Shares of Hero MotoCorp dropped by 2.9% to ₹4,963 on the NSE following the decision by global brokerage UBS to maintain its 'Sell' rating for the two-wheeler company. UBS also revised the target price for Hero MotoCorp shares downward by ₹50, setting it at ₹3,300. By 10:20 AM, the stock was trading at ₹4,979.5, marking a 2.6% decline compared to the Nifty50 index's 0.6% dip. The Nifty Auto index also experienced a downturn, trading 2% lower.
UBS expresses concerns over rural demand revival
UBS's stance reflects scepticism regarding the market's optimism for a rural demand resurgence in commuter motorcycles and a potential turnaround in Hero MotoCorp's premium two-wheeler sales. According to the report, Hero MotoCorp's heavy reliance on rural areas for revenue and profitability may not yield the anticipated benefits due to significant changes in rural customers' preferences, such as the shift towards electrification, premiumisation, and increased scooter demand.
The report also noted that Hero's market share has declined sharply in rural-oriented states, even more so than in urban regions. This makes it unlikely for the company to benefit from a rural revival. As a major player in the two-wheeler segment, investors closely watch its stock to assess market trends, but UBS's outlook suggests caution for those looking to invest in stocks.
Market share losses and concentration risks
Currently, around 77% of Hero MotoCorp's sales come from domestic commuter motorcycles (100-110 cc), despite several premium motorcycle and scooter launches. The report highlighted that five states account for over half of the company's sales volume, restricting its market leadership to just six out of India's 28 states. Hero MotoCorp has lost ground even in these regions and ranks third or lower in 15 of the remaining 22 states.
UBS analysts believe the company's market concentration and the growing adoption of electric vehicles (EVs) pose risks. With competitors like TVS Motor Company and Honda gaining market share, Hero MotoCorp's traditional dominance faces new challenges. This trend signals caution for those planning to invest in stocks related to two-wheeler manufacturers.
EVs, premiumisation, and scooterisation challenge Hero's market share
The rise in electric vehicles, coupled with a growing preference for premium two-wheelers and scooters, has significantly impacted Hero's market share, leading to a 320-basis-point decline this year. UBS expects this trend to accelerate, especially as scooters become more popular and EVs continue to disrupt the market for internal combustion engine (ICE) commuter motorcycles in rural areas.
While Hero MotoCorp has been a leader in the motorcycle market within India, its share in two-wheeler exports remains a modest 6%. Recent product launches like the Vida, HD X440, and Xoom scooter have not met the company’s expectations, with these models achieving only low-single-digit market shares in their respective segments.
UBS maintains a cautious outlook on Hero MotoCorp's future
UBS's report suggests that the stock's current valuation already factors in expectations for a commuter motorcycle revival, a recovery in market share, and reasonable success with EVs. However, UBS remains sceptical and has kept its 'Sell' rating with a target price of ₹3,300, the lowest on the Street. The brokerage's profit after tax (PAT) estimates for FY26 and FY27 are 14% and 18% below consensus expectations, respectively.
For those looking to invest in stocks, this cautious outlook on Hero MotoCorp highlights the potential risks associated with the company's reliance on a rural demand revival and its ability to adapt to shifting market dynamics. As EV adoption accelerates and consumer preferences continue to evolve, investors may need to reassess their strategies in the two-wheeler segment.
Conclusion
The recent slide in Hero MotoCorp shares, driven by UBS's maintained 'Sell' rating and concerns over a weak rural revival, underlines the challenges facing the two-wheeler giant. With the company struggling to gain traction in premium segments and electric vehicles rapidly changing the landscape, potential investors should exercise caution. For those planning to invest in stocks, it is essential to weigh the risks and stay informed about market trends that could impact the two-wheeler industry.
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