I agree with the point that people may end up damaging/breaking their batteries, but eventually the user has to replace his battery and there can be checks to ensure battery is ok. And if there is any damage the contract with the user can be cancelled which would make his bike unusable, so people may be more careful.
Refer to point 8 in Gogoro Network
Gogoro would already have faced these scenario’s and could help with know-how.
Disc: Invested
@madhug and @mhemendra , thank you for your replies. The multiple segments approach helps piece this together. Hadn’t thought of it that way. Also Gogoro’s cautious approach (laid out in the T&C) and experience in other places would come in handy.
I wonder if the investing thesis at Hero should really be about the Electric space (be it Ather or Gogoro). These are potential growth shoots going ahead - but we need to be cognizant that EV buyers will not be a fresh lot of buyers expanding the market - but rather replacement for ICE customers.
Also, rapid adoption in India like the west is still guesswork - the understanding of EV amongst a 2 wheeler buyer in a developed country would be substantially different from an Indian buyer.
That said, I believe certain other points make Hero an interesting option:-
One of the largest 2 wheeler companies in the world quoting at a market cap of <50k Cr currently - overall looking at valuations elsewhere this seems reasonable
Auto is cyclical. Currently Hero is against significant headwinds on various fronts - be it subdued rural demand, high raw material costs, supply issues. From a long term perspective if I was interested in contrarian investing, all this ticks the box
When rural demand does comes back - it should come back with an element of pent up demand from affordability issues currently. Additionally margins should be interesting in case the commodity prices cool off - I doubt the players will reverse their price increases
Current dividend yield also seems attractive - suitable for a long term position and waiting for it to play out
My core thesis is nowhere influenced by this - but even in EV through Ather and Gogoro they could do reasonably even if players like Ola are coming up. Selling a market leading number of bikes through a well entrenched dealer network is very different from generating buzz by pre booking for INR 499.
Exports are still a good potential market - specially markets where Bajaj has done well and Hero can aim to compete
I think we discount strength of brand when looking at the competitive landscape. A bike is a purchase close to first time buyers, they would rather try a product rather than online booking it. They could also show a preference towards established brands and reliability considering it is a very important purchase for most of them - an area where a Hero or Bajaj is much better off than a new incumbent.
In the long term, if tailwinds appear like an auto upcycle, resolution of supply issues and renewed rural demand, things could start to look positive.
Discl : Invested for the long term. I am not a SEBI advisor, this is not investment advice and investor should do their own due diligence.
Very realistic observations. Offlate, i feel there is much ado about nothing on some of the pessimistic views being aired about Hero.
EV is currently at a nascent stage and not even in all 2-wheelers, but only in scooters. Scooters constitute less than 30% of the overall 2-wheeler market. Coming up with affordable EV motorcycle is a different ball-game and here, even other majors like Bajaj, Enfield, TVS are all in a wait-and-see mode, and may take 2-4 years more. Infact, TVS and Hero have a slight advantage, as they have been investing in EV technologies for their scooter forays and hence have a headstart
Hero has less than 10% of its revenue coming from scooters and any competition here from new players is only likely to have a marginal impact, even in worst case. So the argument of EVs (from own or competitors) cannibalizing other revenues doesn’t carry much weight
Also, most people seem to be underestimating the power of distribution of incumbents, especially in the Tier-2 and Tier-3 cities (from where Hero’s major revenues come from). Any new player will take many years to replicate this set-up of sales and service network
Also, as far as EV charging network is concerned, too much is said too quick. In India, as of now, everything is only on paper and no meaningful EV charging network exists even in Metro cities. And in Tier-2, Tier 3 and rural areas, it will take atleast another 5-10 years for any semblance of network to come up in India
Hero is well placed - with a combination of existing well-trenched distribution network, conscious premiumisation of its models, JV with Harley Davidson and proactive moves of investing in EV (stake in Ather + JV with Gogoro + line-up of multiple EV scooter models in the next 1-2 years). In my opinion, all this ensures that it has covered its bases very smartly, which the market is yet to recognize. At a forward PE of 14, it is grossly undervalued and once the auto-cycle kicks in (barring 3rd wave impact), the risk-reward appears to be favorable here
Disclosure - Invested in a tracking position and hence views may be biased
If market is concerned about Hero entering EV late and also Hero losing market share in scooters from around 18% in 2010 to 10% in 2021…it maybe looking at a structural issue…
I dont know if market is right here or not…few things I would look out for an answer…
Why did the flagship company simply gave away rights of “hero Electric” to other party. Did they not foresee that the future was electric when the other party saw it even back in around 2001 when they pioneered the first Hero Electric cycle (although it didnt work then as much ahead of times in India)…but at least they saw the future early and lapped up the rights when needed…what was the liability of hero motocorp that they could not negotiate a better deal here when anyhow Honda partnership was about to end in an year from partition?
