18% upside? Hero MotoCorp shares get 'Buy' call; what MOFSL says on Splendor, Glamour & Xtreme 125R

Motilal Oswal Financial Services (MOFSL), which interacted with the management of Hero MotoCorp Ltd to assess demand trends in the domestic two-wheeler market and the outlook amid ongoing geopolitical headwinds, retained its 'Buy' rating on the stock, with a target price suggesting 18 per cent potential upside. The domestic brokerage highlighted that the company’s recent outperformance was driven by multiple factors, including a strong pick-up in Splendor sales following GST-led price benefits, recovery in the 125cc motorcycle segment aided by launches such as Glamour and Xtreme 125R, healthy growth in scooters across internal combustion engine (ICE) and electric vehicle (EV) segments, and a robust recovery in exports. MOFSL said these tailwinds remained supportive, though rising input costs have started exerting pressure. The stock closed at Rs 5,246 apiece on Monday, down 4.07 per cent. The scrip has climbed 43 per cent in the past one year compared with 25 per cent rise in the BSE Auto index during the same period. Despite two price hikes undertaken in the March quarter, the MOFSL sees some near-term margin pressure. MOFSL said Hero MotoCorp is expected to deliver volume CAGR of about 7 per cent over FY25-28, led by rural recovery and continued scale-up in scooters and exports. This is likely to translate into an 11 per cent CAGR in revenue, Ebitda and profit after tax over the same period. The brokerage suggested a target price of Rs 6,205 on the stock, based on 18 times FY28 estimated earnings per share. The target includes valuation contribution from Hero FinCorp and Ather after applying a 20 per cent holding company discount. MOFSL said Hero MotoCorp's demand remained healthy in the March quarter across segments, with retail demand outpacing production in March, resulting in a decline in dealer inventory levels. It noted that Splendor witnessed a notable demand revival after GST-related price benefits, despite no prior material price cuts. The brokerage added that Hero MotoCorp regained some market share in the 125cc segment following the launch of updated models such as Glamour and Xtreme 125R equipped with dual-channel ABS. Scooters, including both ICE and EV offerings, also saw strong acceptance, helping the company gain share in this category. Given the seasonally strong first quarter for two-wheelers and momentum from recent launches, MOFSL expected growth to sustain in the near term. For now, MOFSL said Hero MotoCorp has managed gas availability challenges effectively and supported its supply chain, ensuring no disruption to production. That said, it flagged rising input costs as a key concern, with sharp increases in key raw material prices in recent months. To offset this, the company and may need further hikes going ahead, MOFSL said. As a result, MOFSL expected margins to remain under pressure in the near term until the full impact of input cost inflation is absorbed.