Hero MotoCorp Limited (HMCL) is an Indian multinational motorcycle and scooter manufacturer headquartered in New Delhi. The company is one of the largest two-wheeler manufacturers globally and in India, where it has a market share of about 37% in the two-wheeler industry.
The company started in 1984 as a Technological collaboration with Honda, Japan. Before this collaboration, Hero was selling Cycles under the brand name, Hero Cycles.
Hero Moto Corp was previously known as “Hero Honda” and the company is one of India’s first motorcycle manufacturers. In 2011, Honda group sold its 26% stake in the company to the Munjals (company promoters) and closed the joint venture. After the termination of joint venture, the company was renamed as Hero Motocorp.
Quarterly Earnings Growth
Hero MotoCorp reported an acceptable quarterly result for the 2nd quarter of FY23 which is supported by slight growth in volume and realisation. Revenue from operations were reported at Rs 9,158 crore in September 2022 which is up by 7.2% from Rs 8,539 crore as in September 2021. Quarterly Net Profit was reported at Rs 682 crore in September 2022 which has fallen by 8.8% from Rs 748 crore in September 2021. EBITDA is at Rs 1,180 crore in September 2022 down by 5% from Rs 1,243 crore in September 2021. Hero Motocorp EPS has decreased to Rs. 34.45 from Rs. 37.32.
High preference for individual mobility, a positive growth in rural areas, opening up of the broader economy, and new launches, specifically in the premium segment, are the key factors which are supporting the demand and growth.
The management has reported that the worst point of poor demand is past us. Considering the pace in the demand momentum, the company has taken up to a double-digit growth in volume in the remaining FY23, on the back of a sturdy recovery in economic activities. The re-opening of educational institutions which are schools and colleges after two years is expected to turn demand around. Additionally, the wedding season, good monsoon, and a positive rural sentiment are the major factors that are expected to keep demand healthy.
Multiple EV products into fabrication
The company has been searching for opportunities in the electric vehicle (EV) segment which may turn out to be a major demand driver in the upcoming years. The company’s EV project is at an advanced stage and the product will be manufactured at its plant in Chittoor. The company plans to launch multiple domestic products in the next year.
Foray into the premium segment
HMCL has started initiating penetration into the growing premium motorcycle segment. The management wants to deliver a new category of premium motorcycles before considering on growing the market share. The company has a new line-up of multiple product launches in different segments to create the premium motorcycles range as well as the enhancement of current models.
Partnership with Harley-Davidson
A bike developed by Hero MotoCorp in collaboration with Harley-Davidson may be released into the market in the upcoming years, which was reported by Hero MotoCorp CFO Niranjan Gupta.
In October 2020, Hero MotoCorp and American Harley-Davidson have announced a partnership for the Indian market. Hero MotoCorp will develop and sell a range of premium motorcycles under the Harley-Davidson brand name in India. They will also cater to servicing and spare parts requirements for Harley bikes. They also have the mandate to sell Harley accessories and general merchandise, riding gear and apparel through a network of brand-exclusive Harley-Davidson dealers and its existing sales network in the country.
Technical Analysis
HMCL stock price has been struggling due to the effects of COVID lockdowns and the repercussions of the pandemic. The stock faces stiff resistance on the 38.2% retracement level at Rs 2806. The stock price is hovering near the 200-day exponential moving average and MFI is at 64 points. Considering the long term, the stock has bright aspects but growth in the stock price will take a few years.
The stock faces heavy competition from Bajaj Auto, Eicher Motors and TVS Motors as well as the emerging players in the electric vehicles segment. Investors can accumulate HMCL on deep corrections as the company is fundamentally strong and excellent business, which is at a reasonable valuation.
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