Hero MotoCorp Shares Complete Fundamental Analysis and Future Outlook
Hero Motocorp Ltd., formerly Hero Honda, is a motorcycle and scooter manufacturer based out of New Delhi. The company become the world’s largest two-wheeler manufacturer in 2001 and continues to hold the title for 18 consecutive years and counting. Hero MotoCorp has sold over 90+ million motorcycles and scooters in cumulative sales so far and has a global footprint in over 37+ countries across Asia, Africa, South and Central America.
The Splendor motorcycle was launched in the year 1994. It still continues to be the highest-selling two-wheeler in the world and sells 3+ Million models per annum.
The scale of Hero MotoCorp is such that as of last year the lead in the volume sold was 2 million over the nearest competitor. Hero has transformed over the years from “Fill it, shut it, Forget it” to “Dhak Dhak Go” and to “Hum mein hai Hero”, such that their campaigns resonate with the Indian youth. The brand is now a part of more than 50+ million Indian families.
Hero MotoCorp has 36% of overall market share in Two-wheelers and 50.7% market share in Motorcycles within India. The company operates in 5 main segments.
The Entry segment has a market share of 56.4% and a 15% YoY volume growth last year. The Deluxe 100cc segment has a market share of 80.8% which is a gain of 2.7% since last year. The Deluxe 125cc segment is holding the market share of 56.2% despite a decline of 6% YoY in sales volume. The premium 150+ cc segment has a low market share of 1.4% after a loss of 1.1% market share last year. In the Scooter segment, the market share is 10.7% and declining.
With the launch of two new scooters, Maestro Edge 125 and the new Pleasure, the Company is focussed on gaining market share in this segment.
I have evaluated the company on 10 fundamental categories and each has been given a rating out of 5 stars. From this, I have arrived at a combined stock rating for the company.
This is the summary of the analysis. You can read the detailed analysis with the excel models on my blog (Check the source link)
Source: Hero Motocorp Fundamental Analysis and Future Outlook
Some insights for the coming years from the analysis, management discussions and con calls are as follows.
- The management is looking forward to improving cash balance to survive the effects of COVID-19 lockdown. The company has gradually resumed production at its factories in India, Bangladesh and Colombia but the capacity utilization is less than 50%. This will cover some of the fixed costs but the impact on profitability will be in double digits. Any recovery can only be seen after FY 2021.
- Hero MotoCorp was planning to invest as much as INR 10,000 crores towards new model launches, technologies, and capacity augmentation. These investments will now be deferred to later years in the Post COVID-19 era. The projects which were already sanctioned or near completion will be continued. The company overall is going to suffer from a large overcapacity in the near future.
- Out of 16 brands in the product portfolio, HFdelux, iSmart and Pleasure are already BS6 compliant with new launches to flow in the coming months. However, the growth is expected to go negative in double digits for this fiscal.
- The cost-saving initiatives will benefit operating margins, but commodity cost inflation including the rise in the cost of precious metals may offset benefits in the near future.
Overall the company has shown solid fundamentals and management’s prudence in handling the situation due to COVID-19 outbreak. The company is looking to conserve cash without any job cuts or reduction in manpower in these uncertain times. However, any significant growth is not expected for the entire industry in the coming years
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