Hero Motocorp: IIFL Investor Conference

14 Feb 2024 , 02:00 PM

Analysts of IIFL Capital Services hosted the management of Hero MotoCorp at IIFL’s Enterprising Bharat – 15th Global Investors’ Conference. The 2W industry is seeing a revival with 11-12% volume growth in FY24. Mgmt. guided to double-digit revenue growth in FY25; this implies mid-to-high single digit volume growth. Retail sales momentum has continued post festive; dealer inventory has come off. Mgmt.’s focus is on premiumisation (several new models), filling model gaps and expanding EV portfolio. ‘Passion’ and ‘Glamour’ models have seen sharp volume spike post re-launch. Hero has lost share in 125cc, but expects the new Xtreme 125 to help it regain share. Mgmt. believes that Hero’s initiatives – premiumization of existing stores, new Premia stores for high-priced models, launch of several new models (ICE + EV) – will revive the entire franchise and put Hero on an industry-leading growth trajectory while capturing evolving future trends. 

2W industry helped by revival in low-end segment: 

2W industry is still below pre-Covid as low-end segment demand was hurt by high inflation in vehicle prices, and resultant sticker-shock. In recent times (from 2023 festive), low-end segment and hence, the overall 2W industry is seeing a revival. This has also coincided with revival in rural markets. The industry is likely to end FY24 with 11-12% vol. growth. Mgmt. guided to double-digit rev growth for the industry in FY25, implying mid-to-high single digit vol. growth. 

Segment-mix, geographical-mix and new models to drive mkt-share gains for Hero: 

The revival in economy segment and uptick in rural markets work favourably for Hero. In North India (Hero’s strong-point), demand is improving. In South and West India, Hero is improving market-share led by premium offerings. The revived Passion & Glamor models are clocking higher volumes. Hero launched Karizma, Harley X440, Mavrick 440, Xtreme 125 and plans to launch 2 scooters in 1QFY25. Hero is modernising dealerships (Hero 2.0) and launching Premia stores for its higher priced models. 

2W electrification to increase gradually; expect Hero’s volumes to jump in FY25: 

Mgmt. expects EV penetration in scooters industry to reach 30% in 3 years. This translates to overall 2W industry EV penetration of 10- 12% vs 5% now. Hero plans to launch affordable EVs in FY25, which should drive up volumes from the current 2,000 per month. However, EVs may remain a drag in the near-term, denting Ebitda margins by 100-150bp.