Hero MotoCorp Share Price Today: Bike-maker is Biggest Beneficiary of demand in this space, says Sharekhan

Hero MotoCorp Share Price Today: Sharekhan’s interaction with Hero MotoCorp's management indicated that the structural growth traction in the two-wheeler (2W) industry remains intact. Hero MotoCorp continues to benefit from premiumisation of its products, its stronghold in the economy and executive motorcycle segments, and aggressive products offerings in premium bike and scooters segments. Hero MotoCorp is a market leader in the Indian 2W industry, commanding a 38.5% share. The company 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 MotoCorp has strong penetration 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 increased personal mobility. Hero MotoCorp’s brand equity is because of value for money products, extensive service centres, low maintenance cost and higher resale value. The company has raised its production capacity in anticipation of higher demand. The company is also making inroad in the premium bike segment in partnership with Harley Davidson. Sharekhan expects strong recovery in FY2022, driven by normalisation of economic activities, operating leverage, price hikes, and cost saving under the company’s leap programme, which would result in margin improvement. Sharekhan expects Hero MotoCorp to reach its historical margin range of 14%-16%. Hence, Sharekhan retains their Buy rating on the stock.

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Structural demand for 2W remains strong and will drive growth post normalisation of economic activities, owing to improving personal income, increasing penetration in the rural economy, and 2W being the most preferred mode of personal transportation. Sharekhan expects Hero MotoCorp to be the greatest beneficiary in the sector, given its leadership and largest distribution network. Sharekhan has valued the stock by assigning P/E multiple of 17.2x, in-line with its average long-term P/E multiples on its FY2023E earnings to arrive at a price target of Rs 3496, providing an upside of 12.7% from current levels. The stock is attractively valued at P/E multiple of 15.3x and EV/EBITDA multiple of 8.8x its FY2023 estimates.

Hero MotoCorp Key risks:

Success of rival products in the entry and executive bike segments can impact Hero MotoCorp’s market share in the segments. The company is aggressively expanding its product portfolio in the premium bikes segment. Unsuccessful launches in the premium segment can restrain its growth path.