Automobiles Modest expectations by Mirae asset sherkhan
Automobile-Dec27_2024 (2).pdf (336.9 KB)
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Whats the RHP filing date for Ather Energy? If I buy Hero Motor today, will I be eligible for share holder quota?
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If Hero Moto corp had done buybacks instead of dividend, I believe they would have generated better wealth, I have done a simple analysis. I may be wrong, and any criticism is welcomed
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Interesting investment by Hero Motocorp in Euler Motors - Hero MotoCorp to invest ₹525 crore in Euler Motors, expands into EV three-wheeler market - CNBC TV18.
I had not heard of this company before. Looks like they make LCVs also besides the three-wheeler. Hero may be struggling in their core two-wheeler market, but they seem to be making thoughtful investments on the EV side. First Ather, and now this one. Of course, they seem to be having other problems currently with a wave of management exits. Remains to be seen if they can get their house in order.
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Hero Motocorp’s May sales figures were a pleasant surprise.
The number one motorcycle manufacturer was able to grow 12% yoy, which is commendable considering the base volume they were sitting on.
Their Exports have jumped 78%, VIDA jumped 166%, Scooter sales more than doubled by 104%.
The issue is not the growth but
- The VIDA EV, Scooters and Export volumes are very low at the moment vs. domestic motorcycle sales. VIDA is selling less than half of TVS and ranked fourth at the moment. This is a problem considering Hero Motocorp has the largest dealer network in the country meaning they are hardly selling VIDA to repeat customers. Exports are promising but need time to contribute considerably. Scooters are a bright spot and will be a force to reckon with once they start doing 100000 units monthly on regular basis.
- Their main volumes are coming from commuter segments. the Premium segments are not selling for two reasons. 1. The Dealership experience is bad for premium products, even at Premia outlets. Those looking to buy the Karimza XMR, Xpulse and Xtreme 250R which are high margin products just settle with alternative options. Hero sold 6 units of Karizma and 8 units of the xtreme 250. Here are the links to various dealership experiences.
https://www.reddit.com/r/indianbikes/comments/1t2cdug/hero_makes_great_bikes_but_their_dealers_are/
https://www.reddit.com/r/indianbikes/comments/1toa00p/hero_premias_bs/
Additionally, the premium market has moved onwards to 350cc plus, this means Hero needs to push the 440cc models before the 250cc if it wants to catch the premiumization wave.
- I know Hero failed with EBR bankruptcy and they have tied up with harley Davidson, but they should desperately look to acquire a premium brand like how Bajaj is working with KTM and Triumph and TVS took over Norton.
Unless Hero Motocorp addresses these three pain points, I see TVS overtaking everyone including Honda and becoming no.1 soon.
Disclosure: hold tracking quantities and follow the motorcycle market out of passion. No buy,sell or hold recommendation.
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Hero MotoCorp -
Q1 FY 27 results and concall highlights -
Revenues - 12999 vs 9579 cr, up 36 pc ( vs volume growth of 23 pc - led by better product mix )
EBITDA - 1727 vs 1382 cr, up 25 pc ( margins @ 13 vs 15 pc )
PAT - 1454 vs 1126 cr, up 29 pc
EBITDA margins impacted adversely by RM inflation, partially offset by cost savings and operating leverage
Volumes sold -
Motorcycles - 14.84 lakh, up 17 pc
Scooters ( including EVs ) - 1.93 lakh, up 107 pc ( led by 150 pc growth in sales of Hero Vida EV )
Vida now commands a 10.9 pc mkt share vs 6.9 pc clocked in Q1 LY
ICE scooter sales in Q1 @ 1.23 lakh vs 0.67 lakh sold in Q1 LY. Mkt share grew to 6.9 vs 4.6 pc
Hero Premia store count now @ 132
Company’s mkt share in 125cc category @ 17.8 pc ( vs 12.8 pc reported @ the end of Q1 LY )
Company’s mkt share in 100 cc category @ a staggering 85.8 pc ( vs 83.5 pc @ the end of Q1 LY ). This category reported a sales growth of 15 pc in Q1
Exports in Q1 stood @ 1.05 lakh vs 0.64 lakh units in Q1 LY
Revenues from sale of parts and Accessories @ 1689 vs 1296 cr, up 30 pc YoY
Notes from previous concalls -
Capex lined up for FY 27 @ 1500 cr - dedicated towards their ICE and EV scooters - both seeing strong demand momentum. Will also invest another 700 cr towards expanding their Parts / Accessories capacities
Still in the phase of building out their EV portfolio. Will again be investing aggressively in this space in FY 27 as well. EBITDA losses / unit are inching downwards with increasing scale
Have increased Destini ICE scooter’s capacity by 50 pc - recently. Will be increasing EV scooters and Xoom ICE scooters capacity by 100 pc in FY 27
ICE Scooters, EVs, Ather’ portfolio, ICE exports - all four are key focus areas for the company going forward
Company’s stake in Ather is @ 37 pc
July sales -
Consol sales volumes up 19 pc
Domestic volumes up 21 pc. Exports down 14 pc in July
