Hero MotoCorp Ltd’s shares are down 26% from its 52-week high of ₹6,246.25 per share on 24 September. It appears that the stock, too, has been suffering due to the general downturn in the stock market as there is no other apparent reason. For the past two quarters, the two-wheeler maker has clocked the highest ever quarterly standalone revenue and profit after tax. Hero’s retail market share, too, as per Vahan data, is up in the September quarter (Q2FY25) to 31.6% from 31.1% in Q1.
The premiumization strategy certainly seems to paying off. Hero’s average selling price or ASP (excluding spare part sales) per vehicle was up 3.7% year-on-year (y-o-y) to ₹59,257. Recall that the company had launched its first Premia store in October 2023 and now the store count is 58. Premia stores house premium motorcycles such as the Harley Davidson, Karizma, in addition to its electric scooter Vida V1. In Q2, Hero unveiled three new premium motorcycles variants of Xpulse, Xtreme, etc. So, is there further scope for increasing the ASP? The answer seems to be affirmative as the company’s product mix is still dominated by the economy and executive 100 cc segment that accounts for about 80% of the sales volume.
In Q2, revenue from vehicle sales (excluding spare part sales) rose 11.3% y-o-y to ₹9,007 crore with 70% of the growth coming from volume and remaining from higher ASP. Further breaking down the volume growth mix, the management stated that rural growth has been higher than urban. Also, quick commerce industry aided volume growth, accounting for 30,000 units of sales volume. Spare parts too recorded highest ever quarterly sales of ₹1,456 crore, up 7.5%.
Material cost fell to 66.7% of sales in Q2 from 68.6% in the same period last year, boosting gross margin to 33.3% from 31.4%. Hero’s electric scooter brand Vida continues to be loss making at Ebitda level. Still, Hero’s overall Ebitda margin at 14.5% has expanded 42 basis points (bps) year-on-year and 9 bps sequentially. The management’s preferred band of Ebitda margin remains 14-16% as it looks to invest incremental gains in growth.
During the post earnings call, the management reiterated that it is eligible for production linked incentive (PLI) benefits for its EV under the Vida brand, but that will start accruing from FY26. However, the quantum is difficult to estimate at this juncture.
The management, though focused on Vida brand for EV, does not want to give up on Ather Energy, its associate company also in the two-wheeler EV industry as it has made additional investment of ₹124 crore in the latter. Hero is the largest shareholder in Ather.
Meanwhile, the management allayed concerns regarding the growth being driven by higher financing through Hero Fincorp, its group company. Overall, 66% of the volumes were from financing with Hero Fincorp’s contribution at 26% of it. In keeping with broader industry trends, the delinquencies might have risen in two-wheeler financing, even as the products are not potentially being pushed down the throat of customers through attractive financing schemes.
To be sure, Hero finds itself in a sweet spot to benefit from the expected rural recovery and the company’s various product launches. The recent weakness in the shares have made valuations appealing to that extent. The stock trades at a price-to-earnings multiple of 18x, based on Bloomberg’s consensus estimates for FY26.
