Accelerating EV Adoption Will Erode Traditional Two-Wheeler Demand

Key Takeaways

• Slow adaptation to electric vehicle trends and regulatory changes threatens market share and revenue sustainability amid rising competition and urban policy shifts.
  
• Dependence on rural demand and high input costs increase financial vulnerability, with profitability pressured by heavy investment needs and subdued near-term returns.
  
• Growth in EV innovation, diversified revenue streams, and robust cash generation position Hero MotoCorp for sustained long-term profitability and resilience against industry challenges.

Catalysts

Primarily engages in the manufacture and sale of motorised two wheelers in India, Asia, Central and Latin America, Africa, and the Middle East.

• The company's core business remains deeply tied to internal combustion engine two-wheelers, and global acceleration towards electric mobility and stricter emission regulations present fundamental headwinds; as EV adoption intensifies and regulatory bans on ICE vehicles expand, a significant portion of Hero MotoCorp's historical revenue base faces long-term structural decline.
  
• Urban policy shifts including congestion charges, tighter emission zones, and increasing preference for public or shared transport threaten to erode two-wheeler ownership in cities, reducing the company's addressable market and placing future sales volumes under sustained pressure.
  
• Despite recent launches, Hero MotoCorp has been notably slower than both aggressive domestic startups and international players in rolling out innovative EV products and technologies, risking loss of share in the fast-growing electric segment and posing a material threat to topline revenue over the mid-to-long term.
  
• Heavy reliance on rural and semi-urban markets exposes the business to demand volatility from factors like agricultural distress and wage stagnation, increasing the risk of earnings shortfalls as these segments remain vulnerable to external economic shocks and lack resilience compared to urban demand.
  
• With input costs rising-especially for batteries and key materials-alongside the ongoing need for high investment in research and development as well as EV capex, net margins and overall return on equity are increasingly at risk of dilution as the company invests heavily without commensurate revenue conversion in the near term.

Hero MotoCorp Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more pessimistic perspective on Hero MotoCorp compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming Hero MotoCorp's revenue will grow by 6.7% annually over the next 3 years.
• The bearish analysts assume that profit margins will shrink from 12.5% today to 10.3% in 3 years time.
• The bearish analysts expect earnings to reach ₹50.6 billion (and earnings per share of ₹252.93) by about September 2028, up from ₹50.4 billion today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 25.0x on those 2028 earnings, up from 21.2x today. This future PE is lower than the current PE for the IN Auto industry at 34.5x.
• Analysts expect the number of shares outstanding to remain consistent over the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 18.61%, as per the Simply Wall St company report.

Hero MotoCorp Future Earnings Per Share Growth

Risks

• Hero MotoCorp is experiencing accelerating market share gains in both the ICE and EV segments, with record high market share in key categories and rapid growth in its electric vehicle segment, which could drive sustained revenue growth and long-term earnings strength.
  
• The company is scaling up its EV platform and pioneering differentiated models such as Battery-as-a-Service, which lowers upfront costs for customers and expands the addressable market, potentially driving recurring subscription-based revenue streams and improving earnings visibility.
  
• Investments in new product launches, expansion into premium and global markets, and robust growth in parts, accessories, and export businesses reduce over-reliance on core domestic segments and provide diversified revenue streams that can help maintain or expand net margins.
  
• Strong cash generation from operations, prudent cost control, and a focus on margin management, even while investing in new businesses, position Hero MotoCorp to withstand input cost pressures and protect net margin levels over the long term.
  
• Macro tailwinds such as rising middle-class incomes, infrastructural improvements in rural and semi-urban areas, and increased financing penetration support a long-term secular uptrend in two-wheeler demand that could underpin sustained growth in volumes and revenue for Hero MotoCorp.

Valuation

• The assumed bearish price target for Hero MotoCorp is ₹3785.65, which represents two standard deviations below the consensus price target of ₹5099.26. This valuation is based on what can be assumed as the expectations of Hero MotoCorp's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of ₹6287.0, and the most bearish reporting a price target of just ₹3630.0.
• In order for you to agree with the bearish analysts, you'd need to believe that by 2028, revenues will be ₹490.8 billion, earnings will come to ₹50.6 billion, and it would be trading on a PE ratio of 25.0x, assuming you use a discount rate of 18.6%.
• Given the current share price of ₹5348.65, the bearish analyst price target of ₹3785.65 is 41.3% lower. Despite analysts expecting the underlying buisness to improve, they seem to believe the market's expectations are too high.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.