Hero MotoCorp margin beat supports scooter, EV and export growth outlook

Investment View and Valuation

Motilal Oswal Financial Services Limited (MOFSL) maintains a Buy rating on Hero MotoCorp following its August 7, 2026 results update. The positive view is supported by stronger-than-expected 1QFY27 profitability, continued leadership in commuter motorcycles, growing traction in internal-combustion-engine (ICE) and electric scooters, and an improving export opportunity.

MOFSL forecasts revenue, EBITDA and PAT compound annual growth rates (CAGRs) of about 10 per cent, 8 per cent and 9 per cent, respectively, over FY26-FY28. Its target price of Rs 6,560 is based on 18 times FY28E core EPS, plus Rs 89 per share for Hero FinCorp and Rs 744 per share for Ather, after applying a 20 per cent holding-company discount.

Strong 1QFY27 Financial Performance

Hero MotoCorp reported 1QFY27 net revenue of Rs 13,000 crore, up 35.7 per cent year-on-year and above MOFSL's estimate of Rs 12,300 crore. Volumes increased 22.7 per cent year-on-year to about 17 lakh units. Net realisation rose 10.6 per cent year-on-year and 3.8 per cent quarter-on-quarter to approximately Rs 77,500 per unit.

Parts, accessories and merchandising revenue grew 30 per cent year-on-year to Rs 1,689 crore, supporting average selling prices. Gross margin contracted 480 basis points year-on-year to 28.5 per cent, below MOFSL's 30.9 per cent estimate. However, other expenses rose only 9 per cent despite 23 per cent volume growth, helping EBITDA increase 25 per cent year-on-year to Rs 1,727 crore, ahead of the broker's Rs 1,580 crore estimate.

EBITDA margin declined only 110 basis points year-on-year to 13.3 per cent, above the 12.8 per cent estimate, while PAT rose 29.2 per cent year-on-year to Rs 1,450 crore. MOFSL notes that postponed promotional and discretionary spending could move into later quarters.

Volume, Margin and Cost Outlook

Management expects volume momentum to continue in 2QFY27 before moderating against a high second-half base. It expects high-single-digit growth for the two-wheeler industry in FY27.

Management expects only a marginal increase in commodity costs in 2QFY27, which it expects to offset through mix improvement and cost initiatives. It reiterated a medium-term EBITDA margin aspiration of 14-16 per cent, while acknowledging that inflation could make achievement difficult in the near term.

Market Share Gains and Product Momentum

MOFSL highlights Hero MotoCorp's expanding market shares. In 1QFY27, the company's 100cc motorcycle market share increased by about 230 basis points year-on-year to around 86 per cent, supported by launches including the Super Splendor XTEC 2.0 and Passion Plus Disc Variant. ICE scooter market share also rose by about 230 basis points to nearly 7 per cent.

EV volumes grew 151 per cent year-on-year, while EV market share increased by 400 basis points year-on-year. Monthly VIDA retail sales are consistently around 20,000 units, and channel inventory remains low at only two to three days.

Electric Vehicle Expansion

The VIDA VX2+ has a 4.2 kWh battery and a 187 km IDC-certified range, while the lower-priced VX2 GO has a 3.1 kWh battery and a 120 km IDC range. Hero MotoCorp is adding 10,000 units of monthly EV capacity during August. Project UBEX and VXZ electric motorcycles are scheduled for commercial launch in FY28.

EV revenue was about Rs 660 crore, representing 5 per cent of consolidated revenue, in 1QFY27. EV EBITDA loss per vehicle narrowed to about Rs 40,000 from approximately Rs 50,000 in 4QFY26, although the total EV business loss remained about Rs 230 crore quarter-on-quarter.

Around 60 per cent of the EV portfolio is PLI-certified, with management targeting full certification by the end of CY26. Scooter production is approximately 65,000 units per month, and management aims to double capacity by FY27-end, with the remaining expansion expected in 4QFY27.

Exports as a Long-Term Growth Lever

MOFSL views exports as a material longer-term growth opportunity. Hero MotoCorp exported to 52 target countries and reported 41 per cent year-on-year export growth in FY26, which was 16 per cent above industry growth.

The broker expects further growth from expanded export geographies, market-specific products, distribution upgrades and brand investment.

MOFSL Estimate Changes

MOFSL raised its FY27E and FY28E estimates as follows: