Hero MotoCorp - Revival in rural demand to drive FY18 volumes: CRISIL

CRISIL has come out with its report on Hero MotoCorp. The research firm has assigned a fair value of Rs 3404 per share. However, retained fundamental grade of 5/5 to the company.

October 10, 2017 / 13:47 IST

26 Aug, 2025 12:21

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CRISIL's research report on Hero MotoCorp

Hero MotoCorp Ltd’s (Hero’s) Q1FY18 revenue and earnings were slightly below, while operating margin was in line with CRISIL Research’s estimates. Standalone revenue increased 7.7% y-o-y to ₹79.7 bn led by 6.2% y-o-y (14.3% q-o-q) growth in volumes. Net realisation (inclusive of spare part sales) rose 1.4% y-o-y (0.8% q-o-q) as the company increased prices in May 2017. EBITDA margin contracted 37 bps y-o-y to 16.3%, with rise in raw material prices. Adjusted PAT rose 3.5% y-o-y to ₹9.1 bn. Hero’s market share in the domestic two-wheeler (2W) segment fell marginally to 37%. Going ahead, with pick-up in rural income on the back of a) normal monsoon, b) higher government spending on rural schemes and c) normalisation of cash supply in rural areas (which were the worst impacted by demonetisation), we expect 2W demand to steadily improve in the next few quarters. Based on strong competitive positioning, continued focus on segments preferred by rural populace and new product launches, we expect Hero to post health volume growth over FY17-19. However, its ability to retain market share amidst intensifying competition is a monitorable. We maintain our fundamental grade of 5/5.

Despite lower-than-expected performance during the quarter, we maintain our FY18 and FY19 earnings estimates as we expect volume growth to ramp up over the next few quarters. Resultantly, we maintain the discounted cash flow (DCF)-based fair value at Rs 3,404 per share. At the current market price of Rs 3,987 per share, the valuation grade is 2/5.

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