network and the potential for increased production volume will contribute to the success of the bike. They anticipate a monthly volume of 5,000 to 10,000 units, although it may take a few months before deliveries commence. However, the ultimate success will depend on the bike's product performance and quality, as highlighted in reviews and feedback.
"We believe this will be an attractive proposition for customers, especially if the X440 performs well on the roads. Our estimates factor in volumes of 10,000 units per month for Hero from jointly developed products with Harley, versus RE's total domestic volumes of 61,000 units per month in FY23 and 77,000 in FY25 (perojected)," Jefferies India said in its recent note.
Nomura Research stated in their latest note that while the initial volumes may not have a significant impact on Hero MotoCorp's earnings (estimated at 1-2 percent), they believe it will pave the way for success in the premium segment.
"We maintain our view that the above-250cc market may have space for two-three players, as consumers will want choices, and currently RE occupies 90 percent market share in the segment. Also, the high gross margins of RE at 43 percent (Rs 75,000 per bike) make the segment attractive for new players, in our view," the Nomura report added. The brokerage maintained its 'neutral' rating on the stock and raised its target price to Rs 2,899 a share from Rs 2,870 a share from earlier.
Jefferies India maintains the belief that the Indian two-wheeler industry is poised for a robust recovery following an unusual downturn in the business cycle. The brokerage house anticipates a significant increase in industry volumes, with a compounded annual growth rate (CAGR) of 18 percent in the fiscal years 2023 to 2025.
In line with this optimistic outlook, Jefferies also predicts substantial growth for Hero MotoCorp. It expects the company's volumes to expand at a CAGR of 14 percent during the same period. Additionally, Jefferies forecasts a CAGR of 26 percent for Hero's earnings per share (EPS) over the FY23-25 timeframe.
"The stock was up 29 percent in the past three months, outperforming Nifty-50 by 17 percent. However, its 15x/13x FY24/FY25 PE, vs 16x long-term average, looks attractive. The stock also offers a 4-5 percent dividend yield. Sustainable success in premium motorcycles, EVs, or exports could improve Hero's long-term outlook, in our view," the Jefferies India report said.
The brokerage house has retained the 'buy' rating on the stock and increased its target price to Rs 3,500 a share from Rs 3,000 a share.
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