Hero Motors files draft papers for Rs 900-crore IPO, may consider pre-IPO fundraising

Hero Motors Ltd, the auto-components firm of the Hero Motors Company (HMC) Group, today filed preliminary papers with markets regulator SEBI to raise Rs 900 crore through an initial public offering (IPO). The IPO is a combination of a fresh issue of equity shares worth Rs 500 crore and an Offer-For-Sale (OFS) of shares valued at Rs 400 crore by promoters, according to the draft red herring prospectus (DRHP).

The OFS includes Rs 250 crore worth of shares by O P Munjal Holdings, who hold 71.55% in the company, and Rs 75 crore each by Bhagyoday Investments and Hero Cycles, who hold 6.28% stake and 2.03% shares, respectively. South Asia Growth Invest LLC has 12.27% shareholding in the company.

Additionally, the company may consider a pre-IPO placement of Rs 100 crore. If this placement is completed, the fresh issue size will be reduced. Proceeds from the fresh issue of upto Rs 202 crore will be used for debt payment, Rs 124 crore for purchase of equipment required for capacity expansion purposes, particularly for its plant in Noida, UP.

Hero Motors is India's leading automotive technology company engaged in designing, developing, manufacturing and supplying high engineered powertrain solutions provider to automotive OEMs in the United States, Europe, India, and the ASEAN region. The company's product range includes both electric and non-electric powertrains for various vehicle categories including two-wheelers, e-bikes, off-road vehicles, electric and hybrid cars and heavy-duty vehicles. For the uninitiated, powertrains refers to the combined assembly and mechanism that propel your vehicle ahead, and includes the engine, transmission, driveshaft, axle and more.

Steady financials

Hero Motors' revenue from operations stood Rs 1,064.4 crore in the fiscal 2024. ICICI Securities, DAM Capital Advisors, and JM Financial are the book-running lead managers to the issue. However, as per its DRHP (draft red herring prospectus), a significant potion of its business relies just on their top 10 customers. In FY24, the company's revenue earned from its top 10 customers stood at Rs 8,191.86 million, constituting 76.96% of its total revenue from operations. In FY23, the share of top 10 customers to Hero Motor's total revenue from operations stood at around 88.84%.

In FY24, Hero Motors derived 58.72% of its total revenue, or about Rs 6,249.85 million from India, while about 29.33%, or Rs 3,121.67 million stemmed from European region, including the United Kingdom. As of FY24, the company's most significant chunk of revenue (around 41.37%) came from two-wheelers, followed by motorsport and performative equipment (27.52%), automotive and aerospace related equipment (21.36%) and e-bikes (9.75%).

Another concerning aspect is the company's PAT (profit after tax margin), which shrunk from 10.83% in FY22, to 1.60% in FY24. In terms of human resources, the company had 1,484 permanent employees as of March 31st, 2024, with an attrition rate of 14.42%.