Detailed Rationale

Crisil Ratings has reaffirmed its 'Crisil AAA/Stable/Crisil A1+' ratings on the debt programmes and bank loan facilities of Hero Motocorp Limited (HMCL).

 

The ratings continue to reflect the strong business risk profile of the company supported by its leading position in the two-wheeler market in India, robust financial risk profile owing to strong networth, negligible debt and substantial cash surplus. These strengths are partially offset by exposure to intense competition, modest presence in the premium motorcycles and electric two- wheeler segment, and low geographic diversity.

 

Revenue grew by 9.9% on-year to Rs 30,954 crore in the first nine months of fiscal 2025 on the back of ~6.8% on-year volume growth and around 2.8% on-year growth in realisation. The growth in volume was on account of steady demand in rural geographies and strong volume growth in the exports as well as the executive segment (110cc to 150cc). Scooter volume witnessed on-year decline of 6-7%, while motorcycle volume witnessed on-year 7% growth driven by increase in the proportion of executive (110cc to 150cc) to 14% from 11% a year earlier. Further, the entry level motorcycle segment (75cc to 110cc) witnessed a low single digit growth owing to the premisation trend across the industry whereas the premium (150cc and above) motorcycle segment volume remained flat. The growth in realisation was driven by price hike owing to commodity inflation and introduction of on-board diagnostic transition norms among others. The operating margin stood at 13.8% in the first nine months of fiscal 2025. During the previous fiscal 2024, HMCL reported a year-on-year revenue growth of 10.6% to Rs 37,789 crore driven by a mix of growth in the volume and realisation resulting in operating margin of 14.2%.

 

With the rural demand expected to remain steady over the medium term with growth within the executive, premium and ultra-premium segment, revenue is expected to witness a growth of 7-9% while maintaining profitability of around 14%.

 

HMCL continues to invest in its associate companies Hero FinCorp Ltd (HFCL, rated ‘Crisil AA+/PPMLD AA+/Crisil AA/Stable/A1+’) and Ather Energy Pvt Ltd (Ather). The investments are of strategic importance. In fiscal 2025, the company purchased additional stake of Rs 124 crore in Ather. While in fiscal 2024, HMCL had investment of Rs 639 crore in Ather. As of December 2024, on fully diluted basis, HMCL holds around 37.9% stake. Furthermore, the company invested Rs 493 crore in Zero Motorcycles Inc with no further investment during the current fiscal.

 

The financial risk profile remains strong backed by robust networth, negligible debt, strong debt protection metrics and cash reserve. Adjusted networth was Rs 14,441 crore as on March 31, 2024, and interest coverage ratio stood at 82.81 times in fiscal 2024. Over the medium term, the interest coverage ratio is expected above 80 times. The financial risk profile is further strengthened on the back of strong cash reserve of Rs 7,215 crore as on March 31, 2024 (Rs 7,506 crore as on September 30, 2024) and unutilised bank limit.

Analytical Approach

Crisil Ratings has combined the business and financial risk profile of HMCL, its wholly owned subsidiaries in Netherlands and Bangladesh, and HMC MM Auto Limited (rated, ‘Crisil AA-/Stable/Crisil A1+’).  The ratings factor in support to HFCL and adjustments have been carried out to the networth accordingly in line with the capital allocation criteria.

 

Please refer Annexure - List of Entities Consolidated, which captures the list of entities considered and their analytical treatment of consolidation.

Key Rating Drivers & Detailed Description

Strengths:

• Leading position in the two-wheeler market in India: The market share of HMCL in the two-wheeler industry came down to around 25% as of January 2025 from around 27% a year earlier. Despite the decline in overall market share, the company continues to maintain a dominant position in the entry level motorcycle segment (75cc to 110cc). The market position is backed by strong brand appeal, wide dealer distribution and service network.

 

Within the two-wheeler electric vehicle (EV) segment, the company has around 6% market share as on date improving from 2% a year earlier. Currently, HMCL’s EV brand Vida is being sold at 150 stores across 100 cities, and to improve market share, the company has opened exclusive electric scooter stores and over the next 12 months shall launch mid-priced and economically priced electric scooters. Further, the company has witnessed good traction in terms of dispatch of the EV scooters during the past 2-3 months.

 

HMCL will continue its focus on improving market share in the executive and premium motorcycle segments. In fiscal 2024, the company launched Hero Karizma in the above 200cc motorcycle segment. In addition, HMCL has also partnered with Harley Davidson, and during the said fiscal, launched HD X440 and Maverick 440, which also gained strong traction. Market share within the above 200cc motorcycle segment has remained around 1.7% as of January 2025 with continuing plans to launch new products within the premium category to improve the market share.

