Healthy margin expansion offset sluggish volume growth: Crisil

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26 Aug, 2025 12:21

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CRISIL Research's report on Hero MotocorpHero MotoCorp Ltd’s (Hero’s) Q3FY16 revenue were below our expectations, however earnings were marginally ahead of our estimates, due to better margin. Revenue growth was tepid at 6.7% y-o-y. Although volumes inched up 2.5% y-o-y, driven by festive demand, it was below our expectations of ~7%. Net realisations rose 3% y-o-y, owing to a) higher growth in spare parts sales (~18% y-o-y), 2) favourable product mix with premium bikes growing faster, and 3) price hikes in Q4FY15 and Q2FY16 on select product variants. Other operating income grew 158% y-o-y to ₹1,206 mn, as the company benefitted from sales tax exemption at its Neemrana plant. Despite lukewarm topline growth, Hero had a stellar quarter on the operating front, as margin expanded 360 bps y-o-y to 15.6% - augmented by soft input cost and savings from the cost reduction programme. Consequently, adjusted PAT grew 36.5% y-o-y and 3.1% q-o-q to ₹8 bn. While no green shoots are visible in the near-term, we expect a revival in H2FY17 – however, this is hinges on a normal monsoon. Hero is expected to capitalise on this recovery, driven by its apex positioning and established brands in the executive and economy segments. However, its market share could erode due to intense competition and weaker presence in the fast growing premium motorcycle and scooters segments. We maintain the fundamental grade of 5/5.We have cut our revenue forecast by ~3% for both FY16 and FY17, but increased our margin estimates. We roll forward our estimates by one year to FY18 and subsequently raise our discounted cash flow (DCF)-based fair value to ₹2,910 per share from ₹2,729, previously. At the current market price of ₹2,836 per share, our valuation grade is 3/5.Disclaimer: This report (Report) has been commissioned by the Company/Investor/Exchange and prepared by CRISIL. The report is based on data publicly available or from sources considered reliable by CRISIL (Data). However, CRISIL does not guarantee the accuracy, adequacy or completeness of the Data / Report and is not responsible for any errors or omissions or for the results obtained from the use of Data / Report. Opinions expressed herein are CRISIL's opinions as on the date of this Report.  The Data / Report are subject to change without any prior notice. Nothing in this Report constitutes investment, legal, accounting or tax advice or any solicitation, whatsoever. The Report is not a recommendation to buy / sell or hold any securities of the Company. CRISIL especially states that it has no financial liability, whatsoever, to the subscribers / users of this Report. This Report is for the personal information of the authorized recipient only. This Report should not be reproduced or redistributed or communicated directly or indirectly in any form to any other person or published or copied in whole or in part especially outside India, for any purpose.

CRISIL Limited. All Rights Reserved. Published under permission from CRISIL"

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