On Thursday, UBS maintained a Sell rating on Hero MotoCorp Ltd. (HMCL:IN) but reduced the price target to INR3,350 from INR3,450. The revision follows Hero MotoCorp's quarterly earnings before interest, taxes, depreciation, and amortization (EBITDA) falling short of UBS and consensus estimates by 6% and 4%, respectively. The shortfall was attributed to a decrease in average selling price (ASP) and gross margins (GM) by 3% and 130 basis points quarter over quarter, which was a result of a reduced share of spare parts sales.
The performance contrasted with other two-wheeler (2W) original equipment manufacturers (OEMs), which reported positive numbers and GM expansion. The analyst noted that the spare parts segment had significantly contributed to Hero's profitability over the past four years. Despite the company's claims of success in new product launches, its retail market share has continued to decline. This trend is particularly concerning given that it occurred during what was described as Hero's best-ever launch cycle.
Year-to-date, covering the first four months of the fiscal year 2025 (4mFY25), Hero's retail sales have only increased by 1% year-over-year, which is starkly lower than the 14% growth seen across the industry. When compared to the same period in the previous fiscal year (4mFY23), Hero's retail sales have again only risen by 1%, versus a 21% industry growth.
The analyst also expressed concerns over Hero's electric vehicle (EV) performance, highlighting substantial EBITDA losses per vehicle, which have increased both year-over-year and quarter-over-quarter, despite higher sales. This is seen as indicative of the company's continued struggle to keep pace with competitors in terms of compliance with the Production Linked Incentive (PLI) scheme.
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