HMCL is in a sweet spot as strong rural-led recovery plays to its strength in the economy-executive category in the motorcycles segment. With an apt product portfolio for the rural market, the highest brand recall, and a strong distribution network, it is best placed to benefit from low penetration and ongoing momentum in the rural economy. We upgrade to ‘buy’ (from ‘neutral’), with target price of Rs 3,900 (18x September 22 EPS + Rs 100/share for NBFCs).
HMCL’s competitive positioning has improved in both the 100cc and 125cc categories post BS-VI. This is attributable to the narrowing of the price diffeential in the economy segment (vis-à-vis BJAUTs CT100) and product upgrades in executive 125cc. This would enable further recovery in market share in FY21 — signs of recovery are visible YTD.
HMCL has a very weak presence in other segments such as scooters, premium motorcycles and exports, which contribute over 55% to the 2W industry. It has just 5% market share in these segments. Learning from its lack of success, it has course-corrected in each of these segments and is returning with renewed strategy. If HMCL turns second-time lucky in either of these segments, it could potentially add another volume driver, in turn supporting the core portfolio. We see initial signs of acceptance for HMCL’s products in the market in all these three segments.
While there is no clarity on whether the GST cut would actually happen and whether it would be across 2W segments, we do believe that there is a case for GST cuts for commuter segment (100-125cc 2Ws). This augurs well for HMCL considering >95% of volumes come from <125cc segment.
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