Buy Hero MotoCorp; target of Rs 5304: LKP Research

buy

LKP Research's research report on Hero MotoCorp

Hero MotoCorp reported muted performance in Q1FY26, with revenue at ₹95.8 bn, declining 5.6% YoY and 3.6% QoQ, primarily impacted by (1) a temporary production pause, (2) seasonality in the Parts, Accessories, and Merchandise segment, which weighed on ASPs, and (3) broader industry headwinds. The company implemented price hikes related to OBD compliance, phased across Q4FY25 and Q1FY26. While commodity costs rose ~0.5% QoQ, management remains confident in offsetting the impact through its ongoing LEAP cost-saving program, which continues to deliver meaningful gains. EBITDA margin stood at 14.4%, largely flat YoY, supported by gross margin expansion driven by a favorable product mix, pricing actions, and disciplined cost management. However, this was partially offset by negative operating leverage due to lower volumes. PBT came in at ₹14.9 bn, stable YoY, with PBT margin improving to 15.5% (up 80bps YoY / 101bps QoQ), aided by higher other income. We expect EBITDA margins to remain in the 14.5%-15% range in FY26E-27E, supported by a favourable product mix and ongoing cost optimization measures, including gains from the LEAP program.

Outlook

We expect Revenue/EBITDA/PBT to grow at a CAGR of 8.1%/ 10.8%/ 9.7% over FY25–FY27E, with favourable product mix, operating leverage, and EV ramp-up serving as key catalysts. We value company at a P/E of 19x on earnings of FY27E and raise our target to ₹5,304.

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Hero MotoCorp - 08082025 - lkp