If above was lack of foresight and considering the pace at which Hero Electric is advancing, why should I as an investor bet on Hero Motocorp and not Hero Electric? (i.e. if that is available in listed space). Why should I settle for a laggard…just because of valuations and hope of a turnaround in foresight?
Hero Electric did around 50k sales last year and Ola Electric sold around 1 lakh in I think few hours? (Pls correct me if wrong as I am not so good at numbers here)…what about Ather? Its also pretty early EV company and has all tailwinds in its favour…why is Ather not the buzzword today inspite of having Hero Motocorp back up? Had I been a shareholder of Hero M. since long term, I would have expected them to be leaders in EV via Ather…they had everything with Ather…the timing right, the tech, the industry tailwinds, the 1 billion $ in cash, government subsidies…why is Ather not the word of mouth for anyone talking about EV two wheelers…why this new comer Ola and why the Hero Electric?
I think Hero M. invested in one more EV company abroad which went bankrupt…again looks like lack of foresight.
With above history, I am not sure what to make out of partnership with battery swapping firm…
I am well aware EV is not even 2% of overall industry sales today but growth is here and Market is very very forward & growth looking so we need to dissect every aspect of EV to even consider a long term investment in Hero M.
I would put my long term money here only and if only I see that Hero M. has a clear right to win in EV…do they? I do not intend to play a small valuation catch up play and exit when it reaches my target IRR…
on positive side - Hero M. has done it in the past and they certainly can do it now. They can become leaders in new areas in which they are not today. They did it via partnerships before (Honda) and thats what they are looking for today as well…Management is ethical, top notch, Promoters are good, corporate governance is good, balance sheet is healthy - so ticks all boxes here…
I think from here on, an investment in Hero M. would rather be a bet on the jockey to lead a strong turnaround and eventual market leadership in EV…big question is can they?.. and how long will be the wait…
Disc: Have evaluated Hero M. multiple times for long term investing but have stopped every time because of cyclical nature of industry or some other reason. It ticks all right boxes so I have been very much interested. I think a doubt in growth is what maybe pulled me back most of the times.
This is no buy/sell recommendation. Above views personal and only for academic purposes. I can be completely wrong in all my assessments above
Very interesting & nice points. Some of the questions u asked were subsequently answered by yourself in following pts. To further clarify your view, I suggest you to plz go thru Rajiv Bajaj’s interviews & Bajaj Auto Reports of last 10 yrs.
The gist of entire EV mobility as I can understand & glean from history is this - In nascent stages, growth & huge mkt runway lures cos. to invest & build capacities. However, ultimately the game becomes one of branding/distrbution with building up a niche in particular segment. If u go thru history of ICE 4w industry or bicycle industry in India or motorcycles industry from 80s to now - its the same story playing out. Yes, history might not repeat itself, but it will most probly rhyme - The winners of 2W EV mobility will be the ones not based on technology but the ones who create/dominate certain segments with brands.
The reason one can choose Hero or Bajaj is that they’ve played this cycle thru once or twice in the past so they have experience on thr side. On the other hand however, this will e a 10-15 yr long battle before some clear winner emerges out & that may or may not e an incumbent ( atleast not clear to me as of now)
So, with today’s valuations for both Hero & Bajaj, if u are sure that ur pick will certainly come out winner 10 yrs down the line with thr experience playbook, you can surely take a call.
Disclosure :- no investments in Hero or Bajaj. Studying the entire EV space though to find out some value plays.
