Hero MotoCorp’s (HMCL) exceeded expectations in Q1FY24, with EBITDAM up 250bps y-o-y/ 70bps q-o-q at 13.8%, beating the consensus of 13.2%. Lower commodity costs, price hikes, and cost-saving measures led to ICE business margins returning to FY19 levels of 14.5%.
Despite the growing EV market, HMCL aims to maintain strong margins of 14-16%, focusing on growth and market share. Anticipated retail recovery is supported by a new product pipeline (EVs, Karizma, Harley models, executive-level models), a robust rural demand base, and reduced TCO inflation, especially with the upcoming festive season. Maintain ADD with aDCF-based TP of Rs 3,431.
Looking ahead, our primary focus at HMCL will be on growth and market share, considering our profitability is already at optimal levels. We’re aiming for double-digit revenue growth in FY24, supported by a robust pipeline of new products (FY24 will witness an all-time high in new launches), the potential in the rural demand base, and a normal monsoon. H2FY24 is expected to be particularly strong as the festive season retail activities are likely to commence from October this year.
Our inventory levels currently stand at around 6 weeks, positioning us well to meet the upcoming retail demand for the season.
HD X440 has already garnered over 25,000 pre-bookings, prompting the company to temporarily halt online bookings. The strategy now focuses on developing a pull-based model rather than a push-based one. In addition to the 26 existing Harley outlets across India, HMCL plans to utilise its upcoming 100 premium stores, designed for EVs and the premium portfolio, to sell the X440. The main objective in FY25 is portfolio expansion, followed by achieving scale and further margin improvement.
The strong current margins provide a foundation for investment in the EV business, helping HMCL absorb potential losses as EVs gain traction in the near future. While the EV business margin impact was around 70bps during the quarter, the expectation is for cash burn per unit to decrease over the next 2-3 quarters due to higher volumes and increased localisation efforts.
HMCL is actively expanding its charger network and has formed a partnership with Ather to create an interoperable charging network, enhancing the EV infrastructure.