Hero MotoCorp Q3 Review: Two reasons why Goldman Sachs and Morgan Stanley are bearish on the stock

Hero MotoCorp share price, Hero MotoCorp Q3 Results:  Shares of Hero MotoCorp tumbled up to 4 per cent in early morning trade on Monday (February 12), even as the company staged a good Q3 performance. At the day's low, the stock hit the level of Rs 4,714, a drag of nearly 4 per cent from the previous close of Rs 4,908.5.

Buoyed by strong sales in the two-wheeler segment, the largest two-wheeler company in the company posted a higher-than-expected 51 per cent increase in the third-quarter profit on Friday.

In the three months to December 31, the company’s standalone profit rose on year to Rs 1,073 crore.

What is the concern?

Both Goldman Sachs and Morgan Stanley have a bearish view on the counter due to disruption risk in the core segment and elevated valuations of the scrip.

Goldman Sachs, however, has raised the target price to Rs 3,730 from the earlier pegged target of Rs 3,260, implying a downside of 24 per cent. The brokerage noted that the company posted in-line 3Q and seeks market share to pick up in the ICE and electric vehicle space.

ICE 2W portfolio is presently at a 16 per cent EBITDA margin, enabling 125 to 150 basis points of annualised EV business investment, added the brokerage.

Similarly, Morgan Stanley has also continued with its bearish view on Hero MotoCorp and accorded it an underweight stance with a raised target price of Rs 3,638, implying a downside of 26 per cent.

The brokerage highlighted that the company’s management appears to be executing well on its strategy. Further, it said that the 2-wheeler company’s market share gains in the premium segment will be key to track. However, disruption risk in the core segment and elevated valuations keep us UW, noted the brokerage.