Hero MotoCorp shares slide 3% as UBS maintains 'Sell' on weak rural revival

Hero MotoCorp share: According to UBS, the market's optimism around Hero MotoCorp's rural demand revival in commuter motorcycles, and a perceived turnaround in its premium 2-wheeler sales is misplaced

UBS 'sell' on Hero MotoCorp: Hero MotoCorp share price fell 2.9 per cent to Rs 4,963 per share on the NSE after global brokerage UBS maintained its 'Sell' rating on the two-wheeler company. UBS has cut its share price target for Hero MotoCorp by Rs 50 to Rs 3,300. 

At 10:20 AM, Hero MotoCorp share price was down 2.6 per cent to Rs 4,979.5 per share as against a 0.6 per cent dip in the benchmark Nifty50 index. The Nifty Auto index, meanwhile, tarded 2 per cent lower. 

According to UBS, the market's optimism around Hero MotoCorp's rural demand revival in commuter motorcycles, and a perceived turnaround in its premium 2-wheelers sales seems misplaced. 

 

"While Hero remains the most exposed among peers to rural areas (in terms of revenue and profitability), there have been significant changes to rural customers' profiles and aspirations (ie, electrification, premiumisation and scooterisation). Also, Hero's market share in its key markets (ie, mostly rural-oriented states) has fallen even more sharply than in urban areas. Thus, Hero is unlikely to benefit from a rural revival in India," UBS said in its report on October 25. 

According to the report, 77 per cent of Hero MotoCorp's volumes comes from domestic commuter motorcycles (100-110 cc). This is despite the company's multiple premium motorcycle and scooter launches. 

That apart, only five states accounting for more than half of Hero's volume (as againat one-third of industry volume), has contained Hero MotoCorp's leadership to just six of the 28 Indian states, UBS said. 

"Hero has lost market share even in those states, while being relegated to third or below in 15 of the remaining 22. We think this concentration makes Hero MotoCorp quite vulnerable, given the rapid rise of electric vehicle (EV) adoption in these markets, along with TVS Motor Company and Honda's share gains," it said. 

Losing market share

UBS analysts believe expectations of a demand revival for commuter motorcycles, led by a rural recovery, led to a valuation re-rating for Hero MotoCorp. 

However, due to EVs, which are upending ICE motorcycles' cost advantage, and a pick-up in premiumisation/ scooterisation, Hero's market share has fallen 320 basis points this year. 

"We expect its share loss to accelerate as scooters hit an inflection point and EVs displace ICE commuter motorcycles in rural areas," UBS said.  Hero MotoCorp has been a market leader in motorcycles in India, but its share in 2-W exports from India is only 6 per cent. The volume of recent launches, such as the Vida, HD X440, and Xoom scooter, is trending significantly below the company's expectations, with low-single-digit market shares in the respective categories.

 

"The Street has priced-in a commuter motorcycle revival, a turnaround in Hero's market share and reasonable EV success, which is reflected in Hero's high valuation and earnings expectations. We, however, have maintained our 'Sell' rating with the lowest target price on Street at Rs 3,300. Our FY26/FY27 PAT estimates are 14 per cent / 18 per cent below consensus, and we see further downside risks," UBS said.