Hero MotoCorp share price: Sharekhan retains Buy rating with price target of Rs 4030

Sharekhan interacted with the management of Hero MotoCorp (Hero) to discuss its plans for electric two-wheelers and readiness to benefit from increasing electric two-wheelers penetration in the medium to long term. Hero MotoCorp has invested in Ather Energy, a start-up company, taking a 34.6% stake. Hero MotoCorp share price today is Rs 3407, down Rs 16 or 0.5%.

Hero MotoCorp is also planning to launch its own developed mass scale e-2W in FY2022. Hero MotoCorp is open to invest into new ventures, where Hero finds a technological edge. Hero MotoCorp is well positioned to acquire or partner with new ventures in the EV space to scale businesses through its network and improve quality through its capable R&D division. Sharekhan retains Buy rating on Hero MotoCorp with a price target of Rs 4030.

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Hero MotoCorp’s R&D centre in Germany will focus on primarily two products – building a premium bike portfolio and developing EV products. We believe the structural growth drivers for the two-wheelers (2W) industry remains intact. Hero is expected to benefit from premiumisation of products, its stronghold in the economy and executive motorcycle segments, and aggressive products offerings in premium bike and scooters segments. Hero is a market leader in the Indian two-wheeler industry, commanding a 38.5% share.

Hero MotoCorp commands 65% market share in the combined economy and executive motorcycle segment, which together makes up 80% of the motorcycle market size in India. Hero has strong reach in semi-urban and rural areas, aided by its largest distribution network in the 2W industry. Sharekhan expects Hero MotoCorp to be the beneficiary of rural demand and the increased need for personal mobility in a post COVID-19 scenario. Hero’s brand equity is because of value-for-money products, extensive service centres, low maintenance cost and higher resale value.

Hero MotoCorp has renewed focus on gaining market share in the premium bike segment and increasing exports capability. Its partnership with Ather Energy and Harley Davidson will help Hero increase its presence in new technology and premium segment bikes. Sharekhan expects a strong recovery in FY2022, driven by normalisation of economic activities, operating leverage, price hikes and cost-savings under the company’s leap programme, which would drive up margins. Sharekhan expects Hero MotoCorp to reach its historical margin range of 14%-16%. Hence, Sharekhan retains a Buy rating on Hero MotoCorp.

Hero MotoCorp Key Risks:

Success of rival products in the entry and executive bike segments can impact Hero’s market share in the segments. Moreover, if the second wave of COVID-19 intensifies, it can impact Hero MotoCorp’s sales.