Hero MotoCorp share price falls 3% in firm market; UBS maintains 'Sell'

Hero MotoCorp share price today declined 2.7 per cent in the intraday trade on Thursday. Read why global brokerage UBS sees nearly 45 per cent downside in the two-wheeler company's stock price

Hero MotoCorp share price fall: Shares of largest two-wheeler manufacturer, Hero MotoCorp dropped up to 2.76 per cent to hit an intraday low of Rs 5,919.50 per share on Thursday, September 26, 2024. 

The downtrend in the Hero MotoCorp share price came after international brokerage firm UBS maintained its 'Sell' rating with a target price of Rs 3,350 per share, implying a downside of 45 per cent from the share's previous close (September 25) of Rs 6,087.60 per share.

Pramod Kumar and Nikunj Mandowara of UBS said, "The stock is trading at c26x FY26E price-to-earnings (P/E), which is more than three standard deviations (3SD) higher than its five-year historical average. We maintain our 'Sell' rating with a price target (PT) of Rs 3,350."

Meanwhile, here are the factors behind UBS' rating on Hero MotoCorp:

Wholesale volumes and festive optimism vs Retail underperformance

Despite a disappointing Q1FY25 earnings report and ongoing losses in retail market share, Hero MotoCorp’s stock has surged approximately 20 per cent since its earnings call, analysts at UBS noted. 

The stock performance appears driven by anticipated increases in wholesale volumes for September and October, alongside management’s positive outlook for the festive season. 

Investor sentiment, reinforced by dealer feedback, suggests that wholesale volumes may exceed 600,000 units in September 2024. 

However, this anticipated surge contrasts sharply with Hero’s retail trends, indicating a substantial buildup of inventory. 

According to Vahan data, Hero’s expected retail volumes for September are around 300,000 units, suggesting that inventory additions this month could surpass total retail sales. This would elevate dealer (including sub-dealer) inventory to over 1.3 million units. Given the high inventory levels and fierce competition from Honda, analysts anticipate an increase in discounting from both companies as the festive season approaches.

Festive performance lags in full-year growth

The two wheeler manufacatuers’s festive retail volumes over the past two years have seen growth rates of 20 per cent and 19 per cent, respectively. 

However, an analysis by UBS of full-year performance reveals that despite this festive strength, Hero MotoCorp's overall retail volume growth was only 11 per cent for FY23 and 6 per cent for FY24. 

This growth, analysts noted, is considerably lower than that of its peers, which achieved 23 per cent and 12 per cent growth during the same periods, indicating Hero's market share has been under major pressure. 

Notably, despite claims of record festive retail volumes, the company’s market share during the festive season (October to December) has been steadily declining, reaching a new low of below 24 per cent as of September 2024.

Ongoing market share challenges amid product launches

From April to August 2024, Hero MotoCorp witnessed a 310 basis point (bp) drop in retail market share, falling to 28.8 per cent, with September figures dipping below 24 per cent—approximately 400 basis points behind Honda. 

The sharp decline, occurring even after the successful launch of the Xtreme 125, indicates a troubling loss in the commuter motorcycle segment, UBS analysts said. 

Increased competition from models like the Honda Shine and Bajaj Freedom, coupled with a shift toward scooters and EVs in smaller markets, analysts believe, is further eroding Hero’s traditional customer base, even as the broader market anticipates a recovery in commuter motorcycle sales.

At 10:02 AM, shares of Hero MotoCorp were trading 2.35 per cent lower at Rs 5,944.75 per share. In comparison, BSE Sensex was trading 0.20 per cent higher at 85,340.80 levels.