 

• Robust financial risk profile: The financial risk profile remains strong owing to negligible debt, large networth and strong cash reserve. The company maintains a negative net working capital cycle, thereby resulting in limited working capital requirement, and in addition capital expenditure (capex) spend is largely for maintenance capex. As a result, the company’s balance sheet is virtually debt free. Furthermore, internal cash accrual is more than sufficient to cover fixed obligation, thereby resulting in strong free cash generation and a build-up of strong cash reserve. Adjusted networth and cash reserve stood at Rs 14,441 crore and Rs 7,215 crore, respectively, as on March 31, 2024. Over the medium term, the company’s fixed obligation comprising working capital requirement and yearly capex spend of Rs 1,000-1,200 crore shall be met through internal cash accrual. Interest coverage ratio stood at 82.81 times in fiscal  2024 and likely to be above 80 times over the medium term.

 

Weaknesses:

• Exposure to intense competition and modest presence in premium motorcycle segment: The Indian two-wheeler market remains highly competitive with major players such as Honda Motorcycles & Scooters India Pvt Ltd (HMSI), Bajaj Auto Ltd (Bajaj, rated ‘Crisil AAA/Stable/Crisil A1+’) and TVS Motors Ltd. Furthermore, players continue to launch new models. The EV space became extremely competitive with new original equipment manufacturers (OEMs) expanding in the space. However, HMCL maintained its leadership position at the entry level motorcycle segment backed by new products, strong dealership network and its five-year warranty programme. The company will continue to focus on in-house research and development (R&D) to launch new models with its own technology and has also been open to partnerships from time to time.

 

HMCL has modest presence in the premium motorcycle segment with domestic market share of 1.7% as on January 31, 2025. In the executive motorcycle segment, the market share increased to 16.8% as of January 2025 from 14.6% in fiscal 2024. However, the same still remains lower in comparison to 30% in fiscals 2020 and 2021 providing ample room to improve the market share.

 

• Susceptibility to rural demand owing to low geographic diversity followed by segment concentration in revenue: Motorcycles accounted for around 93% of total volume during the first nine months of fiscal 2025 and scooters accounted for the balance. Within motorcycles, around 97% of the volume comes from the domestic market with major concentration in the entry-level motorcycle segment (around 85% of domestic volume); and demand for the same is rural and price centric. Entry-level sales volume grew by low single digit as of January 2025. Multiple price hikes followed by low rural disposal income impacted volume recovery. Improvement in the geographic mix can support/cushion slowdown in domestic markets.

Liquidity: Superior

Owing to negligible term debt obligation, annual expected cash accrual of Rs 1,900-2,400 crore will sufficiently cover yearly capex of Rs 1,000-1,200 crore and limited working capital requirement. Liquidity was supported by cash reserve of Rs 7,215 crore as on March 31, 2024 (Rs 7,506 crore as on September 30, 2024) and unutilised bank limit.

 

ESG profile:

 

Crisil Ratings believes the environment, social and governance (ESG) profile of HMCL supports its already strong credit risk profile.

The sugar industry has moderate impact on the environment owing to moderate emissions, water consumption and waste generation. The sector’s social impact is also moderate considering the impact of operational activities on employees. The company is focusing on mitigating environmental and social risks.

 

Key ESG highlights:

 

• HMCL plans to achieve carbon neutrality for its operations by 2030 with focus on reducing emissions. In fiscal 2024, the company saw scope 1 and 2 emission intensity reduction by ~9% and energy consumption fell by ~4% over the last year.
• HMCL has set targets to be 500% water positivity and zero waste to landfill by 2025. Against this, it achieved 455% water positivity and 100% zero waste to landfill in fiscal 2024.
• HMCL has moderate share of female workforce (~11% female employees and ~14% female workers) in fiscal 2024.
• HMCL’s governance structure is characterized by ~50% of its board comprising independent directors, 30% women board directors, high attendance of independence directors in the board and committee meetings and extensive financial disclosures.

 

Its commitment to ESG and integrating sustainability principles throughout its organisation and value chain will play a key role in enhancing stakeholder confidence and access to capital markets.

Outlook: Stable

The business risk profile of HMCL shall continue to benefit from its established market position in the overall two-wheeler industry followed by dominant market share within the domestic entry level motorcycle segment, while also continuing to maintain healthy operating efficiency. The financial risk profile shall also remain comfortable driven by robust networth, strong cash reserve and robust debt protection metrics.

Rating sensitivity factors

Downward factors

• Sustained decline in the overall market share to below 20%, leading to a sharp fall in operating margin.
• Sizeable cash outflow in the form of dividends or share buyback, severely depleting cash surplus disproportionately to the cash accrual

About the Company

HMCL, formerly Hero Honda Motors Ltd, was jointly promoted by the Munjal family based in Ludhiana, Punjab, in 1984, and began manufacturing motorcycles in 1985. In 2011, the joint venture (JV) partners separated. HMCL has six plants in India: one each in Dharuhera and Gurugram, Haryana; Haridwar, Uttarakhand; Halol, Gujarat; and Chittoor, Andhra Pradesh, and a global parts centre in Neemrana, Rajasthan, with combined manufacturing capacity of 92 lakh units per annum. It also has plants in Villa Rica, Columbia; and Jessore, Bangladesh. HMCL has a total production capacity of 95 million units per annum across the mentioned manufacturing plants. HMCL also has two R&D centres at Centre of Innovation and Technology in Jaipur and Hero Tech Center in Germany.

Any other information: Not Applicable