Buy Hero MotoCorp; target of Rs 4300: ICICI Direct

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26 Aug, 2025 12:21

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Hero MotoCorp (HMCL) reported Q4FY18 numbers, which were in line at the operational level. Revenues came in at Rs 8564 crore, up 23.8% YoY, 17.2% QoQ, below our estimate of Rs 8641 crore with the miss attributable to lower than estimated realisations. Net blended ASPs were at Rs 42,786/vehicle vs. our estimate of Rs 43,172/vehicle Total volumes for the quarter were at 2001595 units, up 23.4% YoY. Motorcycle volumes (1767380 units) were up 22.4% YoY while the scooter volumes (234,215 units) were up 32.1% YoY. Reported EBITDA came in at Rs 1371 crore (up 43.1% YoY, 18.4% QoQ) vs. expectation of Rs 1376 crore. EBITDA margins came in at 16% (up 216 bps YoY & 15 bps QoQ), marginally above our expectation of 15.9%. The positive from the margin numbers was that gross margins just contracted 27 bps in an environment of rising commodity prices. Other expenses were higher than estimates on account of higher marketing & sales expenses Reported PAT came in at Rs 967.4 crore (up 34.8% YoY, 20.1% QoQ) vs. our expectation of Rs 963.1 crore The board of HMCL has approved a final dividend of Rs 40/share in addition to the interim dividend of Rs 55/share for FY18

Long term structural drivers exist in the form of the government’s focus on doubling farm income, reducing replacement cycles and low finance penetration. This is expected to be accentuated by pre-buying ahead of regulatory push of mandatory CBS/ABS in all models post March 2019 & BS VI implementation in 2020. Thus, we expect its volumes to grow at a CAGR of 10.9% in FY18-20E while maintaining margins >16%, going forward. Hence, we maintain our BUY recommendation. We value HMCL at 17x FY20E EPS to arrive at a target price of Rs 4300.

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