However, factors such as incremental volume from the premium bike segment, strong product lineup, and improving demand for entry-level bikes may help the country’s largest bike maker in mitigating the margin pressure from the EV segment and retain its outperformance on bourses. The stock has gained over 50% in the past three months, outperforming the 18% return of the ET Automobiles index.
The company’s conventional two-wheelers segment clocked 16% operating margin before depreciation and amortisation (Ebitda margin) while the overall blended margin was 14% implying a 200-basis point drag due to the EV segment losses. It indicates that the EV scooter business incurred a loss of ₹2.4 lakh per unit on a sales volume of 8,246 units where the average selling price was about ₹1.3 lakh per unit in Delhi. The margin pressure for the EV business will continue until the segment volume increases enough to rationalise fixed costs.
To strengthen the EV portfolio, Hero Moto plans to launch one mass-market and another mainstream electric scooter in the next fiscal year. In addition, it will expand the retail EV presence by increasing the number of scooter hubs called Vidahub to 100 next year from 18 currently.
So far, the company has been able to neutralise the pressure from EV losses due to rising volume of premium bikes, which rose by 85% year-on-year to 22,847 units in the December quarter. The entry-level segment volume increased by 18% to nearly 300,000 units thereby taking total motorcycle volume to 1.2 million units in the domestic market. The Ebitda per vehicle was ₹9,329, little changed from the previous quarter. The volume of more than 125cc segment is expected to reach around 200,000 units in FY25 from 120,000 units in FY24.
The total sales volume rose by 4.2% year-on-year to 4.2 million units in the first nine months of FY24. Analysts expect volume to grow by 6.5-7% and 10-12% for the current and next fiscal years. It means the monthly volume for the March 2024 quarter is expected to be 14,000-15,000 units higher than in the previous nine months.
Apart from core earnings from vehicle sales, revenue from spare parts and merchandise has been growing at a brisk pace with a superior margin. The spare parts sales rose to ₹1,430 crore in the December quarter from ₹1,260 crore a year earlier and constituted around 15% of total sales.
The annualised revenue of parts, accessories, and merchandise business crossed ₹5,500 crore during the December quarter. The company plans to invest ₹600 crore over the next two years to set up a global parts centre in Tirupati with a storage capacity of 36,700 SKUs (stock-keeping units).
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