Rural recovery, exports to drive volume growth for Hero MotoCorp

The stock currently trading 20x its FY27 earnings estimates

Two-wheeler major Hero MotoCorp was the best performer on the BSE 100 index on Monday, gaining 4.86 per cent in trade to ₹5,799 a share.

 

Gains for the company follow margin expansion and market share gains in the September quarter and steady volume outlook on the back of new launches, rural demand and rising exports.

 

The stock has given returns of 25 per cent over the past year and is currently trading 20 times its FY27 earnings estimates.

 

For Q2, the company delivered a revenue growth of 16 per cent year-on-year (Y-o-Y), which was in line with expectations.

 

Realisations growth at 4.2 per cent was higher than estimates.

 

Volume growth was strong at 11.3 per cent Y-o-Y while it was up 23.7 per cent sequentially, led by a pickup in demand in rural regions.

 

In the festival season of August-November 2025, sales were strong with a growth of 16.2 per cent for internal combustion engine-based units and better than industry growth of 14.7 per cent.

 

The 40 basis points (bps) market share gain was led by sales in the entry level, deluxe and scooter segments. 

 

Axis Securities points out that the company’s VAHAN market share increased to 31.6 per cent in Q2FY26, marking a 12-quarter high with a 70 bps sequential gain.

 

Sanchit Karekar of the brokerage believes that the recovery is being supported by strong traction in the Deluxe 100 cc segment and renewed momentum in the 125 cc scooter and motorcycle categories (Destini 125, Xoom 125, Xtreme 125).

 

In the electric vehicle (EV) segment, market share rose 3 per cent Y-o-Y in Q2FY26 and further increased to 5 per cent in H1FY26, aided by the successful rollout of Glamour X.

 

Axis Securities has a buy rating with a target price of ₹6,245 and expects EV launches, global push (exports) and margin stability to drive growth.

 

The operating performance of the company was better than expectations.

 

While gross margins were flat over the year-ago quarter as lower steel price gains were offset by higher aluminium costs, operating profit margins were higher by 50 bps.

 

This was led by better operational efficiencies and higher volumes and includes EV investments of ₹252 crore.

 

Excluding the EV portfolio, margins expanded by 121 bps to 17.7 per cent. It was led by lower material costs, cost efficiencies, and a favourable product mix.

 

The company’s export business was one of the standout performers in the quarter. Despatches were up 77 per cent which was three times the industry growth, aided by Bangladesh, Nepal, Sri Lanka and Columbia.

 

It has introduced Euro5+ compliant vehicle portfolio, which helped launch its vehicles in the European and UK markets.

 

The company believes that the growth trajectory is expected to continue in the coming quarters.

 

On the domestic front, the company indicated that demand continues to sustain even post the festival season.

 

This demand is powered by benefit from the goods and services tax (GST) rate cuts, income tax cut (announced in the Union Budget 2025), continuing traction on recent launches, crop harvests and a better marriage season.

 

Motilal Oswal Research believes that the gradual recovery in the rural segment is positive given its dominant 100-110 cc portfolio.

 

Further exports to emerging markets present a huge opportunity as it is twice the size of the Indian market. Aniket Mhatre of the brokerage expects Hero MotoCorp to deliver a volume growth of 6 per cent over FY26-28, driven by launches and a ramp-up in exports. The brokerage has a buy rating with a target price of ₹6,503.