Motilal Oswal Initiates 'Buy' on Hero MotoCorp, Sets Price Target of Rs 6205

Hero MotoCorp Expects Strong Growth Amid Geopolitical Headwinds

The domestic two-wheeler market has been witnessing a revival in recent months, with Hero MotoCorp (HMCL) emerging as a key beneficiary. According to a research report by Motilal Oswal, HMCL's strong outperformance can be attributed to several positive triggers, including a significant pick-up in Splendor sales post the implementation of the Goods and Services Tax (GST).

The report highlights that the 125cc motorcycle market share has also seen a revival over the last few months, driven by the launches of Glamor and the new Xtreme125R. Additionally, the company has witnessed a healthy ramp-up in scooters across both internal combustion engine (ICE) and electric vehicle (EV) segments. Furthermore, exports have also seen a strong pick-up, contributing to the company's overall growth.

However, despite these tailwinds, HMCL is likely to face near-term margin pressure due to rising input costs. The company had taken two price hikes in the fourth quarter of the previous financial year, which may provide some respite in the short term.

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The Motilal Oswal report expects HMCL to deliver a volume compound annual growth rate (CAGR) of approximately 7% over the period of FY25-28, driven by rural recovery and a ramp-up in scooters and exports. This, in turn, is expected to drive a revenue/EBITDA/PAT CAGR of 11% over the same period.

Motilal Oswal has reiterated its BUY rating for HMCL with a target price of INR6,205, based on 18x FY28E EPS, plus INR91 for Hero FinCorp and INR419 for Ather, after applying a 20% holdco discount.