Hero MotoCorp: Up 76% in last 1 year, this auto stock is Axis Securities' ‘pick of the week’ – 3 key reasons why

The brokerage has a ‘buy’ telephone connected the banal with a people terms of ₹4,935, implying a imaginable upside of 10 percent.

Hero MotoCorp Ltd (HEROMOTOCO) holds the marketplace person presumption successful the Indian 2W manufacture with a marketplace stock of 34.6 percent (as of March 2022). Motorcycles represent the superior root of its revenue, contributing 94 percent of full volumes, portion scooters lend 6 percent to its full volumes. 

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Hero is chiefly focused connected the home market, with 94 percent of its volumes originating from India. Entry-level motorcycles (75cc to 110cc) correspond a important information of 75 percent of wide volumes. The institution operates six plants successful India and 2 planetary plants successful Colombia and Bangladesh. Hero boasts a home manufacturing capableness of 9.30 cardinal units per annum and a planetary capableness of 0.23 cardinal units per annum.

Stock Price Trend

The banal has surged astir 76 percent successful the past 1 twelvemonth and gained 7.5 percent successful 2024 YTD. The banal witnessed immoderate correction successful April, down astir 6 percent aft a 6.7 percent emergence successful March. Meanwhile, it fell 4 percent successful February but jumped 11.6 percent successful January this year.

Currently trading astatine ₹4,491.85, the banal is 10 percent distant from its grounds precocious of ₹4,979.95, deed connected February 12, 2024. Meanwhile, it has soared 82 percent from its 52-week debased of ₹2,470.60, deed connected May 2, 2023.

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FY24 Auto Sales

Hero MotoCorp, a large two-wheeler manufacturer, reported a 5.5 percent summation successful full income for the fiscal twelvemonth 2023-24, with 56,21,455 units sold, compared to 53,28,546 units sold successful the erstwhile fiscal year. This emergence successful income demonstrates a affirmative inclination for the company.

In presumption of motorcycle sales, Hero MotoCorp sold 51,90,672 units successful FY24, up from 49,59,156 units successful FY23. Additionally, scooter income accrued to 430,783 units successful FY24 from 369,390 units successful FY23, indicating maturation successful some categories.

Domestic income were besides higher successful FY24, with 54,20,532 units sold compared to 51,55,793 units successful FY23. This maturation successful income crossed assorted segments suggests that Hero MotoCorp experienced a palmy fiscal year, reflecting a strengthening marketplace presumption and perchance improved user request for its products.

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Investment Rationale

New Products Rollout, Execution Strategy to beryllium successful Spotlight: The brokerage pointed retired that with the motorboat of differentiated products offering aggregate industry-first features, Hero has built a beardown merchandise portfolio, thereby filling achromatic spaces. The institution has a wide strategy to triumph marketplace stock successful the premium class of 2W, increasing EV business, expanding Premia stores, upgrading existing stores to Hero 2.0, and investing successful selling (via some accepted and integer routes). While the alteration successful apical absorption has deed the throttle – each eyes are present connected measurement maturation successful coming quarters, it said.

2W Business: The existent manufacture (domestic + exports) volumes successful FY24E are astir 14-16 percent beneath the manufacture highest of astir 2.45 crore units successful FY2018-19 (pre-COVID). This suggests that determination is inactive imaginable for maturation successful the 2W industry, mostly led by the expected revival successful the agrarian economy, noted Axis. Overall, successful the 2W home industry, it expects the 125cc and supra conception to turn faster than the entry-level segment. With a unchangeable summation successful models, Axis estimates the institution to turn astatine par with the manufacture (previously beneath industry). As the execution strategy plays retired successful FY25, it has conservatively physique successful a 7 percent CAGR measurement maturation implicit FY23-26E for Hero.

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Strong EBITDA Margins: The company’s EBITDA borderline successful Q3 came successful astatine 14 percent, with a 200bps interaction owed to EV-related expenses. It is expected to amended further connected the backmost of caller merchandise launches successful the premium class and the management’s absorption connected exports successful cardinal geographies, believes Axis. With commodity prices expected to mostly stay stable, operational ratio successful EVs, and higher ASP led by merchandise premiumization, the brokerage has factored successful a blimpish 14.5 percent EBITDA borderline successful FY26E.

Outlook & Valuation

The brokerage is intimately monitoring Hero MotoCorp's strategical moves, peculiarly its roadmap successful the electrical conveyance (EV) merchandise portfolio, which includes investments successful Ather Energy, the scaling up of VIDA, and its relation with Gogoro. Additionally, the brokerage is watching Hero's foray into the mid-weight motorcycle segment, featuring models similar the Karizma, HarleyX440, and Mavrick440. This enlargement takes spot amid a scenery of rising competition, wherever some existing and caller players are vying for marketplace share.

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Actual measurement maturation crossed cardinal segments volition beryllium the cardinal monitor. Axis expects the 2W manufacture maturation to play successful favour of Hero specifically successful the introduction and 125cc segment.

Disclaimer: The views and recommendations made supra are those of idiosyncratic analysts oregon broking companies, and not of Mint. We counsel investors to cheque with certified experts earlier taking immoderate concern decision.

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Published: 29 Apr 2024, 02:59 PM IST