Thanks, Interesting points from you as well…this is true for a non disruptive industry, but for an industry which is changing so fast with emergence of even driverless cars from likes of Tesla and what not, technology would also matter significantly…foresight, technology, innovation and collaboration would matter as much as brand & distribution…infact brand would come to those who have the right tech & foresight and new avenues of distribution might open up…for example an Ola is a pan india cab aggregator…the cab drivers run cabs on EMI…a direct distribution model can work with all of these existing business owners of Ola…this is new age distribution and comes with vision…whether it will work or not in this digital age…yet to be seen…
Also, you mention that similar thing happened in history, can you pls let us know exactly what happened in history like if earlier because of huge runway some other new entrant dominated 2W and gradually Hero and Bajaj came in?
Agree it will be long battle but I think clear signs would be visible in next 3-5 years with lot of traction in next 2
Had Hero electric been a part of listed entity, I would have invested in Hero M. at even 50% higher price than what it is today…now I need to keep track how their Ather & new EV initiatives work.
Any data on Ather most welcome!
If we compare 2W to 4, incumbents in 4…the domestic MNCs are Tatas and Mahindras with Mahindra moving the EV wagon long back but just at the right time Tatas turning full throttle. Can a new entrant disrupt these two, at least I dont think so at this stage with Tata clearly a leader in EV today and already pumped huge investments and 10 plus new launches lined up already in EV space…
I think this is what I must have expected from incumbents in 2W as well…and that clearly did not happen…hence rightly they are undervalued today and future lies on the jockey and turnaround capability in EV space.
Disc: This is no buy/sell recommendation. Above views personal and only for academic purposes. I can be completely wrong in all my assessments above
So glad to hear ur counter points. Our interaction so far tells me that you are at the stage of analysis at which I was before reaching my initial conclusion ( I have probably concluded earlier 
, time will tell)
Anyways these are my inputs to fwd ur thesis & understanding vis-a-vis the points u raised broadly
(a) Tech Disruption in mobility ( including 2W & 4W)
The tech buzzwords of today seem advancement to your generation ( I assume u r younger 
) but this tech advancement has always been the case for mobility industry. below is the broader evolution : -
1920s -----> 1940s -----> 1960s ------> 2000s -------> Present
4Ws
Horse carriages -------> Initial motor driven vehicles --------> bigger, faster SUVs -----> Economic compact models -------> Initial hybrids -------> Electric
2/3Ws
Horses -------> bicycles ----------> bikes\scooters\mopeds ---------> Scooties ---------> Electric
As u can see tech disruption every 15-20 yrs has always been there in mobility industry. All of it seems new bcoz that’s how upstarts want everyone to perceive it. Yes the pace of disruption has accelerated but the conclusion has been same every single time. If u want to read in details regarding this, here are the resources : -
Rajiv bajaj last 10 yr interviews
books - The Making Of Hero; Henry Ford Autobiography - My life & work, Rise & fall of Detroit
Conclusion is different segments will be dominated by different players & will be profitable in those niches
(b) Whether the incumbents will be displaced or not - This is where things get interesting. Check this out : -
Its no coincidence that Rajiv bajaj predicted this 2 months back. It is one thing to announce & start a whole together different thing to produce, sell & service.
U raised points at Hero Electric, Hero taking stake in Ather - the counter argument is that maybe these guys are not slow to respond, but are experience enough to not respond haphazardly like the upstarts do.
So yes they are decidedly moving in that direction but are probly better aware of the challenges & better placing them to address those challenges - This will guide u in ur thesis of investing in right jockey.
Maruti Suzuki - Mass mkt budget cars - now moving to upper segments
Mahindra - SUVs - perhaps tried moving to Hatchbacks
Tata Motors - Trying to position smwhr in mid-segment with nexon
So, all in all, the existing industry story is goin to be played out again in the move to EV - 2W & 4W - dominant players in niches with tech commoditized. If u reach a different conclusion, I’ll be happy to hear out
P.S :- My apologies if the discussion has ventured into too generic space from being about HERO. Plz keep it here for 24 hrs before flagging & thn I can take this over in DM mode with @Investor_No_1
Disclosure :- Same as above
Glad to know from your experience as well. May we know what is you conclusion after all the analysis. I see you as not invested in Hero M.
With so much knowledge and extremely well read on mobility, are you invested in any 2W or 4W in Mobility in India (and Why you chose it over Hero M.) and also why you chose to stay away from Hero M will be good to know.
