M&M vs Hero MotoCorp: Which auto stock should you bet on for long-term? Here’s a 5-point analysis

M&M vs Hero MotoCorp: Leading Indian auto majors Mahindra & Mahindra (M&M) and Hero MotoCorp have received fresh reviews and upgrades from domestic brokerages after the conclusion of the July-September quarter results for fiscal 2024-25 (Q2FY25). While M&M’s new compelling electric vehicle ranges have made the stock an attractive buy, Hero Moto Corp has witnessed an uptrend on a strong quarterly performance despite external headwinds.

The auto sector’s Q2FY25 performance was shaped by varied trends across segments. Original equipment manufacturers (OEMs) reported muted topline growth due to sustained weakness in the Commercial Vehicle (CV), Passenger Vehicle (PV), and global luxury segments. According to domestic brokerage Kotak Institutional Equities, auto ancillaries saw robust earnings growth during the September quarter.

Also Read: Hero MotoCorp vs Bajaj Auto: Which two-wheeler auto stock to buy after Q2 results?

Auto Sector Q2 Review

The brokerage said that the aggregate revenue of auto OEMs under its coverage universe was up two per cent in Q2FY25, driven by a double-digit YoY increase in 2W segment volumes, a richer product mix, and price hikes, which were partly offset by a nine per cent YoY decline in the CV sales volumes, a one per cent decline in PV sales volumes, and a 10 per cent YoY decline in the JLR business.

Tyre companies also struggled with margin pressures as rising rubber prices impacted their operating performance. Meanwhile, bearing companies had a mixed quarter, with margin challenges overshadowing revenue gains.

Also Read: Maruti Suzuki vs Hyundai Motor India shares: Which auto stock to buy after Q2FY25 results?

According to the brokerage, international and domestic natural rubber prices (spot) have corrected 25 per cent and 18 per cent, respectively, in the past month. Domestic tyre manufacturers abstained from procuring domestic rubber because domestic prices were trading at a premium to international rubber prices, leading to price adjustments in the domestic market.

It said tyre companies could benefit significantly, with a projected margin expansion of 200-250 bps, assuming no changes in pricing. Furthermore, the sharp yen depreciation against the Indian rupee is expected to reduce the cost of imported raw materials, aiding in margin expansion for Maruti Suzuki India from 2HFY25 onward.

Also Read: Hyundai Motor vs Maruti Suzuki: Which auto stock can drive long-term returns for your portfolio?

M&M vs Hero MotorCorp: Which auto stock should you buy?

1.M&M vs Hero MotorCorp: Product pipeline

M&M has launched two new electric SUVs at compelling price points, the BE 6e and the XEV 9e. Both models offer battery pack options ranging from 535-682 km for the BE 6e and 542-656 km for the XEV 9e. Both models are expected to launch in January 2025, with deliveries in February. The models boast 20-80 per cent charging in 20 minutes, use a 175 kW charger, and offer a lifetime battery warranty (only to first-registered owners), an industry-first offering. 

Also Read: Tata Motors expects PV retail sales to sustain momentum in Q3

Hero Moto Corp’s management highlighted plans for new product launches in H2FY25 and FY26, targeting both entry-level and premium segments, including models such as the Xpulse 210, Xtreme 250R, and Karizma XMR250, to expand the product portfolio. The management intends to broaden the EV model lineup across various price points over the next quarters. As of September 2024, Hero had launched 58 Premia stores catering to premium customers. It aims to reach 100 stores by FY25 to drive customer engagement and premium positioning.

2.M&M vs Hero MotorCorp: Share Price Trend

Shares of M&M opened at ₹2,912 on Friday and hit an intra day high of ₹2,990 against a 52-week high mark of ₹3,221.10 on the BSE. Shares of M&M settled 2.38 per cent higher at ₹2,968,95 apiece on the BSE. M&M has better one-year returns than frontline indices Nifty 50 and Sensex. 

According to Trendlyne data, M&M has given 7.98 per cent returns in the last one month, 7.56 per cent in the last three months, 17.07 per cent in the last six months, and 83.19 returns in the last one year. In the last three years, M&M has given 248.62 per cent returns to investors.

Shares of Hero Motocorp opened at ₹4,834.75 and hit an intra day high of ₹4,834.75 against a 52-week high of ₹6,245.00 on the BSE. Shares of Hero MotoCorp settled 0.50 per cent lower at ₹4,758.65 apiece on the BSE. Hero Motocorp has better one-year returns than frontline indices Nifty 50 and Sensex. In the last one year, Hero MotoCorp has 27.48 per cent returns.

3.M&M vs Hero MotorCorp: Demand Outlook

Hero experienced a 13 per cent increase in retail volumes during the 32-day festive season, driven by targeted marketing, effective inventory and product-mix planning. This growth boosted its market share to 31.6 per cent. The management highlighted strong demand post-festive season and anticipated medium-term volume growth to be supported by the marriage season, rural recovery and heightened government spending. 

