HEROMOTOCO - Hero MotoCorp Limited Share Price

Management provided a positive outlook for Hero MotoCorp, reporting strong financial performance with record revenues and profits for FY '25. The top line reached Rs.40,756 crores, marking a 9% increase, while PAT was at Rs.4,610 crores, a growth of 16%. They forecast the two-wheeler industry to grow in the mid- to high single digits during FY '26, driven by favorable economic conditions, including tapering inflation and improving consumer spending.

Highlights from the earnings call included:

1. Quarterly Performance: Q4 revenues were Rs.9,939 crores, with an EBITDA of Rs.1,416 crores and a PAT of Rs.1,081 crores. The EBITDA margin was 14.2%, post EV investments of approximately Rs.143 crores.

2. Market Leadership: Hero MotoCorp maintained its position as the world's largest two-wheeler manufacturer, selling 5.9 million vehicles in FY '25, up 43% year-on-year.

3. Product Launches and Market Share Growth: The company gained market share in the 125cc segment, driven by the success of new models like Xtreme 125 and Xtreme 250R, with plans for more launches in the near future. EV business growth was significant, achieving 7% market share by March.

4. Financial Management: The company announced a final dividend of Rs.65 per share, totaling Rs.165 including interim dividends, representing a payout of 8,250%.

5. Strategic Investments: Hero MotoCorp acquired a 34.1% stake in Euler Motors for Rs.510 crores as a move into the fast-growing EV three-wheeler segment.

Overall, management expressed confidence in outpacing industry growth through continuous innovation, new product launches, and a strong focus on customer experience. They anticipate EBITDA margins to remain in the 14% to 16% range moving forward.

Question and Answer Summary:

1. Question: "How do you plan to capitalize on your strong base and gain market share in the 125cc segment over the next 5 to 10 years?"

   • Answer: "We've gained almost 250 basis points in market share for the 125cc category, with close to 300,000 units sold for the Xtreme 125R alone. With exciting product launches ahead, including more in the 125 segment, we're confident in our ability to strengthen our market share and performance."

2. Question: "What is Hero's expectation for FY '26 in terms of volume growth?"

   • Answer: "We expect the industry to grow around 6% to 7% in FY '26. Given our product launches and market strategies, we are optimistic about outpacing this growth and capturing more market share."

3. Question: "Can you elaborate on the quality issues post-BS VI transition?"

   • Answer: "Quality is paramount for us. While we've always prided ourselves on high standards, we acknowledge consumer feedback and are using technology and R&D to address all quality aspects comprehensively and to enhance customer experience."

4. Question: "What is the channel inventory situation now?"

   • Answer: "Our channel inventory is currently at about 4 to 5 weeks. We're prepared to adjust this in anticipation of festive demand, but for now, we're adequately covered."

5. Question: "When do you expect the EV business to break even?"

   • Answer: "We anticipate that with substantial volume growth, our EV business will achieve breakeven at around 25,000 to 30,000 units per month, which is a couple of years away. Efforts on local sourcing and efficiencies will help improve profitability."

6. Question: "What were the drivers behind the spares revenue growth?"

   • Answer: "Our parts business has grown thanks to deeper penetration in the aftermarket, enhancing our network and expanding our product portfolio, allowing us to achieve strong year-on-year growth."

7. Question: "Can you provide updates on your investments such as in Euler Motors?"

   • Answer: "We acquired a 34.1% stake in Euler Motors, which opens opportunities in the EV three-wheeler segment. This venture is part of our strategy to diversify and capture the growing market in this segment."

8. Question: "What are the expectations for financing in the two-wheeler sector?"

   • Answer: "Retail finance penetration was 59% in Q4 and remains stable, despite some tightening in financing. We're confident that new financing products will emerge with easing interest rates to support our customers."

9. Question: "What do you expect in terms of urban and rural market growth?"

   • Answer: "With predictions for a strong monsoon and increased government spending, we expect rural growth to strengthen, supporting overall sales especially in segments where we have a strong product line-up."

10. Question: "Can you comment on the leadership transition and plans for full-time CEO appointment?"

• Answer: "Vikram Kasbekar is currently the acting CEO and is fully engaged in driving the business. We will share updates regarding long-term leadership developments as they arise."