Hero MotoCorp shares: Why analysts see 30% upside on this two-wheeler stock post Q2 results

Shares of Hero MotoCorp rallied more 5 per cent during the trading session on Monday after the two-wheeler major reported a strong set of numbers in the September 2024 quarter. Brokerage firms continue to remain positive on the auto counter and see up to 30 per cent upside in the stock.

Hero MotoCorpsaw a 14 per cent YoY increase in its net profit to Rs 1,204 crore due to a sharp rise in volumes. The world's largest two-wheeler manufacturer company registered an 11 per cent YoY growth in revenue at Rs 10,463 crore, while Ebitda was up 14 per cent YoY to Rs 1,147 crore.

Hero Moto's Q2 revenue and Ebitda grew 11 per cent and 14 per cent YoY, slightly above estimates. It is well-placed to benefit from the 2W industry upcycle in rural/urban areas with strong brands, recent launches such as Xtreme 125R, and upcoming variants such as Vida Z EV, Xpluse 210, Xtreme 250R, Karizma XMR 250 and Xoom 125/160, said Nuvama Institutional Equities.

"HMCL is a key beneficiary of the likely uptick in rural demand owing to its wide network. We forecast revenue and core earnings CAGR of 8 per cent and 10 per cent over FY24–27E with healthy FCF and dividend yield," it added, maintaining a 'buy' with a target price of Rs 6,200 based on 23 times PE.

Hero Moto reported a healthy quarter driven by increase in ASPs on better mix, with underlying ICE margins expanding by 160 bps YoY to 16.5 per cent. It expects continued growth in the 2W industry with outperformance seen amid returning rural demand, ramp-up in 125cc motorcycles, and upcoming product actions across segments, said Emkay Global.

Near-term outlook is improving amid rural revival and ongoing festive season, said the brokerage. However, it trimmed its EPS targets factoring in gradual demand improvement on account of the generally moderating economic outlook, Emkay added with a 'buy' rating and a target price of Rs 6,200.

Following the quarterly results announcement, shares of Hero MotoCorp surged more than 5 per cent to Rs 4,835.90 on Monday, commanding a total market capitalization close to Rs 97,000 crore. The scrip had settled at Rs 4,604.30 in the previous trading session on Thursday.

Hero MotoCorp shares have corrected sharply in the last two months, falling nearly 27 per cent from its 52-week high at Rs 6,245 in September 2024 quarter.

Nirmal Bang Institutional Equities believe the risk reward remains favourable given the reasonable valuations amid the recovery in the entry segment. The company is also working on multiple strategies to consolidate its market share. The festive season fortified the expectation of positive rural outlook on the back of improving consumer sentiments, it said.

"We maintain 'buy' rating on Hero Moto with a target price Rs 5,934, valuing the standalone business at 18 times September 26 EPS and also the stake in Ather and Hero Fincorp at Rs 192 per share and Rs 605 per share respectively at 20 per cent discount to the recent transaction value," Nirmal Bang added.

Motilal Oswal chopped its FY25 EPS estimates by 1 per cent but a much higher 11 per cent for FY26 as we lower our volume growth expectation and also moderate our other income estimates. Post the recent correction, stock is attractively valued, it said, reiterating 'buy' rating on the stock with a targe price of Rs 5,420.

Hero MotoCorp reported an in-line performance in Q2FY25, said Choice Broking. "We see HMCL to benefit from rural recovery on expectation of normal monsoon, rural recovery, traction in entry level bikes. As a long term strategy road map like showroom revamp, upgradation of portfolio with new launches will support volume growth better than industry," it said with a 'buy' and a target price of Rs 5,314.

Among the overseas brokerage firms, Nomura and Jefferies have maintained their 'buy' ratings on Hero Motocorp with a target price of Rs 5,805 and Rs 5500 on the stock.