India’s largest two-wheeler maker posted 21% revenue growth while finally gaining traction in scooters and premium bikes.
Hero MotoCorp is proving that market leadership doesn’t require standing still. The company that built an empire selling 100-125cc commuter motorcycles is systematically expanding into scooters, premium bikes, and electric vehicles—all while maintaining its core business momentum. Third-quarter results showed 21% revenue growth and margin expansion. HDFC Securities is positive: “Business outlook remains favorable, as demand momentum continues post the festive season.”
“HMCL’s Q3FY26 revenue/EBITDA grew 21%/23% YoY to Rs 123.3 bn/Rs 18.1 bn, in line with estimates,” Nuvama adds. Volume growth of 16% combined with 4% realization improvement—selling higher-priced products—demonstrates the portfolio evolution is working.
With a new CEO taking charge, the timing looks opportune. HDFC Securities notes: “With the new CEO coming onboard, we are already sensing a focused strategy to grow underpenetrated segments of the company like: scooters, premium motorcycles, global business, EV and parts, accessories and merchandise (PAM).” Hero has identified its weak spots and is addressing them systematically rather than defensively.
The Margin Quality Debate
Profitability showed resilience despite headwinds. “EBITDA margin at 14.7% improved 22bps YoY but declined by 36bps QoQ,” HDFC Securities reports, coming in “25bps below our estimate.” The sequential decline stems from rising input costs, but the year-on-year expansion demonstrates underlying operating leverage.
Break out the electric vehicle drag, and the picture brightens considerably. “EBITDA margin for the ICE segment (ex of EV) stood at 17%, up 100bps YoY but down 70bps QoQ,” per HDFC Securities. The internal combustion engine business—still 90%+ of revenue—is generating healthy 17% margins while funding investments in future segments.
The margin pressure is temporary and quantified. HDFC Securities explains: “It quantified a higher RM cost-related impact at 40-50bps in Q3 and expects a similar impact in Q4, mainly on account of higher prices of aluminum and precious metals, which has also been exacerbated by adverse forex.”
Management isn’t sitting idle. “While it took a price hike of Rs 300 at the start of Jan, it is monitoring spots for another price hike in Q4, as it believes that the market is conducive to absorb it with minimal impact on demand,” HDFC notes. The pricing environment remains rational, allowing Hero to pass through cost inflation without sacrificing volume.
The Product Offensive Gains Traction
Recent launches are resonating with customers. HDFC Securities reports: “There has been strong customer acceptance of recent new launches like HF Deluxe Pro, Glamour X, Destini 110, All New Destini 125, Vida VX2, and dual channel in Xtreme 125R. This has also been supported by marketing campaigns.”
The scooter push appears to be working too. Nuvama highlights: “The recent launches of Glamor X, Destini 125 and Xoom 125 have received a positive customer response leading to market share gains.” Hero historically lagged in scooters—a segment where Honda and TVS Motor dominated. Closing that gap expands the addressable market substantially.
The executive/premium motorcycle segment shows similar progress. “HMCL is focusing on building its presence in the executive segment driven by new products and ongoing upgradation of outlets,” Nuvama states. Products like Xtreme and Xpulse target younger, urban buyers willing to pay premium prices for differentiated features and styling.
The Electric Way ForwardÂ
Hero’s electric venture, Vida, is gaining market share faster than expected. Nuvama reports the company is “helping the company achieve a market share of ~10% as on FY26YTD (~4% in FY25).” Tripling electric market share in a year demonstrates product-market fit, even as the overall EV two-wheeler segment remains small.
The battery-as-a-service model addresses the biggest consumer objection—upfront cost. “The newly introduced Battery-as-a-Service (BaaS) offering is helping gain further uptake by lowering the upfront cost of E-2Ws,” per Nuvama. Customers pay for the vehicle separately from the battery, reducing initial outlay and alleviating range anxiety through swappable batteries.
The Vida VX2 mass-market electric scooter targets price-conscious buyers, expanding the funnel beyond early adopters. While electric vehicles still drag on overall margins, gaining 10% market share in a nascent but growing segment positions Hero well for the inevitable transition.
Export Business Finds Its Footing
International markets are contributing meaningfully. HDFC Securities credits “good performance in exports to expansion within existing geographies (especially their top 10 markets) and now having products designed to suit specific market conditions and customer requirements. It expects strong growth to continue over the medium term.”
Hero’s export strategy appears more focused than in the past—deepening penetration in core markets with tailored products rather than chasing volume everywhere.
Demand Outlook Remains Robust
Management’s commentary suggests momentum will sustain. HDFC Securities reports: “It expects the domestic 2W industry to grow in double digits in Q4FY26 and for the company to grow ahead of the industry. It expects this momentum to continue heading into FY27, though expects the growth rate to moderate in H2 due to the high base effect.”
Multiple demand drivers are aligning. “Both urban and rural markets are doing well, and while urban markets are also benefitting from the income tax cuts that have started accruing, rural markets will benefit from good Rabi sowing translating into good harvests, and the upcoming wedding season,” per HDFC Securities.
Nuvama forecasts “domestic volume growth over FY26–28E with a 6% CAGR for domestic 2W industry,” driven by “improved affordability, a healthy product pipeline, adequate availability of financing and implementation of Pay Commission for government employees.”
Financial Profile Strengthens
Cash generation remains robust. Nuvama expects “healthy FCF (~Rs 53 bn/year) and dividend yield (~4%)” going forward. For a company trading around Rs 4,800-5,000, a 4% dividend yield while growing mid-single digits provides attractive total return potential.
The balance sheet carries significant hidden value. HDFC Securities values Hero’s “stakes in Hero FinCorp (Rs 334) and Ather Energy (Rs 424)” per share, totaling Rs 758. These financial investments in a captive finance company and electric two-wheeler startup provide optionality beyond the core motorcycle business.
Valuation Reflects Execution Risk
Both brokerages see meaningful upside. HDFC Securities arrives at a target price of “Rs 7,279” by valuing “the company at 19x Dec-27 EPS, adding the value of its stakes in Hero FinCorp (Rs 334) and Ather Energy (Rs 424).” That implies roughly 45-50% upside from current levels.
Nuvama maintains a target of “Rs 6,800/sh, based on 20x FY28E EPS and inv./cash value at Rs 1,069/sh,” noting “At CMP, it trades at 20x/18x FY27E/28E PE.” Both targets assume successful execution on scooters, premium bikes, and electric vehicles while maintaining core business strength.
