Shares of the world’s largest two-wheeler manufacturer, fell 25 percent within the past six months, becoming the most important loser among auto stocks during this period.
The stock underperformed the Nifty Auto index, which declined about 10 percent, and therefore the Nifty 50, which gained quite 9 percent.
The drop by the Hero MotoCorp share price is attributed to competition, shrinking market share, lower monthly sales volumes during the second wave of Covid-19, rising commodity prices, and regulatory changes in emission norms and safety parameters.
The auto sector as an entire has been a serious underperformer during this period, when the benchmark indices touched record highs on hopes of strong economic and earnings growth thanks to the vaccination drive and efforts to contain the spread of the pandemic.
“Hero MotoCorp is one among the underperformers within the previous couple of years mainly thanks to a decrease in market share because it is facing tough competition… Hero MotoCorp features a decent presence in entry-level bikes, where it’s losing its grip to Bajaj Auto and TVS Motor,” said Gaurav Garg, head of research at CapitalVia Global Research. “Rising commodity prices are putting pressure on profit margins.”
Rising fuel prices along side higher vehicle prices are a haul on the momentum in two-wheeler sales, Garg said. Potential buyers are taking to conveyance or choosing electric vehicles instead, he said.
“Two-wheeler affordability has also been impacted by many regulatory changes in insurance, emission and safety parameters,” Garg added.
Hero MotoCorp reported a 36.8 percent drop by profit within the three months ended June from the previous quarter, while its margin of profit declined 210 bps following a pointy increase in metal prices. Earnings before interest, tax, depreciation and amortisation fell 57.5 percent QoQ to Rs 514.8 crore against estimates of Rs 679.3 crore.
Hero MotoCorp is that the market leader within the two-wheeler segment in India and has been the world’s largest manufacturer of two-wheelers, in terms of unit volumes sold by one company during a civil year , for 19 years during a row.
Given its strong fundamentals, research & development and progressive work on electric vehicles, investors should hold the stock for the future and accumulate at current levels for strong returns within the coming quarters.
“Hero is doing enough R&D and dealing on their first e-scooter. Two-wheeler volumes may grow in CAGR 14 percent in FY2023 as compared to FY2019 peak, therefore we will see some traction within the coming festive season. The stock is worth investing within the future as its fundamentals are intact along side a robust record ,” said Garg.
“The company has superb fundamentals. the corporate has launched its first EV recently. It follows a cost-plus strategy, so within the end of the day , any additional cost are going to be transferred to customers through price rise,” said Rahul Sharma, cofounder of Equity99.
He recommended maintaining positions within the counter for a target price of Rs 3,650. any longer dip should be used as a chance to shop for more shares, he advised.
Sharma said things has began to normalise and sales volumes are again expected to climb.
“The auto sector is expected to be a huge beneficiary of the EV theme and most companies have launched EV models,” he said.