Hero MotoCorp gears up for robust growth led by rich product mix
Hero MotoCorp Ltd’s results for the March quarter (Q4FY24) has a few bright spots. For one, a richer product mix contributed to a 4.6% year-on-year growth in its average realization, at ₹68,373. Sales volumes surged 9.6%, driven by a 10.3% increase in motorcycles, which made up 93% of total volumes, with the rest coming from scooters. Consequently, overall revenue growth stood at 14.6% in Q4, totalling ₹9,519 crore.
Besides, lower raw material costs facilitated an earnings before interest, taxes, depreciation, and amortization (Ebitda) margin expansion of around 130 basis points to 14.3%, despite the impact of electric vehicle (EV)-related spending. Effectively, it means absolute Ebitda growth, at 25.5%, is faster than revenue growth.
For Hero Moto, FY25 has begun on a strong note, setting stage for doubledigit revenue growth. In April, volume growth stood at almost 35%, bolstered by wedding season demand.
Factors expected to aid growth this year include strong domestic demand from urban and rural areas, as well as product launches and enhancements to its distribution network. The management is optimistic about a gradual recovery in rural markets, particularly in view of the normal monsoon forecast for FY25.
With its strong presence in 100-110cc segment, Hero Moto stands to benefit the most from a rebound in rural market. Besides, its existing product mix is less susceptible to the threat of EVs, with only 7% of its sales coming from scooters, and 100cc motorcycles are less likely to be displaced by EVs. That said, it is expanding the EV portfolio, and new launches can be expected in FY25. However, competition in the EV scooter segment remains a key concern for Hero.
The firm’s differentiated focus on premiumization will also drive profit growth. Besides, it aims to boost volumes and expand market share with product launches in the near future, having earmarked a capital expenditure of ₹ 1,000-1,500 crore for FY25.
Motilal Oswal Financial Services expects Hero Moto to deliver volume CAGR of 9% during FY24-26E, driven by launches in the 125cc, scooters and premium segments; and a ramp up in exports.
“Hero Moto will also benefit from a gradual rural recovery, given strong brand equity in the economy and executive segments,” said Motilal’s analysts.Meanwhile, post Q4 results, Hero’s shares are up 6.4%, taking the gains so far in 2024 to 15%.
Going forward, investors should be cautious of potential slower-than-anticipated growth in domestic twowheeler demand and the sudden rise in commodity prices, as it may impact the company’s profitability.
With its strong presence in the 100-110cc segment, Hero Moto stands to benefit from rural market rebound