Brokerage firm Sharekhan has a "buy" call on the stock of HeroMoto Corp with a price target of Rs 3,496 on the stock.
"Our interaction with Hero MotoCorp's (HMCL) management indicated that the structural growth traction in the two-wheeler (2W) industry remains intact. HMCL continues to benefit from premiumisation of its products, its stronghold in the economy and executive motorcycle segments, and aggressive products offerings in premium bike and scooters segments. HMCL is a market leader in the Indian 2W industry, commanding a 38.5% share," Sharekhan has said in its research report.
According to the brokerage firm, the company commands 65% market share in the combined economy and executive motorcycle segment, which together makes up 80% of the motorcycle market size in India.
"HMCL has strong penetration in semi-urban and rural areas, aided by its largest distribution network in the 2W industry. We expect HMCL to be the beneficiary of rural demand and increased personal mobility. HMCL's brand equity is because of value-for-money products, extensive service centres, low maintenance cost and higher resale value. The company has raised its production capacity in anticipation of higher demand. The company is also making inroad in the premium bike segment in partnership with Harley Davidson.
We expect strong recovery in FY2022, driven by normalisation of economic activities, operating leverage, price hikes, and cost saving under the company's leap programme, which would result in margin improvement. We expect HMCL to reach its historical margin range of 14%-16%. Hence, we retain our Buy rating on the stock," Sharekhan has stated.
According to the brokerage firm, the key risks include success of rival products in the entry and executive bike segments can impact HMCL's market share in the segments.
"The company is aggressively expanding its product portfolio in the premium bikes segment. Unsuccessful launches in the premium segment can restrain its growth path," the brokerage firm has noted.
The shares of HeroMoto Corp were last seen trading at Rs 3,077 on the NSE.