The share of Hero Motocorp has given a negative return of more than 29% in the past 5 years. It was trading at ₹ 2,867 per share as of 11:30 IST on Friday. Back in August 2017, it used to trade near ₹ 4,000. During the same period, Bajaj Auto and TVS clocked a return of 39% and 61% respectively.
The two-wheeler manufacturer has a market cap of ₹ 57,000 crores giving it a tag of a large-cap company. However, it has only lost value and market share over the years.
At the end of FY18, the company boasted a market share of 51.50% in the domestic motorcycle segment and 13.2% in the scooter business. Contrast this with today: its market share in two-wheelers stood at 35.5% as of December 2021. The company has lost sales to the likes of TVS Motor, Honda, and Bajaj Auto.
Taking its year-on-year performance, it sold 49.44 lakh units in FY22, sharply down 14.76% from 58 lakh units in FY21. Consequently, the total income declined 5% to ₹ 29,802 crores.
The domestic sub-125cc bikes accounted for 86% of Hero’s volumes. These bikes serve as entry-level products in the industry. Hero had been losing sales in its segment, at the same time having trouble clocking growth in the higher cc segment.
But there have been rays of hope lately. The company management said that the demand for its new premium launches is more than the supply as of now. Its premium variants Glamour, Passion, Splendor, and Destini models registered good sales despite being 7-10% costlier than the base model. The company has set targets to double its share to 10% in the premium segment for the next 3-4 years.
As for its steps in the EV space, Hero continues to back Ather Energy and presently owns 35% of the electric-scooter startup. It sold 2,389 e-scooters in July 2022, competing against Okinawa, Amere, Hero Electric and Ola Electric. Similarly, it has partnered with Gogoro Inc. to launch its own swappable battery scooter in FY23.
Going forward, it will be noteworthy to see if Hero Motocorp will be able to defend its market positioning. Furthermore, the challenge is also on the management to increase sales in the EV segment.
The company already has a high return on capital and low debt. If it is able to bring back its volume growth, it may bode well for the long-term investors of Hero Motocorp.
Targets
HDFC Securities has given a buy rating on the stock with a target price of ₹ 3,347 for a one-year time horizon. This results in an upside of 16.74% for the investors.
Written By – Vikalp Mishra
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