Hero MotoCorp Share Price: 45% Downside Or 15% Upside—Which Way Will The Stock Go?

Shares of Hero MotoCorp Ltd., one of India's leading motorcycle manufacturers, have rallied 20% since the company announced its first-quarter earnings.

While some brokerages like Emkay expect the share price to grow over 15% from its previous close on Wednesday, UBS expects the stock to see a downside of nearly 45%.

This is because brokerages interpret the company's volume growth, market share and valuations differently. Here are the differences:

UBS reports that Hero MotoCorp's share price has risen due to positive festive commentary and anticipated wholesale volume increases in September–October. However, its analysis reveals retail volume growth of only 11% and 6% for FY23 and FY24, respectively, indicating that Hero is lagging behind its peers.

UBS also notes that investors expect wholesale volumes in September 2024 to exceed 6 lakh units, significantly outpacing projected retail volumes of 3 lakh units. This discrepancy suggests Hero is pushing inventory onto dealers rather than responding to actual demand, which could lead to higher discounting amid strong competition from Honda.

Emkay, in contrast, reports that the two-wheeler industry's wholesale volumes are performing strongly, with many categories seeing double-digit annual growth. The brokerage highlights that stable inventory levels, favorable monsoon conditions, and the upcoming festive and wedding season are likely to positively impact vehicle dispatches in the near to medium term.

From April to August 2024, Hero MotoCorp's retail market share declined by 310 basis points to 28.8%. As of September 2024, it fell to a new low of below 24%, now 400 basis points behind Honda.

UBS attributes this decline to significant erosion in commuter motorcycle volumes, despite the successful launch of the Xtreme 125. It also cites competition from Honda Shine and Bajaj Freedom, as well as a shift towards scooters and electric vehicles in smaller towns, as potential threats to Hero's customer base.

Conversely, Emkay believes Hero's market share loss is behind it, suggesting that Honda's market share may have peaked. It highlights Hero's growth prospects and anticipates that the full-year impact of the Xtreme 125R launch will help recover lost market share, projecting a 50 basis-point improvement in the domestic motorcycle market from FY24 to FY27.

Emkay values Hero MotoCorp's core business at 24 times forward its Sept'26 price to earnings ratio. The brokerage believes valuation remains favourable, given the 17% core earnings per share compounded annual growth rate. Emkay also sees scope of potential re-rating from the successful product launch of Xtreme 125R.

UBS notes that the stock is trading at a price to earning ratio of 26 times its FY26 estimates, which is higher than the company's five-year historical average.

Talking about all the analysts that track Hero MotoCorp, the view does seem largely bullish, as per Bloomberg.

Out of the 42 analysts tracking the stock, 28 analysts recommend a 'Buy', 6 maintain a 'Hold', and 8 analysts suggest a 'Sell' call on the stock.

However, the average 12-month price target stands at Rs 5,403.95, which suggests a 11.2% downside in share price.