Prabhudas Lilladher's research report on Hero Motocorp
We attended a session organized by Hero MotoCorp (HMCL) top management, and see HMCL making strategic decisions in the right direction. We agree with the management with regards to continued premiumisation in 2W industry and see their increased focus on the same to be positive. New leadership could bring in new energy at company level and help increase odds of success which has been limited in scooters and premium segment. HMCL aims at robust 2W growth and is looking at new launches, premiumisation and financing as forerunners of this growth. The company also laid out a “Changing gears” strategy to focus on 1) core business segment growth; 2) win in premium segment and 3) build leadership in EV segment. Mgnt. indicated that it wanted to adopt frugal engineering to reduce fixed costs, achieve step change in EV costs through localization and improve model mix.
Outlook
We are positive on HMCL as we see c11% CAGR revenue growth and margin expansion (c170bps) over FY23-FY25. Maintain ‘BUY’ rating with a TP of Rs 3,200 at 15x Mar-25E standalone EPS (Rs 87 for Fincorp and Rs 78 for Ather). The company trades at nearly half the PE multiple compared to peers. However, we will wait for things to start moving on ground before considering prospects on re-rating the stock.
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