Accumulate Hero Motocorp; target of Rs 3535: Prabhudas Lilladher

We enhance our projections for FY24 and FY25 by c2% each year to account for the positive impact of the margins beat and the rise in other revenue. Hero Motocorp (HMCL) increased its EBITDA margin by c70bps QoQ, mostly due to decreased other expenses (-200bp), despite a decline in gross margins (-140bp) during the same time period. HMCL is planning to grow at a faster rate than the competition thanks to an aggressive model launch cycle across product categories and increased market share. HMCL wants to expand the availability of the Vida (EV 2W) to 100 cities by CY23, and to offer a new product beginning in FY25 and beyond. HMCL will expand its sphere of influence rapidly due to the high demand for the HD X440. We factor in a c220bps rise in margins over FY23-25E as a result of operating leverage, premiumization, cost reductions, and stable commodity costs. Important metrics to track are 1) the success of product rollouts, 2) the growth in EV sales, 3) the intensity of competition in key regions, and 4) the revival of rural markets.

Outlook

Maintain 'Accumulate' with a price target of Rs 3,535 (at 16x on Mar-25E standalone EPS, Rs 83 for Fincorp and Rs 78 for Ather).

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