Xtreme 200S is very well received.
Not sure on XPulse, our market is not a big one for that kind of segment - mostly service job customers in a Tier 2 city.
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As mentioned by me in my previous post, hero motocorp has been heavily hit vis a vis Bajaj and TV’s due to lack of new technology.
Now they want to partner with Harley Davidson which already has a plant in China. Both companies are struggling in the market. Can the two tango with two left feet remains to be seen.
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Hi @hitesh2710 Sir, How do you see Hero motors now, for entry? since it has broken 2200 levels, does it has the possibility to test 1900 levels? or is it good to wait for the stock to find support and then take a call? Please share your views as it has been almost 1 year since you wrote about breaking 2470 levels. Thank you
The drop of 19% sales seems ok if compared to TVS Motors(26.76%) and Bajaj Auto(21%)…
pls note: Comparing only domestic 2 wheeler sales figures. So Hero surely maintaining or slightly growing mkt share… Hopefully market sees value in Hero now
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Hero has had trouble maintaining market share in scooters. This is the mainstay for Honda and Suzuki. Both have had no trouble as Hero, Bajaj and TVS and so their market share has increased instead.
Honda is threateningly close to Hero for market leadership.
After reading latest annual report, last 8 quarters concall, 5-6 brokerage reports here are my note.Hero_MY NOTES_Satish.pdf (4.0 MB)
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Magazine issue (15th June) by Autocar Professional completely focussed on Two Wheeler industry
My notes on Hero for reference:
Positives
Company drives its competitiveness from established brand, Customer Pull and economies of scale, pricing strategy that keeps competitors away.
The industry is Oligopoly with 5 players (Honda, Bajaj, TVS and Eicher, Hero) in the market and possibility of entry of new player is remote. Competition will not kill the players as long as they are strong in their own pockets. However,there is stiff rivalry among players, and they not act in collusion, unlike in cement industry.
Brand matters a lot for customer in 2 wheeler market and acts as huge pull for the product, Hero has undisputed leadership in Commuter Segment Bikes in India.
Company enjoys economies of scale, and hence can price its products lower keeping narrow profit margins and offering value to customers. Due to this competitors are not able to crack this segment, Bajaj even has to sell bikes at loss to keep price in line with Hero. Thus, breaking the leadership of Hero in Commuter Bike Segment is extremely difficult. Also, this displays that company thinks from long term perspective.
Hero is able to create its presence in Scooters after break up with Honda and has 25% market share there.
Cash Rich, liquid balance sheet. Company can survive for long even with losses in COVID kind of scenario.
Extremely high RoE of 50% and negative working capital.
The retained earnings are generously distributed in the form of dividends.
The company has strong focus on bikes only since last 20 years.
Company will require minimal capital for Capex when Growth kicks in and funds for capex can be arranged from Internal accrual.
The company is actively looking in Electric Vehicles space and has recently purchased 33% stake in Ather Energy, one of the leading EV player in 2 wheeler.
PE of 15 (FY 20) on quality stock like Hero looks cheap but the fact that company is not able to grow meaningfully in last 5 years, dents the argument of cheapness.
Negatives
Industry prone to Disruption from Electric Vehicles
Cyclical Industry
2 wheeler market is penetrated well in India so extraordinary growth cannot be expected. The industry shows moderate but not great growth potential.
The company is not able to enter meaningfully in premium bike segment despite multiple attempts in the past.
Company is not able to make its presence in exports where competitors (Bajaj and TVS) have made great inroads.
Sales and Earnings of Hero had been flat during last few years and hence market has not rewarded the company during last few years. Company is not able to grow meaningfully during last 10 years, Sales of bikes has been flat during this period.
Its not recurring revenue business, customers are new every time but new customers are driven by old customers unconscious branding effect.
Other facts about Hero
The owners hold 33% stake in the company.
Current Capacity - 1.1 Crore bikes
Hero Fin Comp is the lending arm of the business.
Industry
Customer would like to buy bikes of the companies that he thinks are sound and will survive for years to come as only those companies can provide service to the customer. Entry barriers, thus, are high in this industry as customers do not accept products from new companies easily.
During economic downturns, entry level bikes are expected to sell more. On the other hand, existing bike users, who want to migrate to premium bikes will move to Bajaj and Eicher.
Move to Premium bikes looks to be long term trend, probably that’s the reason Bajaj Auto and Eicher trades at Premium to Hero. Who will take away that market and how disruption will play out remains a puzzle.
Only the leader in its own pocket (Entry level, premium bikes etc) will survive and deliver shareholder value in two wheeler industry.
Automobile Industry does not have good base success rate globally. That’s because of intense competition. in India, because of the facts that 2 wheeler is oligopoly and each player is able to serve specific pockets, immense value is created in last 20 years for the shareholders.
Bikes used to be discretionary but with rise in income levels, they has become essential now.
Technology wise there is nothing new that any player can bring, except Electric Vehicles that will change the face of the Industry.
Regulatory Angle
Government policies do not have much impact on pricing of products and raw material procurement but does influence the industry , for example BS6 Regulation caused mandatory technology upgrade and made bikes costly. Same is the case with mandatory 3 years auto insurance that government initiated in past
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This looks an interesting marketing angle :
My only concern, what is the viability of this in commercial space, the image in the video, the width looks greater than a battery rickshaw. Atul Auto has already launched such an ambulance.
Disc : Invested in both HeroMoto & Atul Auto.
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Hero Moto’s stake in Ather is well known, though this development talks about their futuristic vision :
My two cents, Hero Moto is trying to leap ahead of the market. It also is very important, positive & courageous step for StartUps, when they find themselves being acquired by larger companies.
Disc : Invested in satellite portfolio.
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Intrsting update :
Pawan Munjal and Hero’s obsession towards Golf continues 
The demand looks robust and co has registered a 17% growth in September YoY sales
One more important thing to note is that they have clearly stated they are operating at 100% capacity. A price hike of 2% across scooters and motorcycles has been taken
Disclaimer - invested
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does any one has info, if this ban is still there. Also, would like to understand, how many units were sold in this market.
Really appreciate your efforts and output - I have a query on group companies:
Are all group companies mentioned in no.17 comes under listed entity i.e. heeo motocop or they are privately owned by promoters?
Similarly, investment into aster electric is done by publicly listed entity or privately owned company?
Thanks once again for summarizing in beautiful way. Learnt a lot.
Exciting News
In the month of January, Hero MotoCorp entered into a distribution agreement with Grupo
Salinas, founded by Mexican entrepreneur Ricardo Salinas. Following the agreement, the two
Companies have come together to form one of the largest distribution networks globally to
sell competitive, high-quality products in the large Mexican market. Hero MotoCorp will
launch nine products across various segments.
