On Monday, Investec (LON:INVP) maintained a Hold rating on Hero MotoCorp (NS:HROM) Ltd. (HMCL:IN) stock but lowered the price target from INR5,530.00 to INR5,000.00. The adjustment follows the company's Q2FY25 earnings, which reported an EBITDA of Rs15.2 billion, marking a 14% year-on-year increase and aligning with both Investec's and the street's estimates.
The firm noted that while operating expenses rose, likely due to increased marketing costs and incentives, gross margins expanded. This expansion was attributed to lower raw material prices, a favorable product mix, and cost savings initiatives, as indicated by management.
Despite these positive factors, Investec warned that a notable rise in marketing and customer acquisition costs observed in October and November 2024 could pressure margins in the third quarter.
Hero MotoCorp experienced a 13% year-on-year growth during the 32-day festive period, with management commenting on a strong demand momentum post-festivities. Additionally, the company has seen increased engagement from rural markets, which had shown weakness until recently.
However, in the first half of FY25, Hero's market share in the two-wheeler segment declined by 1.7% to 29%, primarily due to competition from Honda (NYSE:HMC) in scooters and executive motorcycles.
The recent introduction of a CNG motorcycle by Bajaj Auto (NS:BAJA) is expected to influence customers who prioritize fuel efficiency. Nevertheless, Hero has enjoyed approximately a 5% increase in market share within the premium bike segment in the first half, thanks to the successful launch of the Xtreme 125, though this segment only constitutes about 5% of Hero's total domestic volumes. The company's electric two-wheeler, Vida, has also seen some success, capturing an estimated 5% market share between July and October 2024.
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