But weak volumes resulted in a 27.5 per cent decline in standalone net profit for the two-wheeler maker in the March quarter at Rs 627.05 crore. Analysts said Hero’s Ebitda missed estimate but, adjusted for lumpy other expenses, it was in line. Gross margin surprised positively due to price hikes and cost reduction efforts, they said.
The price targets on the stock suggest a potential upside of 13-33 per cent over Wednesday’s price of Rs 2,496.70.
“Stock catalysts include a rebound in 2W demand and incremental announcements on the EV business,” said Emkay Global in a note.
Hero MotoCorp, says Axis Securities, has been witnessing weak demand trends for the last one year due to Covid-19 led headwinds in two-wheelers, especially in the entry-level motorcycles segment.
“However, the 2W industry volumes are likely to bottom out after 3 consecutive years of volume decline. Moving forward, we expect the growth to revive with the economy normalising and picking back up to pre-Covid levels. HMCL is a good proxy on a rural market recovery, with its stronghold being the 100cc Motorcycle segment. The company’s sustained efforts to expand its footprint in exports, premium bikes, scooters, and EVs is also expected to augur well over the medium term,” Axis Securities said.
The stock has seen derating recently, with the average target price on the counter dropping Rs 3,463 a piece sometime in March 2021 to Rs 3,067 level recently, as per data available with Trendlyne.
Post Q4 results, JM Financial has cut its target on the counter to Rs 3,200 from Rs 3,600.
YES Securities has marginally increased its target to Rs 2,833 from Rs 2,825 earlier. Emkay increased its target to Rs 2,940 from Rs 2,850 while Nirmal Bang Institutional Equities cut its target to Rs 3,323 from Rs 3,738. Motilal Oswal Securities and Axis Securities sees the stock at Rs 3,000; IDBI Capital sees it at Rs 2,872.
Motilal Oswal also felt the segment is near the bottom from a demand perspective.
“This, coupled with stable commodity prices, can drive earnings over the next two-to-three years,” it said, adding that Hero MotoCorp has low vulnerability to EVs, as it garners just 8 per cent volumes from scooters and its core 100cc motorcycle is less prone to EVs.
The company plans to launch its first EV product in July and has lined up investments and new product launches over the next few years.
“We raise FY23 EPS forecast by 5 per cent and FY24 by 4 per cent. At 12 times FY24 EPS, we find the stock fairly attractive. Better confidence on growth in end-demand should drive rerating,” said IIFL Securities.