Hero MotoCorp shares up 17% in six months; should you buy, sell or hold?

Shares of Hero MotoCorp Ltd have climbed 16.68 per cent in the past six months, outperforming equity benchmark BSE Sensex's 6.73 per cent rise. The stock settled 0.41 per cent higher at Rs 3,007.55 in the previous session ended on Monday. On a year-to-date (YTD) basis, it has moved 10.46 per cent higher. At yesterday's closing price of Rs 3,007.55, the scrip has slipped 7.26 per cent from its 52-week high of Rs 3,242.85, a level seen on August 1, 2023. Although, it traded 33.86 per cent higher than its one-year low price of Rs 2,246.75, hit on March 28 this year.

For the June quarter (Q1 FY24), the motorcycle maker's profit, year-on-year, rose 32 per cent to Rs 825 crore. Revenue from operations rose 4.50 per cent to Rs 8,767 crore, while earnings margin before interest, taxes, depreciation and amortization rose to 13.80 per cent from 11.20 per cent a year before.

"Reported profit after tax (PAT) de-grew by 4 per cent QoQ, (up 32 per cent YoY) to Rs 825 crore and missed our estimate by 4 per cent, mainly due to the one-time VRS charge of Rs 160 crore towards employees who opted for VRS. Excluding the exceptional VRS charge, the underlying PAT grew to Rs 945 crore (10 per cent beat, up 51 per cent/10 per cent YoY/QoQ)," Axis Securities said.

The brokerage has revised its rating from 'Buy' to 'Hold' with a target price of Rs 3,150. "The company has received good initial feedback for its new launches across scooters, 125cc and premium segments (Harley-Davidson X440 with 25K+ bookings). It is hopeful that these new launches will help it gain market share in the coming 4-8 quarters as full potential from the launches materialises. We believe this will test the company’s execution capability and determine its stock performance ahead," it stated.

"The focus now will be to build electric vehicle (EV) rollout to 100 cities by December 2023 and then build EV portfolio in FY25 and reduce cost as scales build up. The guided 100 basis points (bps) dent on margins on account of EV rollout will gradually come down as EV volumes ramp up in coming years," Axis mentioned.

With the increase in the government capital expenditure in FY24, easing inflation and normal monsoon, the management expects an uptick in rural demand, it further said.

On the other hand, Prabhudas Lilladher (PL) has maintained its 'Accumulate' call for a target price of Rs 3,535. "The company is seeing indication of strong demand in the rural market and is aiming to grow ahead of the industry on back of aggressive model launch cycle across categories and gain market share. Vida (EV 2W) has already reached 36 cities and Hero MotoCorp plans to increase the count to 100 by CY23, and launch new product FY25 onwards. HD X440 has received good bookings and the company will aggressively increase its reach," PL said.

"We expect margins to improve in the near term from operating leverage, premiumisation, cost controls and stable commodity costs, it further stated.

Meanwhile, Indian equity benchmarks would remain closed today to mark Independence Day.