Hero MotoCorp Ltd: Is it a worthwhile investment following a recent 34% decrease in price?
Hero motocorp : India stands as one of the largest two-wheeler markets globally, fueled by factors such as increasing urbanization, rising disposable incomes, and a high demand for affordable personal transportation. The market presents promising growth opportunities, particularly in the electric vehicle (EV) sector, as the government emphasizes sustainable transportation.
Key players like Bajaj Auto, Hero MotoCorp, TVS Motors, and Eicher Motors lead the Indian two-wheeler industry, offering a diverse range of motorcycles and scooters. With changing consumer preferences and technological advancements, the sector is poised for further expansion, especially in the electric two-wheeler segment, contributing to India’s transition towards eco-friendly mobility solutions.
Hero MotoCorp stands out as a dominant force in the Indian market, commanding a significant 30.8% share of the two-wheeler market. The company maintains its leadership position, particularly in rural and semi-urban areas, thanks to its extensive dealer network and strong brand presence in the commuter segment. Following closely behind is Honda Motorcycles & Scooters, holding a 23.36% market share, solidifying Hero’s position as the leading player in the industry.
Intensifying Competition from TVS and Bajaj Auto
Hero MotoCorp is facing growing competition from TVS and Bajaj Auto, with both companies gradually gaining significant market share. TVS currently holds 16.93%, while Bajaj Auto commands 12.03% of the market. These competitors have aggressively expanded their product offerings, particularly in the premium and electric two-wheeler segments. By appealing to younger consumers with innovative designs, competitive pricing, and cutting-edge technology, TVS and Bajaj Auto are narrowing the gap between themselves and the market leaders, signaling a shift in the two-wheeler industry landscape.
Stock Performance
As of January 10, 2025, Hero MotoCorp’s shares closed at Rs. 4,123, a decrease of 0.44% from the previous close of Rs. 4,141. The company’s 52-week high stands at Rs. 6,246.
Recent Decline from Peak
Despite reaching a lifetime high of ₹6,246, Hero MotoCorp’s shares have since dropped by over 33%. This significant sell-off can be attributed to a decline in the company’s sales figures. In December 2024, Hero MotoCorp sold 324,906 units, a notable decrease from the 393,952 units sold in December 2023.
The decline was primarily driven by weak motorcycle sales, which fell to 298,516 units in December 2024 from 354,658 units the previous year. Additionally, scooter sales also saw a decline, dropping to 26,390 units from 39,294 units in December 2023. This sales slump has negatively impacted investor sentiment, resulting in a sharp decrease in stock value.
Year-over-Year Financial Performance
Sales Growth
Hero MotoCorp has experienced a consistent increase in sales, rising from ₹9,533 crore in September 2023 to ₹10,483 crore in September 2024. This 10% growth in sales showcases the strong demand for their products in a competitive market, highlighting the company’s resilience and market strength.
EBITDA and Operating Margin
The company’s EBITDA saw a slight uptick from ₹1,360 crore in September 2023 to ₹1,450 crore in September 2024, indicating improved operational efficiency. The Operating Profit Margin (OPM) remained steady at 14% for both periods, demonstrating consistent cost management and healthy profit generation from core operations.
Net Profit
Hero MotoCorp’s net profit increased from ₹1,007 crore in September 2023 to ₹1,066 crore in September 2024, reflecting the positive impact of enhanced sales and profitability. This rise in net profit underscores the company’s adeptness in cost management and revenue optimization.
Key Financial Metrics
Hero MotoCorp Ltd., with a market capitalization of ₹83,260 Crores, stands as a leader in the Indian two-wheeler market. The company boasts a PE ratio of 20.2, showcasing investor confidence amidst a competitive market. With an ROCE of 29.1%, Hero demonstrates strong capital efficiency, yielding significant returns from its investments.
The company’s debt-to-equity ratio of 0.03 highlights its conservative financial approach and low financial risk. Hero’s P/BV ratio of 4.38 indicates a favorable market valuation, driven by future growth expectations. Additionally, its PEG ratio of 8.45 suggests promising growth potential, particularly in the premium and electric two-wheeler segments, solidifying its strong market position.
uture Outlook
Hero MotoCorp has ambitious plans for the future, with a focus on launching premium motorcycles and scooters, including electric models, at the Bharat Mobility 2025 event. This strategic initiative showcases the company’s dedication to innovation and its vision to meet the changing demands of both the Indian and global markets.
By concentrating on premium and electric two-wheelers, Hero MotoCorp aims to capitalize on the rising demand for advanced, sustainable mobility solutions. The company is positioning itself as a key player in the future of the two-wheeler market, aligning with global trends towards eco-friendly transportation and cutting-edge technology.
Brokerage Target by ShareKhan (45% Upside Target)
Sharekhan is optimistic about the stock, setting a target price of Rs 6,057, citing strong margin expansion and robust performance in its internal combustion (IC) business. The brokerage noted a 150-bps year-on-year EBITDA margin expansion to 16.5% in the underlying IC business, leading to a significant improvement in gross margins.
The management’s confidence in maintaining blended EBITDA margins at 14-16% further reinforces the positive outlook. Sharekhan has maintained a BUY rating, highlighting the company’s focus on premiumization, successful new product launches, and growth in the electric vehicle (EV) market. The stock’s valuation at a P/E of 16.8x/15.3x and EV/EBITDA of 11.1x/10.1x on FY26E/FY27E estimates indicates strong growth potential and attractive investment opportunities.
Conclusion
Despite recent market share challenges and a decline in stock price, Hero MotoCorp presents an intriguing investment opportunity. The company maintains its market leadership with a 30.8% share and demonstrates strong financial metrics, including a healthy ROCE of 29.1% and a low debt-to-equity ratio of 0.03. However, it faces increasing competition from TVS
Hero’s strategic focus on premium segments and electric vehicles, along with Sharekhan’s optimistic outlook projecting a 45% increase to Rs 6,057, indicates significant growth potential. The company’s consistent operating margins and ambitious plans for Bharat Mobility 2025 suggest a promising future trajectory, despite current market challenges.
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Disclaimer: This blog post is for informational purposes only and should not be considered financial advice. Investors should conduct thorough research and consult with a qualified financial advisor before making any investment decisions.