Hero Motocorp

2 Wheeler EV Segment at a growth inflexion point: Hero Electric

Update on Indian Equity Market:

On Wednesday, markets ended lower with Nifty closing 46 points to close at 16,569. EICHERMOT (+2.7%), ULTRACEMCO (+2.4%) BAJFINANCE (+2.1%) were the top gainers on the index while KOTAKBANK (-2.3%),HINDALCO (-2.3%) and ICICIBANK (-2.0%) were the top losers for the day. Among the sectoral indices,  FMCG (0.7%), CONSUMER DURABLES (0.6%) and PSU BANK (0.3%) were the top gainers, while PRIVATE BANK (-0.9%), METAL (-0.8%) and REALTY(-0.8%) were the top losers.

Excerpts of an interview with Mr Naveen Munjal, MD, Hero Electric on ET Now dated 17th August 2021:

  • Electric 2 Wheelers are the most lucrative segment in the EV Industry due to a lot of factors such as fewer infrastructure demands, simpler charging requirements, and ride distances.
  • The biggest tailwind for this segment is government support, FAME II ratings, state-specific concessions, and production-linked incentive schemes for EV Manufacturers.
  • The Total Cost of Ownership gap between ICE and EV is increasing daily due to the rise in fuel prices. Hence, the company expects demand to shift to EVs in the upcoming years to the point it’ll be 20% or a 4 billion unit segment in the next 5 years.
  • The consumer sentiment is shifting towards Electric Mobility not just in urban areas. The penetration is increasing in tier-3, tier-4, and some rural areas as well, so the sales would only go northwards from hereon.
  • The range is adequate for regular usage and for heavy usage the company offers multiple batteries as a backup. Most customers charge their bikes at home. However, the range anxiety can be addressed by installing charging stations, in which the company is investing heavily.
  • The company has also trained 6,000 mechanics and plans to train another 25,000 to solve any potential issues that may arise due to EV Malfunctions thereby creating an entire ecosystem.
  • India is leapfrogging technologies to have the most upgraded know-how as compared to other countries who took the traditional approach of innovating through the years, which is why the performance of Indian EV 2 Wheelers is best in class.
  • R&D that is being done is immense. So the vehicles in the future are going to be far better than what they are at this point. This range of vehicles is already better than what was three or five years back. This demonstrates the huge improvement in technology,

Asset Multiplier Comments:

  • Electric Vehicles are a thing of the future due to the headwinds faced by ICE Vehicles, the transition has already begun and India stands to be one of the biggest EV markets in the upcoming decade.
  • There are no pureplay EV Manufacturers that are listed on the bourses. However many 2 Wheeler Manufacturers are planning their foray into this segment. It should be noted that Hero Electric and Hero Motorcorp are two legally distinct entities with no connection to each other.
  • Hero Motorcorp has its own plans to manufacture Electric 2 Wheelers as it wants to expand into this lucrative growth-driven segment.

Consensus Estimates (Source: market screener website): 

  • The closing price of Hero Motorcorp was ₹2763/- as of 18-August-2021.  It traded at 17x/14x /12x the EPS estimate of ₹167/₹ 201/₹ 225 for FY22E/23E/24E.
  • The consensus price target is ₹ 3235/- which trades at 14x the EPS estimate for FY24E of ₹ 225/-.

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

Ready for the transition to BS-VI; aim to be a global company at every level – Hero MotoCorp’s Dr Pawan Munjal

Update on the Indian Equity Market:

On Friday, NIFTY50 closed -0.8% lower at 11,921. NIFTY50 gainers include Infratel (+5.3%), Kotak Mahindra Bank (+1.6%) and JSW Steel (+0.7%). NIFTY50 losers include Yes Bank (-10.5%), SBI (-5.3%) and Zee Entertainment (-4.6%). PSU Bank (-4.4), Media (-3.4%), and Auto (-1.7%) were the top losing sectors. There were no sectoral gainers in the Friday trade.

Excerpts from an interview with Dr Pawan Munjal, Chairman, MD & CEO, Hero MotoCorp Ltd. The interview was published in CNBCtv18 dated 05th December 2019

·        They are set for a quick transition to BS-VI. The company has already discontinued over 50 BS-IV products.

·       Hero is leading a charge on the BS-VI front, according to Dr Munjal. The first BS-VI motorcycle introduced in India is from Hero and currently, they are working on all the other range of products. They have already started production of various other models. Over the next 1 or 2 months, Hero will be probably transitioning into BS-VI with the entire range.

·        Dr Munjal said there seems to be a slowdown across the globe, especially in oil markets and thus, many of their global markets are oil-dependent markets. Hero has seen market shrinking, they have seen Columbia & Nigeria market shrinking, and Argentina going through hell and similarly, many other markets facing a lot of headwinds.

·        Hero has gone back and looked at their strategies. They had planned to go to 50 markets. However, right now Hero will focus on the big markets and try and increase their market share in these markets.

Recently Hero introduced the X-Pulse and some of the other new bikes in the 200 CC range. They received an excellent response, from the customers. Hero has more such stuff in the pipeline coming in the premium segment. It is not just the products, it is the brand, the marketing and the 360 around the brand that the Company is doing.

·        Hero is working with the global consultants on the visual identity and the insides of their dealership. Hero will be changing a lot of stuff in their outlets soon.

·        Hero is a global company not just in terms of selling the products into global markets but they have gone into other markets with manufacturing in Columbia and Bangladesh. Thus, the Company is trying to become a global company at every level.

In terms of diversity, there is gender, cultural diversity and there is a diversity of different nations, which are becoming part of Hero.

·        Hero is well on its way to the electrification of its products. A team is working on the engineering and research part of the electric product. Hero will be bringing its electric products but no timeframe promised as of now.

·        Tiger Woods is captaining the US team for the President Cup in Melbourne for Hero MotoCorp. The relationship between Tiger Woods and Hero MotoCorp has been of great benefit. Hero is a huge brand in India. Hero was mostly a domestic brand but when they started going out of India into various other markets whether it was Africa, Latin America, Central America, the brand was almost unknown in other markets, other countries. Hero’s association with Tiger gave them that immediate recognition in these markets.

·        When asked about the biggest lesson learnt by the Company from what has happened over the last year from this slowdown, Dr Pawan Munjal said “Life is not always about going north. There will be challenges in life, there will be difficult times in life, sales will go up sometimes, sales will come down sometimes, the economy will go up and the economy will come down sometimes. So, we need to be prepared to face these challenges. When required, we need to buckle up our shoes and tighten our belts and do whatever best we can do for our consumers and customers to be able to give them the right product and the right quality.”

Consensus Estimate (Source: market screener website)

·        The closing price of Hero MotoCorp Ltd was ₹ 2,362/- as of 06-December-19. It traded at 14x/ 13x/ 12x the consensus EPS estimate for FY20E/ FY21E/ FY22E of ₹ 174/ 177/ 196 respectively.