Hero Motor - Leader in two wheeler

I think many of us are ignoring the fact that Hero is heavily invested in an EV start-up that is going places in Ather Energy. From setting up charging infra to the vehicle itself. It is also to be noted that Ather’s charging infra is not exclusive to Ather. (unlike apple so to speak)

Hero holds more than 31% of the company. The exact number I cannot find as it has recently converted its debt to equity so the holding should be more than the 31% prior to it. Ather is currently valued at 400m. But I think the investment from hero is strategic in nature and gives Ather access to hero’s infrastructure as well hero access to EV tech, charging infrastructure & a company producing a decent product.

Hero might end up being a proxy to the EV revolution as opposed to being disrupted by it. The stock seems to quote at a low valuation even if one were to assume that the business would show poor growth on a cagr basis for the next 10 years, the div.yield is another factor here.

While it is cyclical in nature across an entire cycle the company seems to deliver decent growth albeit in a lumpy manner.

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One thought, will EV matter at all be it disruption or riding? It could be just a change like BS 1 , 2 etc., you need to invest in companies or infra or technology and products are sold as per actual demand. EV will not increase overall vehicle sales, ppl will buy as per need and pocket. Some start ups may benefit as part of disruption as they get entry to automobile industry, other than that I see only basics working for the industry.

Btw hero also has a finance arm like Bajaj had before it got seperated as Bajaj finance. Any idea on that?

https://www.herofincorp.com/about-us is the finance arm of HeroMotors ,if that is what ur asking.

Hero motors owns 41% of finance arm.

Yes, any idea how their finance arm is doing and what are their long term plans for it? I am aware they finance 2 and 3 wheelers…remember reading somewhere that they are venturing into newer areas of lending. Is this one of their focus area? Thanks

I would suggest reading the annual report of finance division. They have elaborate details for all your questions.

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Monthly volume numbers are out. In the good old days, they used to show it in a table with YoY %. After that they started showing a headline of total volume and then mention the number last year. But this time they mentioned only the total number and no mention of last year number. And then this note.

Even amidst the challenging market environment, Hero MotoCorp continued its
efforts towards the betterment of the society by organizing a massive tree
plantation drive across seven cities in the country, under which over 2.5 lakh trees
were planted on July 21.

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Hero electric is not part of Hero Motocorp. It is owned by a different part of the Munjal family. And this is one obstacle for Hero Motocorp in entering electric two wheelers. I also recently came to know about this.

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Hero can simply take licensing rights from Ather for the same. Since they are now more than a 30% stakeholder in the company. They have been constantly increasing their stake in Ather (run through google to verify this).

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Isint it strange for a decent promoter to incubate the next decades of growth in a seperate privately owned company? I held high views of corporate governance for Hero…can someone suggest if this is a flag enough on promoter quality?

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There was one article published in LiveMint https://www.livemint.com/auto-news/family-pact-may-not-give-pawan-munjal-the-hero-brand-name-for-evs-1564079431571.html

As per this article " Naveen Munjal, a cousin of Pawan Munjal and promoter and managing director of Hero Electric Vehicles Pvt. Ltd, was vested with the rights to use the Hero brand for selling electric vehicles in the domestic market."

So if Hero Motor has to sell electric vehicle, they have to chose another brand(not Hero) and sell electric vehicle under that brand.

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This is all from when the family separated and divided the businesses.

And you are talking about corporate governance…tell me why does Hero sponsor so many golf tournaments? Are golf players a part of Hero’s target market at all?

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Well, I don’t think that’s a target customer audience at all. Infact I cannot relate why would they do that. Since you ask it and have noted this, what do you infer from this?

Officially this is for “brand building” but what does having Tiger Woods get Hero from a business perspective? Nothing. If they wanted a global icon for brand building why not some footballer?

The CEO loves golf and the golf sponsorship are a way to live it out - meet Tiger Woods, hobnob with the top players, and what not. Plain and Simple. Look at the Hero Motorcorp facebook page…so many golf posts.

I am not saying the golf money costs them in any major way - it probably is not that much spend for Hero but it has nothing to do with building brand Hero. In My Opinion.

Disc: Invested

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Hello,

Since you are invested in Hero Moto, could you please share your investment rationale.

My thinking is that electric two wheelers would first target lowest displacement bikes (stronghold of Hero). Also, due to the buzz about electric two wheelers and the resultant uncertainty, I feel the premium that Hero bikes enjoy in the resale market would come down. According to me, high resale value is the major reason Hero bikes command a premium over similar feature Bajaj bikes. Is there something I am missing.

Thanks

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Hero is a play on consumption story in Rural - it has much better penetration there and Honda hasn’t been able to make in-roads due to bad network policy. While urban market Hero is facing a lot of challenges from Honda and TVS, Rural they are still the King. I have confidence in the leadership of Mr. Sanjay Bhan also since his appointment to guide Hero through tough market scenarios.

Bajaj bikes have quality issues - Bajaj is thriving because of their amazing export business. In the industry Suzuki actually has the best quality control.

I think Hero has been very shrewd with their investment in Aether - they seem to be prepared for the EV future (though not the 2025 EV future NITI wants).

I also sell Hero Vehicles so that would be another reason.

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Can you pls elaborate what the other 2025 EV that you mention and is any other manufacturer ready for that? Also the scooters launched by hero electric recently I understand is not from the listed hero stable but from the family owned unlisted entity. Pls correct me if wrong.

NITI AAYOG had a proposal to make all 150cc and lower two-wheelers EV only from 2025. No manufacturers are ready for it, government had asked for a paper from OEMs on their EV plan and OEMs told them such a timeline is not possible. At the same time the ministers have said there is no such plan and they will let market transition in a slower fashion.

OEMs see EVs at the moment as a niche market, there is no infrastructure in place for mass EV usage and believe government hasn’t thought through any of that. They don’t think 2030 save even 2025 is possible for EV to become mandatory or even reach mass market value. All manufacturers are working on EVs though - they need EVs that deliver much more km per charge than what is currently in the Indian market. Having to wait 1 hour to charge your battery basically kills EV in consumer mind.

As for Hero Electirc, when Hero group split the businesses were divided between the brothers. You had HMCL, Hero Cycles, Hero Corporate (Insurance), they even had software, BPO, defense and whatnot businesses that were unlisted. Hero Electric is basically being driven by one of these brothers in the big Munjal family. As of now HMCL can not have any EV models with Hero branding. As to what the future holds - who knows? Hero FinCorp started by another family post split-up is very tight with HMCL while the brother who runs Hero Corporate was basically kicked off HMCL’s board. Whether or not “Hero Electric” becomes part of HMCL stable will be determined with family politics and profit.

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Hello,

Since you sell Hero vehicles, could you share your experience of how the Xpulse and the Xtreme 200S have been received by the market.

Thanks