Hero MotoCorp share price falls 4%, analysts bearish on valuation despite strong Q3 results

Shares of Hero MotoCorp Limited  slumped 4 percent to Rs 4,723 on February 12 morning following bearish calls with subdued target prices by multiple brokerages, who say the stock is overvalued. Brokerage pessimism is despite the two-wheeler major posting better-than-expected results in the December quarter.

In the third quarter, the company registered a 51 percent on-year growth in net profit at Rs 1,073.38 crore led by easing input costs, operative leverage, higher average selling price and a surge in volumes.

The company reported a robust 21 percent increase to Rs 9,723.73 crore. The company clocked a revenue of Rs 8,030.98 crore in the corresponding quarter of the previous fiscal.

Stock call: Should you buy, sell, or hold Hero Moto stock?

Analysts at Emkay have a "reduce" call on the stock with a target price of Rs 4,800, a downside of over 2 percent from the last closing price.

Current valuations largely capture the cyclical recovery as the stock has given a return of over 91 percent in the last year, the brokerage firm said. "While the company is accelerating its portfolio and reach actions to improve positioning, the effect on market share remains a key monitorable.

Global brokerage firm Morgan Stanley is "underweight" on the stock with a target price of Rs 3,638, a downside of 26 percent from the previous close.

It cited disruption risk in the core segment and elevated valuations for the rating.

Nomura Financial Advisory Services is "neutral" on the Hero MotoCorp stock, saying the execution strategy in the 125cc segment, electric two-wheelers and Harley Davidson is a key parameter for re-rating. It has a target price of Rs 5,356.

"Margins were supported by commodities, leap savings and price hikes," it further said.

Goldman Sachs has a "sell" and has revised the target price to Rs 3,730 .

The ICE two-wheeler segment is 16 percent of the EBITDA margin, which advanced 2.5 percent on-year. "ICE 2W portfolio is enabling 125 to 150 basis points of annualised EV business investment," the firm further added.

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What could work for the stock?
CLSA has an "outperform" call with a target price of Rs 5,246, an upside of 7 percent from the last close. The brokerage said the company will gain market share in the 125cc segment with its new launches. The management has highlighted a double-digit growth for the industry.

Nuvama Institutional Equities has a "buy" call with a target price of Rs 5,600. The brokerage expects an improved presence in premium motorcycles on the back of new products and the commencement of exclusive premium outlets as the company eyes 100 Premia outlets in the next six months, and an upgradation of 400 existing outlets in three months (300-plus completed).

"Hero has started with the Vida V1 model and expects to launch more scooters and motorcycles in the future. Four scooters are to be launched in FY25 across use cases and multiple motorcycles to be launched across use-cases from FY26 onwards", Nuvama said in a report.

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