Hero MotoCorp Delivers Impressive Q3 Performance, Sets Sights on Premium Segments
Hero MotoCorp Ltd has reported a robust performance for the December quarter (Q3FY26), showcasing significant growth in revenue and margins. The company's standalone revenue surged by 21% year-on-year to reach ₹12,328 crore, driven by strong festive demand, GST rate cuts, and successful new model launches. This growth was supported by a 16% increase in total volumes, which amounted to 1.69 million units, highlighting the company's resilience and strategic execution in a competitive market.
Margin Expansion and Strategic Investments
Despite ongoing investments in its electric vehicle (EV) business, Hero MotoCorp achieved an Ebitda margin expansion of 22 basis points to 14.68%. Management has projected that Ebitda margins will remain in the range of 14-16% moving forward. This margin improvement reflects the company's ability to balance growth initiatives with profitability, even as it navigates challenges such as commodity inflation, rupee depreciation, and EV-related expenditures. To mitigate these pressures, Hero is implementing calibrated price hikes, ensuring sustainable financial health.
Diversification into Premium Segments and EVs
The company is actively shifting its focus towards premium segments, scooters, 125cc motorcycles, exports, and electric vehicles, which are no longer peripheral businesses but central to its growth strategy. In Q3FY26, domestic scooter volumes soared by 71% year-on-year to approximately 165,000 units, with market share improving sharply to around 7.7%, bolstered by refreshed models like the Destini and Xoom. Similarly, in the 125cc motorcycle segment, models such as the Glamour X and Xtreme 125R have gained significant traction, with Glamour X retail volumes growing by about 70%.
Hero's EV arm, Vida, demonstrated remarkable progress with volumes growing over 267% year-on-year in Q3FY26, and market share improving to around 11%. This indicates that Hero is establishing a strong foothold in the EV category, which is poised to define the future of the two-wheeler industry. Exports also saw robust growth, increasing over 40% to about 102,000 units, with strong demand in key markets like Bangladesh, Colombia, Africa, and Latin America.
Future Outlook and Industry Projections
Management anticipates double-digit growth for the two-wheeler industry in Q4 and high single-digit growth for FY27, with Hero aiming to outperform these benchmarks. In January, the company's sales volumes jumped 26% year-on-year, reinforcing this optimistic outlook. According to Motilal Oswal Financial Services, Hero MotoCorp is expected to deliver a volume CAGR of approximately 7% over FY25-28, driven by new launches and an expansion in exports. The broking firm noted that Hero will benefit from a gradual rural recovery, given its strong brand equity in the economy and executive segments.
Risks and Opportunities
While Hero faces intensifying competition across scooters, EVs, and premium motorcycles, its strategic transition towards premiumization, electrification, and exports presents significant opportunities. If the company can sustain this shift, execute well on EV scale-up, and manage costs effectively, future earnings growth is likely to be healthier and margins more durable than in the past. The underlying ICE business is already delivering an Ebitda margin of around 17%, and management has indicated that EV unit economics are improving as scale builds.
The Hero stock currently trades at 20 times its FY27 estimated EPS, as per Bloomberg, which appears reasonable provided the company maintains sales momentum once GST-led benefits subside. This valuation reflects investor confidence in Hero's ability to navigate market dynamics and capitalize on emerging trends in the automotive sector.
