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Hero MotoCorp Ltd

| Q4 FY26 Conference Call

BULLISH SENTIMENT

Report Source

⬤11th May 26

Summary : Hero MotoCorp delivered strong FY26 results, driven by growth in scooters, EVs, and global business, with significant investments planned for future expansion and technology despite commodity headwinds.

Management Perspective positive : FY '26 was a very strong year for us, where we delivered our highest ever topline and bottom line, while maintaining our leadership as the world's largest 2-wheeler manufacturer for 25 consecutive years. It's heartening to see the results already coming through. I'm pleased to report a strong financial performance for Hero MotoCorp for the fourth quarter and the full fiscal year 2026. We are confident in the growth prospects of the 2-wheeler industry and anticipate high single-digit growth during the current fiscal year.

Concall Report Analysis & Insights

Business Overview

  1. Hero MotoCorp delivered strong Q4 and fiscal year 2026 results, achieving highest ever topline and bottom line.
  2. Maintained leadership as the world's largest 2-wheeler manufacturer for 25 consecutive years.
  3. Scooter volumes grew 48% year-on-year, EV volumes expanded 2.5x, and global business grew 41%.
  4. Harley-Davidson range of bikes grew 26% year-on-year.
  5. Retail performance outpaced dispatch, leading to healthier channel stock levels.

Future Growth Prospects

  1. Investing ₹1,500 crores capex in FY27 for capacity expansion, especially for scooters.
  2. Doubling EV capacity from last year's starting point, with further doubling planned.
  3. Building a second global parts center with ₹700 crores investment to expand parts and accessories business.
  4. Planning many new product launches across VIDA, premium, and scooter segments.
  5. Investing in low-emission powertrains (EV, flex fuels) and connected vehicle technology, leveraging Gen AI.

Management Insights

  1. Achieved highest ever quarterly revenue of ₹12,797 crores, up 29% year-on-year.
  2. EBITDA reached ₹1,856 crores (up 31% YoY) and PAT ₹1,401 crores (up 30% YoY) in Q4 FY26.
  3. FY26 revenue was ₹46,830 crores (15% growth), EBITDA ₹6,871 crores (17% growth), and PAT ₹5,268 crores (14% growth).
  4. ICE business EBITDA margin expanded to 17%, with overall EBITDA margin at 14.5% after EV investments.
  5. Declared highest ever dividend of ₹185 per share, maintaining over 70% payout, and generated strong cash flow of ₹9,395 crores.

Signs of Skepticism

  1. Management acknowledges commodity cost headwinds but is vague on specific future margin impact numbers.
  2. EV business is described as being in a 'build-out phase' with 'sizable' losses, without a clear timeline for profitability.
  3. Despite category-specific market share gains, overall retail market share has declined due to business mix.
  4. The full inflation from commodity costs has not been passed on to consumers, potentially impacting future margins.

Risk Factors

  1. Evolving macro environment and short-term uncertainties due to West Asia developments.
  2. Commodity cost headwinds (metals, gas, labor) started in March, impacting margins.
  3. Fuel price hikes in Bangladesh and Sri Lanka impacting demand in the short term.
  4. Increased transportation and container costs globally.
  5. EV business is still in a build-out phase, currently incurring losses.

Good To Know

  1. Appointed Mr. Sachin Agrawal as the new CTO, bringing 29 years of automotive R&D experience.
  2. The company is present in 52 countries and plans to expand into more geographies.
  3. Re-entered Sri Lanka and is rapidly gaining market share there.
  4. Is the largest 2-wheeler brand in Bangladesh, with plans to expand market coverage.

Key Drivers

  1. Strong Q4 and FY26 financial results.
  2. Aggressive capacity expansion in EVs and scooters.
  3. New product launches across segments.
  4. Expanding global business presence.

Key Analyst Discussions

Market Trends & Consumer Behavior

  1. Industry expects high single-digit volume growth in FY27, with scooters growing faster than motorcycles.
  2. Urbanization and distinct use cases drive scooter growth, not a shift from motorcycles.
  3. Demand has not softened despite macro headwinds and fuel price uncertainties.
  4. Structural drivers like urbanization and e-commerce support 2-wheeler growth.

Financial Highlights

  1. Q4 commodity cost increase was ₹2,000 per unit, offset by a 2% price hike.
  2. FY26 export revenue was ₹3,500 crores, representing 4,02,000 units.
  3. R&D spend is increasing year-on-year, currently close to 2.5% of revenue.
  4. Gross margin drop in Q4 was due to unrecovered commodity cost and higher EV business BOM cost.

Product Composition

  1. Increased Destini capacity by 50% and are doubling Xoom capacity this quarter.
  2. EV capacity will double by month-end, with further doubling by year-end.
  3. Harley-Davidson X440 grew 26%, and its new variant X440 T grew 120% year-on-year.
  4. PLI scheme covers 60% of products, aiming for 90% coverage during the year.

Strategic Considerations

  1. Strategy focuses on expanding share in scooters, EVs, low-emission powertrains, and global business.
  2. Investing in technology, connected vehicles, and AI for customer conversion and development.
  3. Leveraging strong value chain (suppliers, dealerships) for market transitions.
  4. Committed to 14-16% margin guidance through price increases and cost savings.