This Two-Wheeler Co Delivered A Strong Quarter, But The Medium-Term Story Is Better.

Volumes up 24%, margins expanding, EV presence strengthening and rural demand holding firm

India’s largest two-wheeler maker does not often produce quarters that turn heads. Hero MotoCorp’s business is vast, well-understood and tends to move in predictable cycles. Which is precisely what makes the fourth quarter of FY26 worth paying attention to — because the numbers were not predictable. Revenue grew 28.8% year-on-year, volumes rose 24.2% to 1.72 million units, and EBITDA grew 31.1% — all ahead of or in line with estimates.

What Drove the Quarter

Three things came together in the fourth quarter. First, GST-led affordability tailwinds boosted demand across the portfolio. Second, rural demand — which had been a point of uncertainty for much of the prior year — proved resilient. Third, new product launches generated traction across entry-level motorcycles, deluxe bikes and scooters simultaneously — a breadth of demand that Hero has not always been able to claim.

Average selling prices improved 3.5% year-on-year and 2.7% sequentially, reflecting both a better product mix and selective price hikes implemented to offset input cost pressures. EBITDA margins expanded approximately 30 basis points year-on-year to 14.5% — a meaningful move for a business where margin management has been a central investor concern. Raw material cost pressures moderated the sequential improvement slightly, but the direction of travel on margins remains upward.

The Scooterisation Trend 

One of the more interesting structural dynamics in the two-wheeler industry right now is the ongoing shift toward scooters — a segment where Hero has historically been weaker relative to its motorcycle dominance. Nirmal Bang’s note flags that scooters are likely to outpace motorcycles in FY27, “supported by the ongoing scooterisation trend.” The company’s confidence in outperforming the industry is partly premised on its strengthening position in this segment, alongside recovery in the 125cc motorcycle category and a growing EV presence.

The EV story at Hero is worth watching closely. Ather Energy — in which Hero has a strategic stake — is assigned a separate value in Nirmal Bang’s sum-of-parts valuation, alongside Hero FinCorp and Euler Motors. Together, these associates contribute Rs 750 per share to the target price. As EV adoption accelerates in the two-wheeler segment, the optionality embedded in these holdings becomes increasingly meaningful.

FY27 Outlook

Management has started FY27 with measured confidence. The broader macro environment carries uncertainty — geopolitical developments in West Asia have pushed commodity and input costs higher, affecting metals, gas and labour. Despite this, April and early May demand trends have been healthy, continuing the momentum seen in the second half of FY26. The industry is expected to deliver high single-digit volume growth in FY27, with the first half likely to outperform the second on a favourable base effect.

“The company remains confident of outperforming the industry,” Nirmal Bang’s report notes, “driven by new product launches, recovery in the 125cc segment, and strengthening EV presence.” Export demand continues to be healthy. Channel inventory remains lean — an important signal that the demand currently being seen is genuine retail offtake rather than distributor restocking. Financing conditions are stable. Management has reiterated its EBITDA margin guidance of 14-16%, with selective price hikes already implemented to partially offset input cost headwinds.

The Returns Profile 

What does not always get the attention it deserves in the Hero MotoCorp story is the returns profile of the underlying business. RoCE is expected to improve from 20.6% in FY26 to 22.5% by FY28. RoE is projected to move from 24.8% to 27.2% over the same period. RoIC — which strips out the effect of cash on the balance sheet — is expected to reach 22.7% by FY28. For a mature, capital-efficient business generating consistent free cash flow, these are numbers that compound meaningfully over time.

What Nirmal Bang Thinks It Is Worth

Nirmal Bang values the standalone business at 17x March 2028 EPS — in line with the stock’s five-year average implied multiple — and adds Rs 750 per share for associates with appropriate holding discounts. The combined target of Rs 6,513 implies a P/E of approximately 21.5x, which the brokerage describes as fair for a business delivering 8% volume CAGR with expanding margins and a strengthening EV optionality layer.