Pricing hurdle may hit Hero MotoCorp's entry into EV segment: Brokerages

Volume trajectory in the festive season is a key near-term trigger for the company's stock price, say brokerages

Hero MotoCorp’s first electric two-wheeler launch failed to enthuse investors. The stock shed about two per cent in trade on Monday and was among the top losers in the Nifty50 stocks. Brokerages believe that pricing of the product, which is at a premium to peers, low volumes expected post its launch in December is unlikely to have any impact on earnings for FY23. They have thus retained their estimates for the current year.

Bookings for the two variants of the company’s maiden electric vehicle (EV) product, Vida V1 priced at Rs 1,45,000 to Rs 1,59,000 began on Monday while deliveries are expected to start by middle of December. The product is being sold in three markets of Delhi, Bengaluru and Jaipur before being scaled up to eight more cities later this year. The price points are higher than product offerings from most peers such as TVS Motor, Ola Electric, Ather Energy and Bajaj Auto.  

Considering the pricing and launch timeline, we expect Vida V1 to be a low volume product and maintain our estimates for FY23 and FY24, say Vivek Kumar and Ronak Mehta of JM Financial. The brokerage, however, has a buy rating with target price of Rs 3,200 valuing the company at 15 times its forward earnings.

While the Vida V1 is being targeted at the premium end of the market, the company plans to launch mass market versions of the product as the cost of materials and localisation lead to lower prices.

The product has multiple firsts in the industry such as a buy back scheme at 70 per cent of purchase price, onsite repair service and an option to test ride for 72 hours. Despite the multiple features, brokerages are not convinced due to the premium pricing.

Kotak Institutional Equities’ Rishi Vora and Eswar Bavineni believe the product will see limited market share gains in the EV scooter segment given premium pricing which is pegged higher than most of its competitors. They also question the company’s pricing strategy arguing that high upfront costs remains a barrier to rapid adoption in the EV segment. The brokerage has a reduce rating with an unchanged fair value per share of Rs 2,500.

While the company may not see aggressive market share gains initially, Elara Capital says that the company’s initiatives and charging options are its best features and will attract buyers. The battery is removable and thus offers consumers the option to charge at home in addition to public charging stations including Ather’s and Hero MotoCorp’s charging networks. Further, the buyback option and lower financing rates by 1.5-2.0 per cent may provide a good value proposition, add the analysts at the brokerage.

Elara Capital has a revised its rating from accumulate to buy and believes that the success of its current EV products, launches from the Hero-Gogoro partnership and Ather Energy valuation are key monitorables and may affect valuation favourably. Hero has a joint venture with Taiwan’s battery swapping major Gogoro and owns over 35 per cent in Ather Energy.  

The immediate trigger for the stock would be the volume trajectory in the current festival season. PhillipCapital Research, which has a neutral rating on the stock, believes that volumes have remained relatively weak in the build up to the festive season though there are some signs of demand pick-up in the rural segment. The brokerage has a target price of Rs 2,570 for the stock which is currently trading at Rs 2,571.75.