I am in late thirties, may I know your age group to get things into perspective? I used to think of tech as buzzword myself inspite of working for top tech companies until this Pandemic, when I saw the power of tech and how they would shape the future world. I agree that all above changes are tech but the pace of change in digital world would be much faster. I am working for a digital tech firm in mid-senior position and until last few years I myself was not convinced about Indian tech firm capabilities or even global tech disruptions but this Pandemic has been an eye opener and acceptance of tech as one of most important driving force for future.
I believe going ahead, tech disruptions in every industry would be much faster. The shelf life of tech would keep reducing for foreseeable future
I see you already acknowledge that and I also acknowledge that the conclusion has been same every single time - i.e. I assume you refer to that the winners would be the one who do basics right - distribution, branding, segment targeting & service…I also agree the same and hence my interest in Hero M. & others…
As a matter of fact, I am invested with huge percentage of my portfolio in FMCG firms and hear the same argument from many like D2C brands, ecommerce, private labels would kill growth for traditional FMCG…but I did not agree to that as FMCG is a business which gives the incumbent huge opportunity to act & react and correct courses with minimal damages and I can see all my invested company making timely course corrections to adopt these new disruptions…infact many are leading from front and acquiring top D2C brands, going full throttle on digital ecommerce and launching their own store front portals as well…although today their sales from digital maybe 5-8% max, which were mere 1% an year or two back before Pandemic…
Other Industries may not have the luxury to act & react at their own will and still keep damages minimal. I agree they can very well do course corrections and regain their original might but the damages may not be minimal…and hence my staying away until I understand better
Completely agree, it can be well thought over plan. Just like market Leader Maruti in 4W. However, the traction of EV has been faster in 2W and growth as well…hence I feel 2W companies maybe little behind than 4W in responding…
I agree to your argument on niches and getting the segment right. A case in 2W is Eicher Motors
Tech maybe commoditized but the ones which are a step ahead would emerge leaders and more capable to sustain leadership in next disruption.
It would rather show the vision of the group and future capabilities and would be the much needed criteria for my confidence of long term investing
It is really sad that we have to apologize for such a wonderful post you made. honestly, it is the most fruitful discussion I am having on mobility & Hero M. so far here. Anyone can find out P/E, Debt ratios, IRR/CAGR, ROE, ROCE and proclaim under or over valuation of any stock but very few can present the points on Hero M. & Mobility that you have presented above. Flagging, deleting or DMing it would be a loss for the community so I would request you keep it. Thanks
@Investor_No_1 : -
My understanding & Investment :-
So broadly my conclusion is that in early days EV transition is going to see a large number of competitors showcasing tech/distribution innovations ( like e-bike on lease for a specified time\radius) but it will eventually come down to handful of players who will come to dominate certain segments. Our incumbents have chances of success, which I feel are in below order :-
(1) Bajaj Auto
(2) Hero
(3) TVS
My theme as a contrarian investment was anti-EV & here it finally came down to these stocks - Bajaj Auto, Hero, Battery players- Amara Raja & Exide & MGL
The valuations vis-a-vis uncertainty priced in are currently reflected only in MGL. So, Bajaj & Hero are on my tracklist but no investment in these as of now.
My reason for preference for Bajaj over Hero : - Thr comparatively better focus, established Export distribution, not much promoter/mgmt conflicts - Its Rahul Bajaj passing baton to Rajiv Bajaj who vl most certainly be the one throughout this phase. Hero certainly has promoter family conflict & thn succesors being in multiple unrelated biz.
On tech disruption :-
Undoubtedly COVID has accelerated tech adoption but generlaizing its impact will lead u to miss opportunities on both sides. Yes, I moved apparel, grocery & baby stuff shopping online but did I went out to buy a new Car(or bike) jst after checking out sm gov subsidies, climate change issue or tech stuff - probly not - so keep this framework in mind & proceed on case-by-case basis.
On age :-
M also in late thirties. So even better
The point to highlight there was u must have also gone thru these 2W mobility transitions thru out ur life so far - My grandpa used Cycles for practically every mobility task ------> My family as a kid had Scooter ( Chetak) ---------> I had Pulsar in college ------> today my wife commutes on Scooty & brother has Avenger
The tech transitions were always thr - they are a feature of the industry. ( & Hope u didn’t noticed my bias for Bajaj above )
Disclosure :- Same as above
Some of my thoughts:
A lot resides in the execution of the ev scooter by Hero motocorp to decide on future course of action which will happen by March.