Motorcycle volumes up 17 pc
Sccoter volumes up 32 pc ( led by 102 pc growth in Vida sales. Pleasure sales were flat, Xoom 125 sales grew by 43 pc )
Harley portfolio sold 1435 units in July, up 31 pc
Notes from Q1 concall -
Rural and Urban demand continue to remain strong - as seen in early Q2 trends
Hero is investing additional 1000 cr via preferential allotment in Ather Energy @ Rs 1260 / share. This will take Hero’s stake in Ather to 30.7 pc
Hero’s stake in Euler motors ( making small size Electric 3W and 4W - load carriers ) stands @ 37 pc. Euler sold 7.5k vs 4.1k vehicles in FY 26 vs FY 25
Euler Motors has already sold 2542 units in first 4 months of FY 27 ( and is now commanding 22 pc mkt share in load carrying small EVs behind Tata Motors )
Launched premium variant of Hero Vida in July ( with more range )
Vida’s manufacturing capacity now stands @ 30k vehicles / month. Should end the FY 27 with capacities ramping up to 45k units / month ( vs capacity @ 15k / month in FY 25 )
Also expanding the capacity of Splendour, Xoom and Destini models
Cash + cash equivalents on books at the end of Jun @ 12.7k cr { + they hold investments of 7k cr ( at cost ) in subsidiaries, associates like - HeroFincorp, Ather Energy, Euler Motors etc }
ICE portfolio’s margins in Q1 stood @ 15.9 pc
Aprox 60 pc of company’s EV portfolio is now PLI compliant. Expect 100 pc of their portfolio to be PLI compliant by Dec 26
Vida’s channel inventory is as slim as 2-3 days ( such is the demand ). ICE scooters channel inventory is also running @ half their historical standards
Post capex - Combined capacity of all ICE + EV scooters by end of FY 27 should be around 1.3 lakh scooters / month ( current sales are about 65k units / month ). Basically, they r doubling their scooters capacity. They r confident of demand for their scooter models
Have taken price hikes across their entry level models. Have resorted to price hikes as they r confident about the ongoing demand trends
Over medium term, should be able to clock 14-16 pc kind of margins. Haven’t guided for Q2 ( or short term ) margins
Splendour capacity is being expanded by 50k / month
Across all VIDA model generations, the battery offerings have settled into four primary configurations — 2.2 kWh, 3.44 kWh, 3.94 kWh and 4.4 kWH
EV revenues in Q1 was @ 660 cr ( aprox 5 pc of consol revenues ). Aim to grow these revenues in an aggressive manner
PLI incentives + better scale + cost reductions + calibrated price hikes - should help them turn around their EV profitability over medium term
Plan to launch EV motorcycles in next FY ( on completely new platforms with learnings from their scooter platforms )
Seeing similar growth in 2W industry as in Q1 ( ie near 14-15 pc )
Going to launch multiple premium motorcycles in next 12 months. They r fully aware that they need to ramp up mkt share in this category
Disc: hold a small trading position, not SEBI registered, posted only for educational purposes
They are seeing lot of traction for Premia due to VIDA, because Premia outlets also get preference for VIDA.
I think Hero is doing better in terms of sales under the new management. They have really stepped up their export and PAM game. One peculiar thing I noticed while perusing the FY 25-26 AR was their investment write off in Zero Motorcycles. Even MD’s letter makes mention of importance of their strategic partnership with Zero in Q1FY27 earnings concall the management also mentions that they are working on developing an electric motorcycle with them. But the writeoff is simply presented as a footnote buried in their AR and finds no mention in management commentary or earnings concall Q&A. Their stake from 6.9% has reduced to 0.8% due to some restructuring arrangement and thus they wrote off Rs 222 crores. Wonder what that is.
Disclosure : Invested
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Here’s my two lines on what Hero Needs to correct.
- Hero Karizma was/is a Halo brand. Selling a 220cc motorcycle today does not convert into a HALO brand. somebody needs to tell them that markets have matured and grown in engine capacities today. Karizma needs to have their top of the line engine tuned by experts for top of the line performance.
- Hero does not have a single retro motorcycle model in their lineup. Enfield, Classic Legends, Honda, TVS et al are banking on the retro motorcycle brigade. Where is Hero’s retro 250cc+ motorcycle?
- Hero is synonymous with passion and Splendor. It will be an uphill task to sell premium bikes like the xtreme 250r and Karizma under the Hero logo. They need to bring in a new premium brand (a sub brand like Xtreme or ZMR or XMR? with separate Premia service centers.) with no relation to Hero. Even a bread an butter brand like Maruti is able to capitalize on Nexa and sell 30L vehicles today.
- Vida needs to be exported to their main export markets now with the capacities ramped up.
- They need to market extended warranties over competition in the premium segment to make a dent.
Disclosure: Just something that needs to be shared with the mangement and not a buy /sell / hold advise.
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