Hero Moto share price has fallen 33% from recent peak— and it may fall another 12%

• Hero Moto share price fell a little less than a percent after a 'sustained recovery' in two-wheeler sales remained uncertain.
• The lack of confidence in the country's largest two-wheeler maker is a sign of continued weakness in demand.
• What makes it worse is the lack of excitement amidst a festive season when sales traditionally tend to pick up.

The lack of confidence in the country's largest two-wheeler maker is a sign of continued weakness in demand.
Hero Motocorp share price fell a little less than a percent after a 'sustained recovery' in two-wheeler sales remained uncertain.

What makes it worse is the lack of excitement amidst a festive season when sales traditionally tend to pick up. So far, the sales have grown in low single-digits compared to the same time last year, which is a bad sign.


Between July and September 2019, Hero Moto's earnings before interest, tax, depreciation, and amortisation (EBITDA) fell 20% but it was much better than expected, according to the CLSA. But the management did not feel confident about a 'sustained recovery' in sales.

Going forward, in the absence of a sharp recovery demand, the company may struggle to improve margin even as cost of production is expected to rise due to rollout of BS-VI models meant for lower emission. "Companies should find it difficult to pass on the full cost impact of the upcoming BS6 emission norms amid subdued demand and high competition," CLSA said.

The stock has fallen 33% from its peak but it is still not cheap. "We retain a SELL rating but raise our target price from Rs2,350 to Rs2,500 as we roll over to September 2021," the brokerage house added.



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