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Anand Rathi’s research report on Hero MotoCorp

Revenues for the quarter ended December were increased by 1.3% to Rs.81,183 million vs Rs.80,131 for 3QFY22. Improvement in top line of the company due to sequential market share improvement and multiple launches and front end action. Gross profit per vehicle has reached an all time high of Rs.19,800 per vehicle, which increases company operating leverage and will benefit when higher volumes kick in, in upcoming quarters. This has been made possible through a combination of judicious price increases and accelerated saving programs across the supply chain.  The company EBITDA lowered by -4.2% to Rs.9,417 million. EBITDA margins at 11.6% after absorbing spends on emerging mobility business units to the extent of 70 basis points, reflecting underlying ICE business margins of 12.2%. With overall inflation expected to stabilize, margins should be improving moving forward. For the quarter profit after tax at Rs.7,212 million reflects improvement in PAT margins to 8.9% in Q3, almost an improvement of 100 basis points sequentially. During the quarter, the company commenced deliveries of Vida and are now present in three major cities of Delhi, Jaipur and Bangalore in December and January. They will continue to expand in more cities in the coming months and quarters. The Company’s revenue from spare parts stood higher in Q3FY23 at Rs.12,590 million vs Q2FY23 at Rs.12,440 million and Q3FY22 at Rs.11,860 million. Spare parts contribution to total revenue stood robust at 15.7%. The company will be upgrading its 125cc models towards XTEC (5-7% premium vs standard models), and it’s Glomour XTEC received good traction. It will be coming up with Super Splendor XTEC in March’23 to strengthen the 125cc portfolio. The company plans to launch 2 more models in FY24 in the 125cc segment. Global headwinds are expected to continue with some countries coming out of the woods while others may take a little more time, India is relatively much better placed and all key economic indicators are moving in the right direction. The recently announced union budget further solidifies the platform with its focus on capital expenditure on one hand and increasing disposable income on the other. This should help the auto sector and management expect double digit revenue growth for the next fiscal for the two wheeler industry.


Heromotocorp is on path to market share recovery and backed by action on all fronts including multiple product launches which are lined up in the coming quarters. We expect ourselves to grow ahead of the industry in FY24. We maintain our BUY rating on the stock with a revised target price of Rs.2,855.

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Hero MotoCorp - 16 -03 - 2023 - anand

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