Hero MotoCorp Ltd's June 2024 quarter (Q1 FY25) revenue and EBITDA surged 16 per cent and 21 per cent year-on-year (YoY) to Rs 10,140 crore and Rs 1,460 crore, respectively, in line with estimates, Nuvama Institutional Equities said. The domestic brokerage has maintained its 'Buy' call on the two-wheeler maker's shares but reduced the target price to Rs 6,200 from Rs 6,300 earlier.
"The company is poised to benefit from the 2W industry upcycle in rural/urban areas, with existing models and recent launches such as Xtreme 125, Harley/Mavrick 440 along with Karizma 210, and upcoming models such as Xoom 125/160 and EVs. We are cutting FY25–27E EPS by 3–5 per cent, building in lower realisation/margin," Nuvama stated.
"HMCL is a key beneficiary of the likely uptick in rural demand owing to its strong network. We forecast revenue/earnings CAGR of 8 per cent/10 per cent over FY24–27E with healthy FCF (Rs 4,100 crore/year) and dividend yield (3 per cent). Maintain 'BUY' with TP of Rs 6,200 (earlier Rs 6,300) based on 23x PE and value of investments/cash at Rs 658/share," the brokerage also said.
"Other income grew 4 per cent to Rs 230 crore. Overall, adjusted PAT (profit after tax) increased 14 per cent YoY to Rs 1,120 crore (estimate: Rs 1,120 crore), in line with estimates. Share of losses from associates was Rs 54.14 crore versus Rs 94.49 crore in Q1 FY24," it added.
Nuvama mentioned that HMCL is focusing on building its presence in the premium motorcycle segment driven by new products and the ongoing transition of outlets towards premiumisation.
"The upcoming launches of Xoom 125/160 are aimed at strengthening the company's position in the domestic premium scooter market. HMCL has launched the Vida V1 model and expects to launch more scooters and motorcycles in due course. It shall launch four scooters in FY25 across use cases," it stated.
However, the brokerage flagged lower-than-expected growth in the domestic 2W market, leading to a cut in revenue assumptions; failure of new launches in EVs, scooters and premium motorcycles; spike in commodity prices; and adverse currency movement as key risks to the company's growth.
Technically, Hero MotoCorp's counter traded lower than the 5-day, 10-, 20-, 30-, 50-day and 100-day simple moving averages (SMAs) but higher than the 150-day and 200-day SMAs. The counter's 14-day relative strength index (RSI) came at 35.77. A level below 30 is defined as oversold while a value above 70 is considered overbought.
As per BSE, the company's stock has a price-to-equity (P/E) ratio of 23.78 against a price-to-book (P/B) value of 5.64. Earnings per share (EPS) stood at 213.37 with a return on equity (RoE) of 23.72.
Hero MotoCorp shares slipped 3.18 per cent to settle at Rs 5,074.05 on Wednesday. Indian equity benchmarks were closed today (August 15) to mark Independence Day. The domestic bourses will reopen on August 16, 2024 (Friday).