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Hero MotoCorp stock drops 2% after UBS reiterates ‘sell’ call, anticipating a 45% downside

Stocks
2 min Read Sep 26, 2024
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Shares of Hero MotoCorp Limited commenced trading on a downward trend, falling over 2% to ₹5,935 on the morning of September 26. This decline follows UBS’s reaffirmation of a 'sell' rating on the stock, citing multiple concerns for the two-wheeler giant.

UBS's price target and market outlook

UBS has established a price target of ₹3,350 for Hero MotoCorp, suggesting a possible 45% decline from its previous close of ₹6,088 on the National Stock Exchange (NSE). Despite having experienced nearly a 50% increase in share value since the beginning of the year, the brokerage suggests caution.

They noted that while the company has seen positive sentiment surrounding wholesale volumes and festive optimism, these factors may be overshadowing a significant retail performance issue. Despite recent product launches, Hero MotoCorp has suffered a considerable loss in retail market share, with figures for September 2024 dropping below 24%. The stock is currently trading at 26 times the projected earnings for FY26, which is more than three standard deviations above its five-year historical average.

Expansion plans and market challenges

In recent developments, Hero MotoCorp announced plans to commence operations in Brazil in the fourth quarter of the 2025 financial year. The company has already begun dispatching vehicles to the Philippines since March 2024. The plan to establish a manufacturing and distribution unit in Brazil was initially announced in 2014 but was postponed due to regulatory requirements regarding fuel composition.

In the first quarter, Hero MotoCorp reported a 36% year-on-year increase in standalone net profit, amounting to ₹1,122.63 crore. This growth was attributed to strong sales, a recovery in the rural market, and the successful launch of new models such as the Xtreme 125R.

Current share performance

As of 9:20 a.m., shares of Hero MotoCorp were trading at ₹5,941, reflecting a 2.5% decrease from the previous close on the NSE. Investors looking to invest in stocks should weigh the current market conditions and UBS’s warnings against the backdrop of Hero MotoCorp's potential for recovery and growth.

Key takeaways

  • Hero MotoCorp shares dropped more than 2% to ₹5,935 following UBS's 'sell' recommendation.

  • UBS sets a price target of ₹3,350, indicating a potential 45% downside.

  • Retail performance remains a significant concern despite a nearly 50% rise in shares this year.

  • The company plans to commence operations in Brazil and has reported strong profits driven by new launches.

  • The current trading price stands at ₹5,941, down 2.5% on the NSE.

Investors interested in the two-wheeler market should monitor Hero MotoCorp closely, particularly as it seeks to navigate these challenges and potential opportunities to invest in stocks.