Hero MotoCorp Ltd Q3 FY23 Earnings Conference Call Insights

Key highlights from Hero MotoCorp Ltd (HEROMOTOCO) Q3 FY23 Earnings Concall

Management Update:

• [00:03:12] HEROMOTOCO said that with global headwinds expected to continue, India is relatively much better placed and the company expects double-digit revenue growth for the next fiscal for two-wheeler industry.

• [00:03:51] HEROMOTOCO said it’s on path to market share recovery and backed by actions on all fronts, including multiple product launches. The company expects to grow ahead of the industry in FY24.

Q&A Highlights:

• [00:04:48] Chandramouli Muthiah at Goldman Sachs enquired about the product mix in 3Q and the underlying trends. Ranjivjit Singh CGO said that the company has made good progress with the 125cc Glamour XTEC bike and is strengthening its 125cc portfolio with the Super Splendor XTEC and looking to launch more bikes in FY24. Premiumization is also a trend that the company is focusing on.

• [00:07:29] Chandramouli Muthiah at Goldman Sachs asked about any updated timelines for the Gogoro swappable battery electric two-wheeler partnership. Swadesh Srivastava said the main focus for HEROMOTOCO right now is to get the VIDA product and its launches across cities stabilized.

• [00:08:56] Binay Singh from Morgan Stanley queried about the headwind in the new mobility business. Niranjan Gupta CFO said that the P&L for the VIDA launch absorbs 70 basis points of spending, which was negligible in comparison to 3Q22.

• [00:10:51] Binay Singh at Morgan Stanley asked if the EV expenses will continue in the coming quarters. Niranjan Gupta CFO replied that the company expects expenses to continue to increase as it continues to expand to multiple cities. These are investments in building a category and not expenses.

• [00:12:01] Binay Singh at Morgan Stanley enquired if the company is seeing more tailwinds on the GM side considering price hikes. Niranjan Gupta CFO said ideally, cost inflation would start to be lower than price increases, which would lead to margin improvement. However, it is difficult to predict commodity prices.

• [00:23:37] Kumar Rakesh with BNP Paribas asked about the new scooter launches of XOOM and the areas addressed. Ranjivjit Singh CGO answered that the XOOM launch has been very well received and is expected to be a hit. The company is very excited about it.

• [00:25:41] Raghunandhan N. L. of Emkay Global asked about the entry-level segment and rural demand, how demand conditions were post the Uttarayan festival and commencement of marriage season. Niranjan Gupta CFO said that the company has seen a strengthening of its market share in the entry and rural segments in 3Q. The marriage season is the next six months, so expect to see even more uptake for the 100 and 110cc segments. HEROMOTOCO is starting to see green shoots in the rural markets.

• [00:28:40] Raghunandhan N. L. of Emkay Global asked about the order booking for VIDA. Swadesh Srivastava said the product launch in Delhi, Bangalore and Jaipur has been successful with 250-300 vehicles registered and customers giving good feedback. The company has multiple charging stations set up across the three cities and plans to expand to other cities within 4Q and next year.

• [00:34:50] Gunjan Prithyani from Bank of America asked that on GM improvement, what’s the benefit of price hike in 3Q23. Niranjan Gupta CFO replied that HEROMOTOCO has taken four consistent price increases over the last four quarters, with the latest being on Dec 1 for INR930 ex-showroom. The company has also delivered 80 bp of lease savings over nine months to help offset the increases.

• [00:41:08] Gunjan Prithyani from Bank of America enquired about the spares revenue for 3Q23. Niranjan Gupta CFO answered that the spares revenue was INR1,259 crores for 3Q23 vs. INR1,186 crores in 3Q22. For 2Q23 it was INR1,244 crores.

• [00:42:36] Jinesh Gandhi from Motilal Oswal asked about the BS-VI Phase II transition preparation. Niranjan Gupta CFO replied that the transition to manufacturing OBD models is already underway and will be completed by March, with all manufacturing to comply with the OBD-2 Phase I mandate from April onwards.

• [00:43:37] Jinesh Gandhi from Motilal Oswal enquired about the reason for a spike on the other income. Niranjan Gupta CFO replied that other income in 3Q23 is reflective of the absence of MTM losses due to Gogoro and treasury yields that were not present in the last few quarters.

• [00:48:51] Shashank Kanodia from ICICI Securities asked about the penetration levels for two-wheelers in rural versus urban. Ranjivjit Singh CGO said the penetration in India is currently around 45%, which provides a lot of room for growth. The outlook for the industry in India looks good, and the company is well-positioned to take advantage of this opportunity.