Brokerages reiterate 'Buy' on Hero MotoCorp post Q2 results; stock rises 5%

Hero MotoCorp Q2 results impact: The world’s largest two-wheeler manufacturer, Hero MotoCorp, shares were in demand on Monday, November 18, 2024, as the scrip rallied as much as 5.12 per cent to hit an intraday high of Rs 4,840.40 per share. 

 

The surge in Hero MotoCorp share price came on the back of September quarter results, which met Street expectations. 

 

In Q2FY25, the net profit after tax (PAT) grew 14.2 per cent year-on-year (Y-o-Y) to Rs 1,203.5 crore, as opposed to Rs 1,054 crore in the same quarter a year ago (Q2FY24). The two wheeler maker’s revenue from operations soared 11 per cent Y-o-Y to Rs 10,463.2 crore, as against Rs 9,445 crore in Q2FY24.

 

 

At the operating level, earnings before interest, tax, depreciation and amortisation (Ebitda) rose 14.1 per cent annually to Rs 1,515.9 crore during the quarter under review, as opposed to Rs 1,328 crore in Q2FY25.Consequently, Ebitda margin expanded 40 basis points (bps) to 14.5 per cent in the September quarter of FY25, from 14.1 per cent a year ago.

 

On the volume front, the company sold 15.20 lakh units of motorcycles and scooters in Q2FY25.

 

Niranjan Gupta, chief executive officer (CEO) of Hero MotoCorp said, “We are also planning a slew of launches in the scooter segment, covering both ICE and EV. We will have 3 models coming in ICE scooters by March 2025, containing many first in class and best in class features. Our VIDA market shares continue to move up, and we will be expanding the portfolio to cover all price segments soon.”

 

Gupta added, “The recently concluded festive season saw us clocking our highest ever retail sales at 16 lakhs units, backed by higher demand from the rural sector. We believe that the strong monsoon will help the momentum in the Industry going forward. The fundamentals look good for the Indian economy in general and the 2 wheeler industry in particular.” 

 

Given this, here’s what top brokerages said about Hero MotoCorp Q2 results:

 

Nomura   

Japan-based brokerage firm Nomura analysts anticipate a 10 per cent growth in the two-wheeler (2W) industry over FY25-26, driven by balanced growth and favourable monsoon conditions. They note early signs of recovery in rural demand (which contributes about 54 per cent to sales) and stable internal combustion engine (ICE) margins above 16 per cent. With reduced EV-related drag due to new model launches and PLI benefits, analysts believe, margins are expected to improve further.

 

For FY25/FY26/FY27, analysts project volume growth of 7.5 per cent/6 per cent/5 per cent (up by 1 per cent) and Ebitda margins of 14.6 per cent/15 per cent/15 per cent. The overall earnings per share (EPS) estimates remain unchanged. Moreover, Nomura has increased its target price to Rs 5,805, from Rs 5,663, valuing the stock at 18x average FY27 EPS, and maintained a ‘Buy’ rating.  The New York-based brokerage firm Jefferies has also reiterated its ‘Buy’ rating for Hero MotoCorp, for a target price of Rs 5,500 per share, according to reports.    

Motilal Oswal  

 

Those at Motilal Oswal said that Hero MotoCorp delivered in-line operating performance for Q2FY25, with an ICE margin of 16.5 per cent (up 160 bps Y-o-Y). However, the ramp-up of the Vida EV business caused a 200 bps contraction in margins for the quarter. Festive period volumes grew 13 per cent, with sustained momentum expected, supported by the ongoing marriage season and improving rural demand, analysts highlighted.

 

However, the brokerage has lowered its FY25 EPS estimate by 1 per cent and FY26 EPS by 11 per cent, factoring in reduced volume growth and moderated other income estimates. Despite this,analysts believe, the stock is attractively valued at about 20x/18.5x FY25E/FY26E EPS. Thus, analysts reiterated a ‘Buy’ rating with a target price of Rs 5,420, valuing it at 19x Sep’26E EPS, plus contributions from Hero FinCorp and Ather (post a 20 per cent holding company discount).

 

Nuvama   

Nuvama highlighted that Hero MotoCorp’s Q2FY25 revenue and Ebitda grew by 11 per cent and 14 per cent YoY, respectively, slightly exceeding estimates. The company is well-positioned to benefit from the 2W industry’s recovery in both rural and urban markets, supported by strong brand equity, recent launches (e.g., Xtreme 125R), and upcoming models, including the Vida Z EV, Xpluse 210, and Karizma XMR 250.

 

Thus, analysts forecast a revenue/core earnings compound annual growth rate (CAGR) of 8 per cent/10 per cent over FY24–27, with robust free cash flow (about Rs 3,700 crore annually) and a healthy dividend yield (about 4 per cent). They maintained a ‘Buy’ rating with an unchanged target price of Rs 6,200, valuing the stock at 23x PE and including investments/cash worth Rs 796 per share. 

InCred Equities 

 

Analysts at InCred Equities noted that the recent sharp correction in Hero MotoCorp's stock price was unexpected, even though a post-festive season sell-off in two-wheeler (2W) stocks is typical. They stressed upon that the revival of rural demand has just begun and highlighted the company's strong pipeline of new launches to sustain its growth momentum. As a result, analysts at InCred Equities maintained an ‘Add’ rating on Hero MotoCorp with a slightly adjusted SOTP-based target price of Rs 5,810 (previously Rs 5,812).  

 

InCred Equities also pointed out that the stock's price correction has brought its P/E and P/BV valuations down to their 10-year average, providing an attractive entry point for investors. Potential value unlocking from the IPOs of Ather Energy and Hero Fincorp could act as immediate catalysts. However, the analysts cautioned that demand weakness leading to price discounts remains a downside risk.