Reduce Hero Motocorp; target of Rs 2672: HDFC Securities

HDFC Securities recommended reduce rating on Hero Motocorp with a target price of Rs 2672 in its research report dated August 11, 2023.

Broker Research

August 17, 2023 / 11:02 IST

Reduce

HDFC Securities' research report on Hero Motocorp

Hero MotoCorp’s adjusted PAT at INR 9.4bn was ahead of our estimates of INR 8.5bn due to better-than-expected margins and higher other income. Margins were boosted by lower other expenses, which is likely to be low due to lower than normal ad spend. Despite its multiple launches over the past few quarters, HMC continues to lose share: its motorcycle market share as of Q1-end is down 680bps YoY to 45% while its scooter market share is down 40bps YoY to 6.7%. The key reasons for this loss in market share for HMC are (1) the 100cc segment continues to underperform other segments; (2) HMC sharply loses share in 125cc and above segments, which are seeing rising contributions in the industry. While HMC has a healthy launch pipeline largely focused on the 125cc and above segments, we do not expect it to recover meaningful share, given its multiple failed attempts in the past.

Outlook

Also, while management is hopeful of a revival in entry-level demand, we remain circumspect as we believe the key reason for the weak demand is the impact of affordability for that customer, which is likely to take longer to get addressed. Maintain REDUCE with a revised TP of INR 2,672 (from INR 2,512)—as we roll forward to June 25 earnings.

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