Hero MotoCorp - Better Growth Visibility Driven By Recovery In Two-Wheeler Demand: Motilal Oswal

Motilal Oswal Report

We expect Hero MotoCorp Ltd. to deliver a 7% volume compound annual growth rate over FY23-25, driven by its:

1. increased competitiveness in the economy and the executive segments after the recent launches,

2. growth in the Premium segment,

3. faster growth in Scooters, and

4. ramp-up in exports.

The company will benefit from a rural recovery, thanks to its strong brand equity in the economy and executive segments, which contribute over 90% of its overall volumes.

Multiple growth drivers at play: Hero MotoCorp’s newest co-developed product with HD, X440, has received a strong response with over 25,000 bookings. We are observing increased interest in the core Executive segment (Splendor and Passion) due to a reduced percentage-wise price differential between the Entry and Executive models.

Any improvement in its competitive positioning within the scooters, premium motorcycles, or EV segments will serve as catalysts for re-rating of the stock.

We now value Hero MotoCorp at 18 times December-25E earnings per share (versus 16 times Sep-25E EPS earlier). Hero MotoCorp is currently trading at a one-year forward valuation of 18 times, which is in line with its 10-year long period average. In comparison, its peers Bajaj Auto Ltd. and TVS Motor Company Ltd. are trading at a premium of ~17% and 26% to their respective historical valuations.

We expect a revenue/Ebitda/profit after tax compound annual growth rate of ~10%/20%/21% over FY23-25. We reiterate Hero MotoCorp as our top pick in original equipment manufacturers (along with Tata Motors Ltd.) and maintain our 'Buy' rating with a revised target price of Rs 4,480 (premised on 18 times Dec-25E EPS plus Rs 231/Rs 74 for Hero FinCorp/Ather after applying a 20% holding company discount).

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