Hero MotoCorp is speeding up on strategy, but there are hurdles
Hero MotoCorp Ltd is striving to fuel business momentum. In the analyst meet held on Monday, the management, led by the new chief executive officer Niranjan Gupta highlighted a three-pronged strategy. The two-wheeler company’s focus areas would be growing the core business, gaining traction in the premium segment, and scaling the electric vehicle division.
This is a step in the right direction given the trend of premiumization and increasing acceptance of electric vehicles (EV) in the automobile industry. But Hero’s history of new model launches has not been particularly encouraging.
“Hero MotoCorp needs to break away from its past mould of relatively weaker launch success rate compared to peers,” said analysts at Elara Securities (India) in a report on 13 June. The broking firm’s analysis suggests the new model launch success rate for Hero MotoCorp is low. For instance, over the past decade, Hero’s new models gained just 160 basis points (bps) share compared to the gain of 900bps seen by TVS Motor Co. Ltd. “Hence, new model launch success especially in premium segment will be key for rerating from here on,” said the Elara report.
Currently, Hero’s Xtec variants contribute 25% to its total volumes. The premium mix may get a boost on the back of product launches in FY24. But it remains to be seen if Hero regains its lost market share in the 125 cc motorcycles category and investors will watch that closely.
“Our exhaustive channel checks across six of Hero MotoCorp’s key states indicate that the 125 cc segment is slowly emerging as a customer favourite, and as a result, contribution of 100 cc has declined to 51% of motorcycles in FY23, from 58% in FY19,” said analysts at HDFC Securities in a report on 8 June.
Currently, the 100 cc category contributes a large part of Hero’s volumes. Adding to the woes is the increasing competitive intensity driven by the launch of Honda Shine 100.
In the EV segment, Hero’s Vida V1 is yet to make a mark. This premium end EV is present in three cities and the company aims to cover 100 cities by FY24. However, the impact on volume owing to the cut in government subsidy is a key monitorable.
Shares of Hero MotoCorp are hovering near their 52-week highs of ₹3,026 apiece seen last week. The stock trades at nearly 16 times FY25 estimated earnings, showed Bloomberg data. Success of new models leading to market share gains is critical for large upsides in the Hero stock.
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Updated: 13 Jun 2023, 09:23 PM IST
Ganesh
http://ganesh@finplay.inFinance enthusiast, Mutual fund expert.