Hero MotoCorp gains 3%, hits over 2-year high on Co's demand forecast

Shares of Hero MotoCorp hit an over two-year high of Rs 3,196 on the BSE on Tuesday after rising 3.5 per cent on expectation of improving demand, going forward. The two-wheeler manufacturer's stock was trading at its highest level since December 27, 2018.

In the past three months, Hero MotoCorp, the world’s largest manufacturer of motorcycles and scooters, has outperformed the market by surging 27 per cent, against 9 per cent rise in the S&P BSE Sensex.

Signaling a positive turn-around for the two-wheeler industry, which is a strong driver of the domestic economy, Hero MotoCorp sold 584,456 units of motorcycles and scooters in the month of August 2020, a growth of 7.55 per cent over the corresponding month of the previous year (August 2019) when it sold 543,406 units.

With August marking another step forward in the market's recovery, the company cautiously anticipates sales to continue their upward trajectory with favorable factors such as the upcoming festive season, increasing consumer confidence and continued government policy support.

“Hero is relatively better placed on the recovery roadmap with its dominant presence in the entry segment and higher rural exposure. The Company’s distribution is a key strength which has held up very well amid the lockdown. Risk of a sizeable capital call from captive finco (Hero FinCorp) seems to have receded for now (after Q4 raise) as its capital/ liquidity position is comfortable post recent raise,” analysts at JP Morgan said in report.

While still early days, the premium bike segment foray seems to progressing in right direction. Scale up here will be key to addressing a key investor concern on its R&D & growth opportunity. We continue to like risk/reward in HCML at current levels as it is well positioned on rural exposure, dominant share in entry segment bikes and disciplined competition, the brokerage firm said.

Analysts at HDFC Securities believe that Hero's strategic initiatives would yield benefits in the medium term as the OEM is aggressively expanding in the premium segment, with the launch of the Xtreme 160cc. The brokerage firm expects Hero to gain 10 per cent market share in this segment; the company has been scaling up its NBFC arm, which now funds around 15 per cent of its two-wheelers. This scale-up enhances finance availability through cycles.

“We believe that Hero would gain an additional 150-200bps in market share (52 per cent currently) in the motorbike segment with its initiatives, thus sustaining its market leadership. Further, the enhanced government focus on agriculture reforms would support demand as Hero derives 50 per cent sales from this segment,” it said in company update.

At 11:14 am, Hero MotoCorp was trading 2 per cent higher at Rs 3,155 on the BSE, as compared to 0.23 per cent decline in the S&P BSE Sensex. A combined 1.5 million equity shares have changed hands on the counter on the NSE and BSE, so far.