Hero achieved a 20 per cent EV market share in five cities (including Kolkata, Mysore, and Cuttack) and 10 per cent in ten cities (such as Delhi, Patna, and Bhubaneshwar). The management has indicated that a gradual recovery is currently being seen in rural markets. 

Also Read: Hero MotoCorp, Eicher Motors & other two-wheeler stocks tumble up to 6% despite healthy October sales

“Given that Hero has a dominant 100-110cc portfolio, any recovery in the rural region bodes well for the company. Given the normal monsoon in FY25, we expect Hero’s 100cc segment to post much better growth in FY25E,” said domestic brokerage LKP Securities on Hero MotoCorp.

M&M has gone the whole hog in tempting customers to switch through their two EVs, which have loaded features of a software-defined vehicle (SDV) and an electrical and electronics architecture. Globally, many OEMs are struggling to provide a glitch-free experience for SDVs.

“Hence, we need to monitor how MM navigates these challenges. We believe its customer profile is adventurous and tends to go on long outstation drives. Hence, developing charging infrastructure apart from home and office charging will also be key for their model adoption,” said domestic brokerage Elara Securities India on M&M.

Also Read: Festive mood lifts automotive purchases in October, eases inventory pressure

4.M&M vs Hero MotorCorp: P&L Account, EBITDA

Hero MotoCorp, the world’s largest two-wheeler manufacturer, reported a 14 per cent year-on-year (YoY) rise in net profit for the quarter ended September 2024 at ₹1,204 crore. The company’s revenue in Q2FY25 grew 11 per cent YoY to ₹10,463 crore. At the operating level, EBITDA increased 14 per cent YoY to ₹1,147 crore.

The two-wheeler maker’s revenue from core operations rose 9.9 per cent to ₹10,482.93 crore in the September quarter, compared to ₹9,533.07 crore in the same quarter a year ago. Brokerage Motilal Oswal Financial Services expects Hero MotoCorp to deliver a volume CAGR of 7.5 per cent over FY25-27E, driven by new launches in the 125cc, scooters, and premium segments and a ramp-up in exports.

M&M reported a 35 per cent YoY jump in its consolidated net profit to ₹3,171 crore for the second quarter of FY25. The figure stood at ₹2,348 crore in the corresponding quarter last year. The auto major’s consolidated revenue from operations grew 10 per cent YoY to ₹37,689 crore in Q2 FY24 from ₹34,281 crore in Q2 FY24.

M&M said its automobile segment recorded the highest-ever quarterly volumes at 2,31,038 units in the quarter ended September 2024, up nine per cent YoY. M&M tractor sales during the quarter rose four per cent YoY to 92,382 units. 

At the operational level, M&M’s earnings before interest, taxes, depreciation and amortization (EBITDA) during the September quarter increased by 30 per cent to ₹3,908 crore, while the EBITDA margin improved by 190 basis points (bps) to 14.2 per cent from 12.3 per cent YoY.

Also Read: Apollo Tyres has to cover a lot of ground to reverse under-performance
 

5.M&M vs Hero MotorCorp: Valuation

LKP Securities expects Hero to deliver volume growth of seven per cent/six per cent during FY25E/26E, driven by 1) new launches in the 125cc, scooters, and premium segments and 2) a ramp-up in exports. It is ramping up the capacity for Xtreme 125R and its premium products, which would help drive growth in these segments. 

It targets the launch of two new scooters in the 125cc and 150cc segments in the coming quarters. Given the strong brand equity in the economy and executive segments, the two-wheeler major will also benefit from a gradual rural recovery. The brokerage has set a 12-month target price of ₹5,796 on the stock and sees a potential upside of 19 per cent from the current price.

Also Read: Honda Activa electric and QC1 launched in India: Price, bookings details and more

“The stock has corrected by >22 per cent from its 52-week high observed in September 2024, which we believe makes it very attractive from current levels considering its business strength and value. We reached a target of ₹5,796, assigning a multiple of 23x FY26E earnings compared to the current multiple of 19.4x. Maintain BUY,” said LKP Securities on Hero MotoCorp.

Elara Securities reiterated its ‘Accumulate’ rating on M&M with an unchanged target price of ₹3,457. M&M will have a capacity target of 10,000 vehicles per month in FY26, higher than India’s EV industry sales currently. MM’s success in EV and contributing to ~20 per cent of its UV volume are key to meeting CAFÉ norms (likely in 2027). 

“We reiterate Accumulate with a SOTP-based TP of ₹3,457. We value automotive (including EV) at ~32x Dec 2026E P/E and farm at 30x, with subsidiaries at ₹447. Tractor downcycle during FY26-27 and failed BEV launches are key risks,” said the brokerage on M&M.

Disclaimer: The views and recommendations provided in this analysis are those of individual analysts or broking companies, not Mint. We strongly advise investors to consult with certified experts before making any investment decisions, as market conditions can change rapidly and individual circumstances may vary.