Hero MotoCorp hits over seven-month high; stock surges 56% in 3 months

Analysts at ICICI Securities believe HMCL has potential growth tailwinds in H2FY21 from rural recovery and downtrading in motorcycles

Shares of Hero MotoCorp (HMCL) rallied 5 per cent on Wednesday and hit an over seven-month high of Rs 2,544 on the BSE on Wednesday on expectation of demand recovery post the lifting of the lockdown.

The stock of the two-wheeler company was trading at its highest level since November 18, 2019. In the past three months, the stock has outperformed the market by surging 56 per cent, as compared to 34 per cent rise in the S&P BSE Sensex.

The demand recovery would be led by rural markets (superior cash flows via farm, MNREGA activities). Hence, the relative preference for rural-facing auto segments, two-wheelers stays and HMCL’s high rural exposure (>50 per cent demand) tilts near term beneficiary scales in its favour.

As per company, revenues for January-March quarter (Q4FY20) would have been Rs 7,400 crore and underlying EBITDA (earnings before interest, taxes, depreciation and amortization) margin 13.5 per cent if not for the Covid related impacts.

Analysts at ICICI Securities believe HMCL has potential growth tailwinds in H2FY21 from rural recovery, downtrading in motorcycles. However, in case urban (read high Covid impact) customers seek increased personal transportation scooter segment could stand to gain, HMCL remains a weaker player in this category, it said with ‘hold’ rating on the stock.

“The COVID-19 pandemic has added uncertainty to an already weak demand environment and anomalies due to the BS6 transition. Post lifting of the lockdown demand recovery is underway and initial feedback has been positive, probably driven by pent-up demand. This is largely discounted in the price due to Hero’s recent outperformance,” Motilal Oswal Securities said in sector update.

At 01:19 pm, the stock was trading 4.5 per cent higher at Rs 2,526 on the BSE, as compared to 0.22 per cent decline in the S&P BSE Sensex. A combined around 3 million shares have changed hands on the NSE and BSE so far.