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Signs of revival for Hero MotoCorp

After a two per cent year-on-year fall in two-wheeler volumes in January 2016, Hero MotoCorp registered 14 per cent growth each for two consecutive months in February and March. The sales numbers, which were above expectations, were led by strong scooter sales from new product launches and a favourable base. While scooter sales for the two months are up by an estimated 30 per cent, motorcycle sales too recorded double-digit growth. Two wheeler sales have also been boosted by the marriage and festival season (Gudi Padva). It is the strong performance in the last two months of the fiscal which helped Hero report flat sales performance for FY16 (versus 6.2 per cent growth in FY15) as its year-to-date volumes till February were down 1.2 per cent. Analysts at JM Financial have upgraded the stock as they expect Hero to deliver a 13.5 per cent earnings growth over FY16-18 driven by a 22 per cent growth in scooters, rural demand recovery on better monsoon, deep network penetration and improving profit margins.

Among key reasons for the uptick over the last two months has been the surge in scooter sales. Hero, which lost market share due to lack of products, has been gaining traction with the launch of Maestro Edge and Duet in December 2015 quarter. Its scooter share has increased from 15 per cent at the start of FY16 to over 20 per cent now. Given that the company's scooter portfolio, which is growing at 25 per cent year-on-year over the last six months (versus scooter segment's 14 per cent growth), market share gains are expected to continue. Further, with scooters now accounting for 31 per cent of the sector, higher share of this fast-growing space will add to Hero's volume growth. What could push up the sales is the availability of the Duet scooter pan India over the next couple of months. Additionally, volumes could be boosted by exports, which were up 47 per cent to 14,000 units in the month of March on the back of higher Maestro Edge/Duet sales. From 2-3 per cent of volumes, Hero has an export target of achieving 10 per cent of overall volumes (12 million units) by FY20. In motorcycles, too, Hero is expected to maintain its market share going ahead, despite intensifying competition.

The Budget's push to boost the rural economy, especially those related to improving the road infrastructure, should help perk-up overall two wheeler sales, including scooters. The most important factor for Hero, which gets over 45 per cent of its volumes from the rural space, is a normal monsoon after two years of failure.