Hero MotoCorp's Mixed Q3 Results Lead to Bearish Outlook from Goldman Sachs

Stocks of Hero MotoCorp, India's leading two-wheeler manufacturer, saw a decrease of up to 4 percent in early trading hours on Monday, despite the company showcasing a substantial increase in third-quarter profits. The dip in share prices came as a jolt, especially considering the 51 percent rise in profits which exceeded market expectations. The decline on Monday saw the stock touching a low of Rs 4,714, marking a notable contrast from its previous close of Rs 4,908.5.

Strong Sales yet Falling Stocks

The remarkable surge in profits for Hero MotoCorp was fuelled by robust sales in the two-wheeler division, a sector where the company holds the largest market share. This upturn resulted in an impressive year-over-year profit of Rs 1,073 crore for the quarter ending December 31. However, this positive performance did not prevent the stock prices from sliding.

Goldman Sachs and Morgan Stanley Remain Cautious

Goldman Sachs issued a bearish outlook on Hero MotoCorp, albeit increasing the target price to Rs 3,730 from Rs 3,260. This new target still suggests a potential 24 percent downside. The global investment bank acknowledged the company's consistent third-quarter results but expressed concern over market share dynamics in both internal combustion engines (ICE) and electric vehicles (EV).

They further elaborated on Hero MotoCorp's ICE two-wheeler portfolio, which currently operates at a 16 percent EBITDA margin. This margin enables the company to invest in its EV business yearly while maintaining profitability.

Likewise, Morgan Stanley maintained a bearish sentiment by assigning an 'underweight' rating to the stock and revised its target price upwards to Rs 3,638, suggesting a 26 percent downside. The financial institution recognized the company's competent strategy execution but remained cautious on account of disruption risks in core segments and high valuation concerns.

Morgan Stanley emphasized that market share gains in the premium segment are crucial for Hero MotoCorp, with the potential disruptions posed by new market entrants and pricing pressures being key factors to monitor.

HeroMotoCorp, GoldmanSachs, Earnings