Is Hero Motocorp Stock A Good Investment – Hero MotoCorp Ltd (formerly Hero Honda) is the world’s largest manufacturer of motorcycles and scooters. Headquartered in New Delhi, Hero MotoCorp has been the market leader in India’s two-wheeler industry since 2001 when it started its solo journey after parting ways with Honda. The company has delivered healthy returns to shareholders over the years. But is Hero Motocorp still a good stock to invest in for the long run? Let’s analyze in detail.
Dominant Market Position
Hero MotoCorp has maintained its strong leadership position in the domestic two-wheeler market:
- It has over 50% share in the motorcycle segment and over 35% share in the domestic scooter market.
- The company sold over 6 million two-wheelers in FY22, more than the next 3 competitors combined.
- Hero has an extensive distribution network with 9,000 customer touchpoints across India.
The dominant position provides Hero pricing power and strong brand recall among customers.
Diversified Portfolio
Hero MotoCorp has constantly introduced new models across segments to cater to diverse customer needs:
- It has over 20 motorcycle models ranging from entry level to premium bikes.
- The company offers 10 scooter models to capture rising demand in the segment.
- It has expanded into premium niche segments with XPulse range of bikes, Hunk, Xtreme etc.
The diversified portfolio insulates Hero from downturn in any particular segment.
New Product Development
Innovation has been a key focus area for Hero MotoCorp to enhance its product profile:
- It has set up a world-class R&D facility called Center of Innovation and Technology in Jaipur.
- The R&D team has developed new technologies like idle start-stop system, digital analog instrument cluster etc.
- Hero launched its first electric scooter under the Vida brand to enter the EV space.
- More electric models across bike and scooter segments are in the pipeline.
The investments in product development will help Hero maintain its competitive edge.
Strong Financials
Hero MotoCorp has maintained steady growth in sales and profitability over the years:
- Revenue has grown at 8% CAGR over FY12-22 to Rs. 30,000 crores.
- Net profit has risen at 11% CAGR during the same period to Rs. 2,600 crores in FY22.
- Return on capital employed has averaged 20% over the last decade highlighting capital efficiency.
- The debt free balance sheet provides financial flexibility.
The healthy financial performance reflects its strong brand equity and execution.
Robust Sales in Exports
Hero MotoCorp has expanded its global footprint to over 40 countries in Asia, Africa and South America.
- Exports comprise ~7% of volumes and have grown at 12% CAGR over FY12-22.
- Key export models include Splendor, HF Deluxe and Glamour motorcycles.
- It also manufactures models developed specifically for overseas markets.
Exports help mitigate risks from domestic business cycles.
Strong Parentage
After its split from Honda in 2010, Hero Group through its holding company Hero Investments Pvt. Ltd. has been the majority shareholder in Hero MotoCorp.
The reliable backing of Hero Group provides financial muscle and governance oversight. The company can leverage group synergies across functions like financing, sourcing etc.
Valuations Appear Reasonable
- Hero MotoCorp trades at a one year forward P/E of around 12x.
- The valuations seem reasonable compared to its own 5-year average P/E of 15x.
- The healthy dividend yield of over 4% also offers valuation comfort.
- Earnings growth is forecast to pick up driven by volume recovery, margin expansion and operating leverage benefits.
The reasonable valuations make the risk-reward equation favorable from a long term perspective.
Concerns
Hero MotoCorp does face some risks and challenges:
- Margin pressure from elevated commodity prices and competition
- Losing market share in executive and premium bike segments
- Demand slowdown especially in rural markets
- Chip supply shortages hampering production volumes
However, its market position, financial strength and renewed focus on EVs make it well placed to manage these risks.
Overall, Hero MotoCorp remains a solid play on India’s secular two-wheeler demand story given its market leadership, extensive distribution reach, financial track record and reasonable valuations. The company is strengthening its competitive positioning by foraying into EVs and refreshing its product portfolio. While near term headwinds remain, long term investors can accumulate the stock at declines. Hero MotoCorp remains a core portfolio holding to ride India’s consumption wave.
Is Hero Motocorp Stock A Good Investment? – FAQs
What is Hero MotoCorp’s current market share?
Hero MotoCorp has over 50% market share in motorcycles and over 35% share in scooters currently making it the undisputed leader in Indian two-wheeler industry.
What is the outlook on two-wheeler industry growth?
The two-wheeler industry is projected to grow at high single digit to low double digits supported by favorable demographics, moderate penetration levels, expanding rural economy and shift towards personal mobility.
Which all new models Hero MotoCorp is planning to launch?
Hero is gearing up to launch its new 200cc Xoom bike and electric scooter Vida V1 by end of 2022. It also plans to expand its premium portfolio with more launches in 2023.
What is the update on Hero MotoCorp’s electric vehicle plans?
Hero MotoCorp is readying the launch of its first electric scooter Vida V1 by end of 2022. Over the next 5 years, it aims to launch 10 EV models across different categories as it makes a gradual transition towards electrification.
How does Hero MotoCorp compare with its key competitor Bajaj Auto?
Hero scores over Bajaj in terms of market share, distribution reach, and rural penetration. However, Bajaj has stronger presence in 3-wheeler and premium bike segments. Bajaj also has a headstart in electric 3-wheelers.
What is the outlook from analysts for Hero MotoCorp stock?
Most analysts have a positive outlook on Hero MotoCorp with expected upside of 15-20% from current levels driven by volume recovery, margin expansion and benign valuations. It remains a preferred pick in the 2-wheeler space.
What are the key risks and challenges for Hero MotoCorp?
Key downside risks are slower than expected demand recovery especially in rural India, loss of market share to competitors, raw material cost inflation impacting margins and increased competitive intensity with advent of newer models.
Conclusion
In summary, Hero MotoCorp remains a robust franchise to play the India two-wheeler story from a long term perspective. The company boasts of a strong brand, extensive distribution network, new product pipeline and solid financial position. While the near term outlook remains challenging, long term investors can buy the stock in a staggered manner on dips for a 5-7 year horizon. Hero MotoCorp remains a core portfolio stock to ride structural upside in domestic two-wheeler demand.
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