Maintain ‘buy’ on Hero with target price of Rs 2,879

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Published: February 21, 2020 6:52:48 AM

Interestingly, Hero indicated the entry premium segment currently has ~75% first-time buyers, thus customer brand loyalties are not as defensible as in the case of commuter segment.

Hero MotoCorp, Hero Vision 2020, BS VI, Xtreme 160R, HMCL, Premium product innovation, Glamour, PassionBS VI could lead to down-trading of customers from the 150cc segment and Glamour could be a beneficiary of the same.

We attended Hero MotoCorp’s (Hero) ‘Hero Vision 2020’ event in Jaipur related to its new strategies for the future. With the transition to BS VI, it is trying to pivot its legacy brands Glamour and Passion to be more appealing to the youth with refreshing aesthetics, enhanced power delivery. BS VI could lead to down-trading of customers from the 150cc segment and Glamour could be a beneficiary of the same. It is also making a concerted push towards the premium segment with a 160 cc offering ‘Xtreme 160R’.

Interestingly, Hero indicated the entry premium segment currently has ~75% first-time buyers, thus customer brand loyalties are not as defensible as in the case of commuter segment. Premium product innovation, continued R&D into emerging mobility, network premiumisation, ecosystem development for green initiatives. Hero is targeting premium in a concerted manner with focus on adventure rally bike categories and is also working on adventure 300cc prototype to cater to the off-roading enthusiasts.

It is also exploring potential global tie-ups which could provide it similar access to product/design/technology like its incumbents listed peers. HMCL remains a likely major beneficiary of any possible rural demand recovery in FY21 due to its high motorcycle market share in key rural states (for example UP, Bihar). Stock remains attractive at <14x/12x FY20/FY22 PE with ~5% current dividend yield. We continue to value HMCL at an unchanged target multiple of 15x FY22E EPS to arrive at a target price of Rs2,879. We maintain ‘buy’.

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