Analyst Meet Update: Hero MotoCorp Ltd – ACCUMULATE – TP Rs.3473

We attended the analyst meet of Hero MotoCorp. Management discussed their upcoming new products and touched upon broader aspects of the two wheeler industry.

Key Highlights

¾ HMC is making yet another attempt to improve its presence in the scooter segment by launching two products (of existing brands) in the 125cc category. Management highlighted that the 125cc scooter segment is a fast growing segment with 60% volume growth as buyers move up the value chain. HMC do not have presence in the 125cc scooter segment which accounts for 20% of the overall scooter volumes. Company has also renewed its focus back on the premium motorcycle segment. HMC will be targeting this segment with Xtreme 200R. On exports, the company highlighted that the scale-up is taking more time as expected initially. However, the company is working towards its ambition of expanding its presence in the export market.

Outlook and Valuation

¾ We expect healthy volume growth for the company in FY19-FY20. Pickup in rural demand, (HMC is large player in rural areas) has led to improved demand for motorcycle. Expected good monsoon and government measures to improve farm income will likely keep rural demand healthy in the near to medium term. Further, we expect new products to add to the growth for the company. While there are certain near term headwinds to the margins, we expect the margins to improve over the medium term. We retain ACCUMULATE rating on the stock with unchanged price target of Rs3,473.