LKP Research has reiterated a BUY call on Hero MotoCorp Limited, assigning a price target of Rs 5,796, representing a potential upside of 19% from its current market price of Rs 4,870. The company’s growth trajectory is expected to be driven by rural market recovery, new product launches in premium and electric vehicle (EV) segments, and increased focus on exports. This article delves into Hero MotoCorp’s recent performance, technical analysis, and strategic positioning to provide actionable insights for investors.

Current Market Performance and Key Metrics

Stock Details:

Current Price: Rs 4,870
Target Price: Rs 5,796
Upside Potential: 19%
Market Capitalization: Rs 970 billion
52-Week Range: Rs 6,246 (high) - Rs 3,555 (low)
Shareholding Pattern (as of September 2024):

Promoters: 34.75%
FPIs: 29.59%
Mutual Funds: 14.57%
Hero MotoCorp has underperformed the Nifty 50 index in the short term but delivered a robust 33.9% gain over the past 12 months.

Demand Outlook and Rural Recovery

1. Festive Season Boost:

Hero MotoCorp recorded a 13% YoY increase in retail volumes during the recent festive season, raising its market share to 31.6%.
VIDA EV sales doubled to 11.6k units during this period, capturing a 5.4% market share.
2. Rural Growth Prospects:

The company anticipates sustained demand from rural markets, supported by normal monsoons, increased government spending, and the upcoming marriage season.
Hero’s dominance in the 100-110cc segment positions it to capitalize on this rural recovery.

New Product Pipeline and EV Expansion

1. Launches in Premium and Entry Segments:

Upcoming models include the Xpulse 210, Xtreme 250R, and Karizma XMR250, targeting premium customers.
Plans to introduce two new scooters in the 125cc and 150cc segments to diversify the product portfolio.
2. EV Strategy:

Hero is investing Rs 1.75 billion in its EV business and expects PLI (Production-Linked Incentive) benefits in FY26.
The expansion of VIDA Hubs and Premia stores aims to enhance customer engagement and EV sales.

Technical Analysis

1. Candlestick Patterns:

The stock recently formed a bullish reversal pattern on the daily charts, suggesting a potential recovery from its recent correction.
2. Fibonacci Levels (52-Week High: Rs 6,246; Low: Rs 3,555):

23.6%: Rs 5,286 (resistance)
38.2%: Rs 4,990 (current price near this level)
50%: Rs 4,900 (support)
61.8%: Rs 4,810 (critical support)
3. Support and Resistance Levels:

Immediate Support: Rs 4,810
Major Resistance: Rs 5,286
A sustained move above Rs 5,286 could pave the way toward the target price of Rs 5,796.

Exports Gaining Traction

1. Strong Volume Growth:

Hero’s global business posted a 30% YoY growth in Q2FY25, outperforming the industry’s 16% growth.
Colombia achieved its first profitable quarter, while demand remained steady in Mexico and Latin America.
2. Challenges in Emerging Markets:

Economic and geopolitical headwinds persist in regions like Bangladesh, Turkey, and Nigeria, which the company continues to monitor.

Margin Expansion and Financial Highlights

1. Improving Margins:

Q2FY25 EBITDA margin for the ICE (Internal Combustion Engine) segment stood at 16.5%, a 160 bps increase.
Overall EBITDA margin improved to 14.5%, despite a 200 bps impact from EV-related expenses.
2. Earnings Growth:

EPS is projected to grow at a CAGR of 11.5% between FY24 and FY26, driven by operational efficiencies and a richer product mix.

Actionable Insights for Investors

1. Long-Term Potential:

Hero’s focus on EVs, premium products, and rural recovery makes it a strong candidate for long-term portfolios.
2. Entry Points:

Investors can consider accumulating the stock near support levels of Rs 4,810, with a target of Rs 5,796.
3. Risks to Monitor:

High competition in the mid-weight motorcycle segment.
Economic challenges in key export markets.