Hero MotoCorp shares close 4% lower despite 42% profit growth; raw material costs weigh on margins but brokerage says ‘Buy’

Hero Motocorp shares opened at Rs 5,331 on the NSE and declined 4.4 percent to hit an intra-day low of Rs 5,095 on the NSE. The stock closed at Rs 5,322.50 in the previous trading session. The company's September-quarter results, announced after market hours on Wednesday, showed a sharp divergence between growth and profitability. increase in raw material costs. Its net profit was below consensus estimates while its revenues were almost in line.

While higher sales volumes and improved product mix supported revenue, rising input costs and a decline in operating margins remained key concerns for investors. Hero MotoCorp Q2 results Hero MotoCorp reported a 42 percent year-on-year rise in consolidated profit after tax (PAT) to Rs 1,861 crore, against Rs 1,308 crore in the year-ago period. The company’s revenue from operations increased to Rs 14,971 crore, up 23 per cent from Rs 12,218 crore a year ago.

On a standalone basis, revenue from operations grew 21 percent YoY to Rs 14,687 crore during the quarter, while PAT increased 5 percent to Rs 1,456 crore. "Results for the quarter and half-year include a Rs 397 crore gain from the equity consolidation of an associate company, following its capital raise via a Qualified Institutional Placement and Private Placement," the company said. Revenue was largely driven by volumes.

Hero MotoCorp dispatched a total of 18.68 lakh motorcycles and scooters, registering a 10 per cent growth year-on-year. The scooter segment recorded a 47 per cent growth to 2.40 lakh units in the September quarter of FY27. VIDA electric scooter volumes rose 76 per cent year-on-year to 66,531 units in retail during the quarter. Meanwhile, the company's board approved an additional investment of up to Rs 300 crore in its wholly-owned subsidiary HMCL Netherlands BV in one or more tranches.

"The proposed additional investment is for the subsidiary companies of HNBV viz HMCL Colombia SAS and Hero MotoCorp Do Brasil Ltd," Hero MotoCorp said. Despite the increase in revenue, raw material cost pressures remained a key headwind. The company's earnings before interest, tax, depreciation and amortisation (EBITDA) margin was under scrutiny, although brokerage Motilal Oswal noted that the standalone EBITDA margin improved sequentially.

Motilal Oswal on Hero MotoCorp share: Buy Brokerage Motilal Oswal maintained a positive view on Hero MotoCorp by assigning it ‘Buy’ rating, citing healthy revenue growth, sequential margin improvement and strong cash generation. According to the brokerage, standalone net revenue increased 21.1 per cent YoY to around Rs 14,700 crore, broadly in line with estimates. Volume growth of 10.5 per cent, couple with a 9.6 per cent year-on-year increase in realisations to Rs 78,600 per unit due to pricing action and improved mix led to this healthy growth.

Higher spare-parts revenue, a richer premium motorcycle mix and growth in ICE and electric scooters contributed to improved realisations. The company’s Part, Accessories, and Merchandising business grew 27 percent YoY to Rs 1,941 crore while EBITDA margin expanded QoQ by 10bp to 13.4 percent (vs estimate of 12.9 percent), as commodity inflation was offset by operating leverage and cost savings, said the brokerage.

Motilal Oswal noted that EBITDA rose 8 per cent YoY to Rs 1,970 crore, beating its estimate of Rs 1,850 crore. The EBITDA margin expanded 10 basis points sequentially to 13.4 per cent, compared with the brokerage's estimate of 12.9 per cent, as operating leverage and cost savings helped offset commodity inflation. However, lower-than-expected other income meant standalone PAT came in broadly in line with estimates, rising 4.6 per cent YoY to around Rs 1,460 crore.

Cash generation remained strong, with cash flow from operations at Rs 3,240 crore in the first half of FY27 and free cash flow at Rs 2,550 crore. Motilal Oswal highlighted strong momentum in Hero MotoCorp's scooter portfolio. The scooter portfolio grew 47 percent YoY to 240k units, with ICE scooter dispatches increasing 35 percent YoY and market share expanding by 100bp to 7.3 percent. “Destini and Xoom drove ICE scooter growth of 50% YoY, with dispatches of around 0.14m units.

VIDA recorded 76 percent YoY retail growth to 66,531 units during the quarter. The company expanded its electric scooter portfolio with the launch of the VIDA VX2 Plus (4.4 kWh) and VX2 Go (3.1 kWh), while VIDA entered Nepal as its first international market,” it said. In the 100cc motorcycle segment, Hero MotoCorp's market share expanded 500 basis points YoY to 84.4 per cent, supported by growth of more than 20 per cent in the Splendor portfolio.

Separately, Hero MotoCorp's board approved an additional investment of up to Rs 300 crore in its wholly owned subsidiary, HMCL Netherlands BV, in one or more tranches, the brokerage highlighted. The investment will be used to fund its subsidiaries in Colombia and Brazil, supporting overseas ‘business operations. The investment will be made in cash, with no change in Hero MotoCorp’s ownership of HNBV,” it added.

On valuation, Motilal Oswal said Hero MotoCorp shares were trading at 18.9x and 17.3x its estimated earnings per share for FY27 and FY28, respectively.