Shares of Hero MotoCorp Ltd gained 1 percent on June 6 after improved consumption in rural areas and growth in 2 wheeler fleet size made analysts optimistic about the company’s future prospects.
Hero MotoCorp closed 1.14 percent higher at Rs 2910.85 apiece on the National Stock Exchange.
JM Financial has reiterated a "Buy" rating on Hero MotoCorp stock with a target price of Rs 3,200, based on 15 times FY25 estimated earnings per share. The firm highlighted that the Hero MotoCorp’s EBITDA margin showed strong recovery in 4QFY23 and they anticipate this recovery trend to continue.
In Q4FY23, EBITDA margin improved 200 basis points year-on-year to 13 percent.
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Slowdown in the entry-level 2W segment, lack of new product initiatives, and aggressive competition, especially in the 125cc segment has impacted Hero MotoCorp’s two wheeler market share by 350bps over FY19-23. Hero MotoCorp anticipates that positive outlook in the near months, driven by an increase in customer sentiments, a forecast of a normal monsoon and introduction of new launches in the premium segment.
In May 2023, HeroMotoCorp introduced the XPulse 200 4V. Looking ahead, product actions are expected in 125cc segment, premium motorcycles, scooters and EVs. The brokerage firm believes that “just one or two product successes among its new launches can help the automobile company drive its premium portfolio”.
In the electric vehicle space, the recently launched Vida V1 has gained positive traction on the back of its recent price cuts and competitive pricing. Hero MotoCorp also plans to expand Vida’s footprint to over 100 cities.
2W replacement demand is overdue, with recovery expected in the second half of the year. The industry volume for 2W in FY23 was still 25 percent below its peak (FY19). This decline has been primarily led by the slowdown in the entry level motorcycle segment, which is still 38 percent below its FY19 peak.
Analysts predict that government spending on rural development and infrastructure, being a pre-election year, will drive demand recovery in the second half of FY24.
Hero MotoCorp, the world's largest manufacturer of motorcycles and scooters, reported sales of 519,470 units in May 2023, marking a growth of 7 percent compared to 486,704 units sales in May 2022.
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