HeroMotocorp’s (HMCL) Q4FY23 Ebitda margin of 13% was almost in line with your forecast, and exceeded the Bloomberg consensus estimate. Key ratios for raw materials to sales were at 68%, a decrease of 140 bps q-o-q, which was slightly lower than the Nomura estimate of 68.8%. Other expenses were at 12.3%, slightly higher than Nomura’s estimate of 11.9%, while staff costs were at 6.7%, slightly higher than our estimate of 6.6%. Meanwhile, the average selling price (ASP) was at approximately Rs 65.4k, which was a 1% q-o-q increase and slightly higher than our estimate
of Rs 64.8k. This increase was supported by price hikes, product mix, and spares mix.
It is expected that the 2W industry will experience double-digit revenue growth in FY24, and HeroMotocorp plans to launch one new product every quarter, with the highest number of new launches in FY24. Additionally, Harley’s launch is also planned for FY24. The company’s inventory is currently at approximately 6 weeks, and financing penetration is at 59%.
Margins: Continue to target 14-16% Ebitda margin band. Price hike was Rs 600 in April-23. Costs are expected to be stable.
EVs: Vida will reach 100 cities by FY24 end. Recent price reduction should give a fillip to volumes.
It is anticipated that the 2W sector will experience a cyclical recovery in FY23-24F due to lower inflation and improvements in rural areas, resulting in a ‘rebalancing of growth.’ However, for HMCL, it will be crucial to recover market share in higher-growth segments above 110cc and address the increasing concentration of their product portfolio. Therefore, the success of the company’s new product launches will be critical in achieving these goals.