Hero Motocorp: New models to stem market-share loss

24 Jan 2024 , 11:48 AM

Recommendation: Add; Target price: Rs 4300

Analysts of IIFL Capital Services attended Hero’s dual launch event at its R&D centre in Jaipur, where the company unveiled ‘Xtreme 125R’ and ‘Mavrick 440’. They do not expect the Maverick 440 to clock high volumes, given that the ‘>350cc’ is a relatively low-volume segment. On the other hand, the Xtreme 125R has the potential to be a high-volume model, and may help Hero regain share in the 125cc segment. The company’s recent launches have not really set the charts on fire. If Hero can break its history of ‘low success rate of new models’ and make the Xtreme 125R click, it would stem market-share loss. Analysts of IIFL Capital Services current forecasts build Hero growing largely in line with the industry in FY25/FY26 (at 8-9%). 

Xtreme 125R – will it deliver on high expectations? 

Hero unveiled the Xtreme 125R, aiming to regain the lost market share in the 125cc motorcycle category (FY20 mkt share: 49.5%, FY24YTD: <20%). Deliveries are expected to commence in Feb’24. Pricing at Rs95k is largely in line with peers. However, analysts of IIFL Capital Services are surprised by the use of the Xtreme brand. The existing Xtreme brand clocks low volumes of 2-4k per month. In contrast, the Bajaj Pulsar was a strong brand with high volumes of higher cc motorcycles, which could be extended to 125cc. On a bull-case basis, if Hero wins back 10% mkt-share in the 125cc segment with this new model, it would translate to sales volume of 25k per month and contribute 5% to Hero’s overall volumes. 

Mavrick 440 may not clock high volumes: 

Hero launched ‘Mavrick 440’, a modified version of ‘Harley-Davidson X440’. While pricing has not been disclosed, it would be at a discount to HD-X440; especially as Hero would not be liable to pay royalty to Harley on this model. Deliveries are expected to begin in Apr 2024. Analysts of IIFL Capital Services do not expect this model to clock high volumes. The category (>350cc) is relatively small within the overall 2W industry. For instance, the HD X440 (launched in 2HCY23) is currently clocking only 2-2.5k per month. 

New models may help Hero stem market-share loss: 

Hero has been consistently losing market-share, both in scooters and motorcycles. Its overall share has come down from 36-37% over FY17-FY21 to 31.4% in FY24YTD. Success of Xtreme 125R is critical for Hero to stem mkt-share loss. Analysts of IIFL Capital Services current forecasts build Hero growing largely in line with the industry in FY25/FY26 (at 8-9%).