Hero MotoCorp Ltd. share price target

Hero MotoCorp (HMCL) Q2FY21 result was above our and consensus estimates on all parameters. Revenue was higher than our and consensus estimates mainly on account of higher realisation while EBITDA margin for the quarter stood at 13.7% vs our and consensus estimates of 13.2%/ 13.7% respectively mainly on account of lower operating expenses. Our channel check indicates that first 10 days of festive season for retail sales was not as good as wholesale sales. We expect inventory levels at dealer's end to remain high by end of the festive season. We believe urban pocket to remain under pressure due to pandemic outbreak, negative sentiment and higher...

Hero MotoCorp (HMCL) reported a strong set of Q2FY21 numbers. Total 2W sales volume for the quarter came in at 18.2 lakh units, up 7.7% YoY. Consequent net sales were at | 9,367 crore, up 23.7% YoY. Blended ASPs were at | 51,412/unit, a rise of ~15% YoY (courtesy BS-VI transition). EBITDA margins at 13.7% were down 80 bps YoY. The margin performance was impacted by a rise in raw material cost but employee and other expenses declined on a percentage of sales basis by 70 bps and 190 bps, respectively. Consequent PAT came in at | 953.5 crore (up 9% YoY). Lower...

Hero MotoCorp's (HMCL) Q2FY21 operating performance beat estimates due to above-expected ASP.

Hero MotoCorp (HMCL) 2QFY21 numbers were broadly in line estimates. EBITDA increased by 17% YoY to Rs.12.8bn with margin at 13.7% (-81bps YoY). Increase in RM prices was offset by cost control measures and better operating leverage. The management sounded positive on domestic sales outlook with demand back to pre Covid level, expecting momentum to continue into the festive season. Festive sales have started off well for the company and retail sales reached 96% of last year during the Navratri period...

Hero Q2FY2021 results were in line with street expectations. Net sales and EBIDTA grew 24% and 17% y-o-y respectively. Hero is witnessing improvement in demand with retail sales reaching 96% of last year level in initial part of the festive season. Company expects further improvement in festives and has ramped up production. We expect strong recovery from FY22 driven by normalisation of economic activities. Operating leverage, price hikes, and cost saving under the leap programme would result in margin improvement. We expect Hero to reach its historical margin range of 15%-16%....

Hero Motocorp Ltd (HMCL) is the market leader in the 2W industry with a market share of ~39% (as of Aug 2021). Hero is present in both the motorcycles and the scooter segments, having market share of about ~53% and ~10%, respectively.

Seminal year for industry provides interesting insights However, amid all the gloom, the engineering and production prowess of the industry (along with its value chain) shone brightly as it successfully completed the world's fastest switchover to Euro 6 equivalent emission norms i.e. BS-VI as per schedule. Much of the post festive period was focused on the transition, with the entire ecosystem estimated to have spent ~| 70,000 crore towards the technological leap. Covid-19 crisis struck India in the run up to April 2020, just as the changeover...

It has the best positioned portfolio, with HF Deluxe in the Economy segment, Splendor in Executive 100cc, and Super Splendor / Glamour in Executive 125cc, covering all the price points with multiple variants. With an apt product portfolio for the rural market, the highest brand value, and a strong distribution network, Hero is best placed to benefit from low penetration and ongoing momentum in the rural economy. HMCLs market share in Executive 100cc was at ~87% in FY20 (v/s 84% in FY19), and with the launch of the new Passion, it has gained further market share to 90% in FY21YTD. HMCLs market share declined by 700bp to ~51% in FY20 in the 125cc segment post the launch of the Bajaj Pulsar 125. However, post the launch of the new Super Splendor and Glamour, it regained market share by 225bps FY21YTD.

We continue to prefer Hero MotoCorp Ltd on the back of robust rural & semi urban demand, downtrading trend and preference for entry level motorcycles (Hero being the market leader), along with a shift in preference for Personal mobility.

We are initiating coverage on Hero Motocorp Ltd (Hero) with a BUY rating and a Target Price of Rs 3,450, which implies ~10% upside from the current levels.