HSBC initiates coverage on Ather Energy with 'Buy' rating, targets Rs 450

HSBC has commenced coverage on Ather Energy, granting a 'Buy' rating accompanied by a target price of Rs 450. The decision underscores Ather's potential despite operating in a challenging electric vehicle (EV) industry. Ather Energy, identified as the fourth largest EV two-wheeler manufacturer in India, commands a market share of approximately 14 per cent in 1QFY26 as per the Vahan database.

The company has shown remarkable growth, with volumes expanding at a compound annual growth rate (CAGR) of 77 per cent from FY22 to FY25, while its Ebitda margin has improved significantly from -64 per cent to -26 per cent. HSBC recognises Ather's product quality and technological leadership, built over a decade, as difficult to replicate even by well-funded competitors.

Ather is actively expanding its distribution and sales channels in India, bolstered by enhanced liquidity following its initial public offering (IPO) in May 2025. The forthcoming launch of the new EL production platform in August aims to capture the economy scooter segment, potentially boosting market share.

Despite the absence of a production-linked incentive (PLI) subsidy, Ather reported a healthy 19 per cent adjusted gross margin in FY25. HSBC forecasts a revenue CAGR of 47 per cent from FY25 to FY28, with an expectation of EBITDA breakeven by the fourth quarter of FY27. The company's new Maharashtra plant is set to accommodate increased production volumes, enhancing capacity and operational efficiency.

HSBC's valuation of Ather Energy utilises a discounted cash flow (DCF) model, with the target price implying a FY27e price/sales ratio of 3.4x. Key downside risks identified by HSBC include aggressive competition from Honda's EV ramp-up, weak EV penetration in India, and potential failure of the new EL product.

The industry context reveals that EV penetration has been slower than anticipated, with the e2W penetration rate stabilising around 5-7 per cent over the past two years. However, HSBC anticipates an improvement, expecting e2W penetration to reach 20 per cent by FY30, driven by factors such as social validation of EVs and a lower total cost of ownership.

HSBC's report suggests that Ather's stock performance will be influenced more by its relative performance than industry growth in the near term. An acceleration in e2W penetration presents a significant upside risk to both earnings and valuation, given Ather's position as a pure-play e2W stock.