Hero Electric may be no1 by sales but they are not viewed as favorably as Ather or Ola. Hero motocorp won’t have the same perception problem. The network and reach are other strong points.
But, even the whole ev segment is not big enough to counter ICE bikes sales of Hero motocorp for the next 2-3 years atleast. No marketing of the 200cc bikes and lack of a 350cc+ halo model is hurting the brand much more. Even smaller home grown players like TVS now have a 300cc bike in rr310. These models are brand builders rather than sales builders. Even a big 160cc based scooter will help it make a strong counter pitch to Honda activas. They won’t sell much but can be a Halo product to help improve sales of maestro, pleasure and destini.
Additionally, hero never pushed fincorp in the big leagues. Fincorp can be a cushion against the cyclical nature of the auto industry making the business investor friendly.
Disclosure: my personal opinion and not a recommendation.
Thr are 2 contradictory stmts in here :- Is the valuation pricing in the uncertainty of EV disruption - To an extent, Yes, but are they appealing enough to warrant a value purchase - Not yet.
If one is sure that Bajaj or Hero will be profitable & dominant in EV space, then its a buy for them today.
On the contrary, Fincorp would have been a time bomb had they scaled it. The spreads & leverage seems good in good times but can be fatal during bad times. In cycle downturn, they would have been double hit with new vehicles sales down & financed vehicles turning NPAs.
Disclosure :- Same as above
Can you elaborate why hero electric not viewed favourably? Isint it surprising then that it sells the maximum EV 2 Ws
Hero Electric mostly gets their EVs from China like many others. There is no real innovation or tech in their products to differentiate from the rest. Their latest claim to fame is ‘cruise control’ on scooters with a range of 60-80kms. Low value pricing and Hero brand has helped them get the pole position against the likes of Okinawa and Ampere (Greaves).
Even Naveen Munjal knows that his company’s main asset is the Hero brand and the reason why he is making so much noise over his rights to the name ( which he rightfully owns, it seems)
Since the Chinese blatantly copy everything and no corporation has the guts to fight back against the Chinese government in China, some Hero models have faced lawsuits in India due to design infringements.
Hero Electric does not have anything in its arsenal at present to fight back against Ather and Ola once these players go mainstream in sales. It would be great if Hero Electric can also conjure up something innovative but I am not banking on it.
We would not have a Bajaj finance or Shriram finance If the business were not lucrative. Every business has its share of risks.
Hero has a profitable and operational business in Hero Fincorp. Why should it not be pushed further?
They have more than 700 dealers already and are in the middle of raising another round of capital so I would not write them off. Furthermore, they are selling in the city speed category (65-85 thousand) which Ola and Ather are not present in. I agree that they may not be able to innovate like Ola but they will not fall by the wayside anytime soon.
Ola is having tremendous issues with their EV scooter. Two wheeler manufacturing is a different ball game. Ola is also relying on a dealer less model, you can already find complaints about RTO registration issues happening. Go down to the Tier 2 and below cities and you will find RTO registrations only happen once the dealer pays a “fee” to the RTO.
The on the ground expectation from EV in T2 cities is that they will be able to buy a electric scooter similar to Active or Destini or Jupiter for the same cost. This is my analysis of roughly 300+ enquiries received at our showroom in last quarter. 90% of these have still not bought an EV. The EV segment will go to the company that can deliver a scooter that meets these needs - I have no idea who that will be.
EV will continue to grow but I also hear people talk about how by 2025/2026 EVs will replace petrol vehicles. That is not happening that soon, as we are already seeing a movement back towards motorcycles from scooters in the industry buying trends. The commuter segment is once again looking at the economies of owning a two wheeler.
Hero and Honda and TVS and Suzuki will need EVs because their data is telling them there are a lot of people doing enquiry for EVs right now. They will need to cater to that segment, it will cut into their Scooters retail sure but the customer will stay with them. And let’s face it, HMCL has not done anything major with their Scooters anyway.
What is the objective behind this move…
looks like a one side case from outside -
Disc : Invested
