Daijiworld Media Network - Mumbai

Mumbai, Aug 9: Two-wheeler major Hero MotoCorp Ltd (HMCL) delivered a strong performance in the June quarter (Q1 FY27), beating estimates across most key parameters as higher volumes and improved realisations lifted revenue, while operating performance remained resilient despite commodity cost pressures.

The company expects the momentum to continue into the September quarter after industry volumes grew 14 per cent year-on-year (Y-o-Y) during the June quarter, with Hero MotoCorp outperforming the sector with a 22.7 per cent increase.

For FY27, industry volume growth is expected to remain in the high single digits. While the sales outlook remains positive, supported by new products and refreshed models, the company's ability to outperform the industry and protect margins amid rising input costs will be key.

Hero MotoCorp's revenue rose 35.7 per cent during the quarter, aided by a 22.7 per cent Y-o-Y increase in volumes to 1.7 million units, although the growth came on a lower base. Price realisation rose 10.6 per cent Y-o-Y and 3.8 per cent quarter-on-quarter to Rs 77,500 per unit.

Average selling prices were further supported by a 30 per cent Y-o-Y increase in revenue from the high-margin parts, accessories and merchandising businesses.

In the motorcycle segment, 100cc volumes increased 11.5 per cent Y-o-Y, taking the company's market share in the segment to 85.8 per cent. Volumes in the 125cc category rose 45.4 per cent, indicating stronger traction in premium commuter motorcycles.

In scooters, internal combustion engine (ICE)-based volumes surged 84 per cent Y-o-Y, taking Hero MotoCorp's market share to 6.9 per cent. The company's Vida electric vehicle (EV) business also recorded strong growth, with volumes rising 151 per cent Y-o-Y and retail sales increasing 163 per cent to 57,000 units.

Vida's EV market share improved to 10.9 per cent, while EV production capacity is expected to triple to 45,000 units by the end of FY27.

Subhash Gate and Heet Chheda of Choice Equity Broking expect refreshed products and an improving premium mix to sustain growth. The brokerage remains positive on the stock, citing strong visibility across entry-level motorcycles, scooters, EVs, exports and new launches as key drivers of medium-term earnings growth.

However, Choice Equity Broking cut its FY27 and FY28 earnings estimates by around 5 per cent each to account for continuing margin pressure. It retained its 'buy' rating with a target price of Rs 6,450.

Motilal Oswal Research said improving rural sentiment should support stable demand for Hero MotoCorp. The brokerage also highlighted the company's steady outperformance in both EV and ICE scooters, while exports have begun to outperform, albeit from a low base.

Analysts led by Aniket Mhatre expect Hero MotoCorp's revenue to grow 10 per cent annually, operating profit by 8 per cent and net profit by 9 per cent between FY26 and FY28. Motilal Oswal has retained its 'buy' rating with a target price of Rs 6,560.

The standout performance in Q1 was operating profit. Gross margin contracted 480 basis points Y-o-Y to 28.5 per cent, but operating profit beat estimates due to tight control over other expenses.

Other expenses increased only 9 per cent Y-o-Y despite a 23 per cent rise in volumes. As a result, the company limited the decline in operating profit margin to 110 basis points despite the sharp contraction in gross margins.

Hero MotoCorp expects commodity costs to rise marginally in Q2 and plans to offset the impact through a better product mix, cost savings and postponement of non-essential expenses.

Prabhudas Lilladher Research said better product mix and pricing supported revenue growth, while cost savings and operating leverage helped partially offset commodity headwinds.

The brokerage said the company's near-term focus would shift towards volume and absolute operating profit growth while maintaining its medium-term margin guidance of 14-16 per cent. It retained its 'accumulate' rating with a target price of Rs 6,000.

At the current price, Hero MotoCorp shares, which have gained around 16 per cent over the past month, trade at 19.6 times estimated FY27 earnings. This remains at a discount to the stock's five-year average valuation.