Hero MotoCorp Ltd Q3 2025 Earnings Call Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Amyn Pirani - JPMorgan - Analyst : I also want to take the opportunity to wish Niranjan and the other senior management, who are moving on to different roles, all the best and also to Mr. Kasbekar and the team who are taking on new roles, all the best as well. Just on the quarter, two questions from my side. This quarter, we have seen the parts revenues have a very strong growth. And I think from a trend basis also, it seems that the growth has been much stronger. So is there a seasonality here? Because I think first half, the growth was much weaker, third quarter we've seen an acceleration and that has also helped the margins, I'm assuming. So how should we think about this going forward?

Question: Amyn Pirani - JPMorgan - Analyst : And just one on the launches, I think the Xoom 160, I think, obviously, it's an investing launch, I think it can expand or create a category because there is nobody there, but there could be a demand given how we've seen 110 to 125 transition over the last four to five years and the next step could be 160cc scooters. But it appeared to me, and I could be wrong that the pricing is -- it seems to be price for profitability than category creation and market share gains. So if you could just help us understand the pricing strategy for the Xoom 160 because it's a new category and you are, I guess, the first big player, who is getting into it.

Question: Jinesh Gandhi - Ambit Capital Pvt Ltd - Analyst : My question pertains to the recent changes in the budget you have with respect to income tax savings. How does that influence our customers? And any sense on what would be income profile of our customers, what would be the medium income of our customers as such?

Question: Jinesh Gandhi - Ambit Capital Pvt Ltd - Analyst : So a broader range of INR6 lakh to INR12 lakh, okay, got it. And secondly, if I look at on the P&L for the third quarter, we have seen good savings in RM costs and gross margin improvement on a sequential basis despite -- is this largely because of lower investments on the EV business or there is something else to that?

Question: Jinesh Gandhi - Ambit Capital Pvt Ltd - Analyst : Sequentially, our RM cost has reduced by about 90 basis points in 3Q. Is it a reflection of just a reflection of lower investments on the EV business? I think that has reduced to about INR50-odd crores on a sequential basis. Or is there anything else to this apart from slight improvement in mix on the spare side?

Question: Jinesh Gandhi - Ambit Capital Pvt Ltd - Analyst : And lastly, similarly, if I look at the other expenses, again, there has been a good increase. I believe part of it is due to seasonality. Is there anything one-off in this?

Question: Jinesh Gandhi - Ambit Capital Pvt Ltd - Analyst : No one-off there. And sorry, one more last question on the EV range. V2 also would not be PLI compliant, right? So how do we think about our PLI investments which we are doing and by when should we start seeing PLI coming for us? And when we'd be launching our PLI compliant portfolio?

Question: Kapil Singh - Nomura - Analyst : Sir, a couple of follow-ups on the topics that were discussed. One, on the tax break, if you could give a breakdown of the profile of the consumers or maybe for the industry or for Hero MotoCorp, whatever you have in terms of the occupation, how much is rural mix, how many are salaried customers and how many are business or SME kind of customers, whatever -- in whichever way you build the profile. Is there anything available like that?

Question: Kapil Singh - Nomura - Analyst : Okay, sir. Second, I had a question on demand. We noticed that till festive period, the demand from the industry was pretty buoyant. And in the last couple of months, things seem to be slow. So just wanted your assessment of the demand conditions and also the financing conditions.

Question: Kapil Singh - Nomura - Analyst : Okay. And sir, just one follow-up was there on Vida as well. We have come out with a more attractive price product. Can you comment how much of that is coming because we have been able to reduce costs? How we have been able to do that? And will the V2 profitability be better given the price reductions that we have done. Some color on whether it's gross margin positive or something like that?

Question: Kapil Singh - Nomura - Analyst : So PLI initially, I mean, your intent will be to build a penetration, that's how you would think about PLI benefits, right?

Question: Gunjan Prithyani - BofA Global Research - Analyst : Yes. I just wanted to continue on this EV business. You all made this announcement of transitioning the EMBU as a separate entity from Feb 1 onwards. So just trying to understand the rationale here. And does that mean that whatever we sell on EVs incrementally is going to be accounted outside of stand-alone, what does this restructuring mean? And I'm also going back to a comment you made earlier that we were going through a transition and hence, investments in EVs are lower. Is it to do with this restructure, if you can just clarify?

Question: Gunjan Prithyani - BofA Global Research - Analyst : Okay. No accounting change as such, it's just that you're just sort of clubbing a few other businesses like I see CIT is there, et cetera. So just all of them cohesively working towards EVs. That's just the intent not any accounting change? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. FEBRUARY 07, 2025 / 5:00AM, HROM.NS - Q3 2025 Hero MotoCorp Ltd Earnings Call

Question: Gunjan Prithyani - BofA Global Research - Analyst : And V1 to V2, are there any material cost improvement that are worth calling like the BOM cost went down by whatever percentage. Is there something that you can share insights on?

Question: Gunjan Prithyani - BofA Global Research - Analyst : My second question is on the OBD II. If you can share how should we think about it going into quarter 1, both in terms of the stock management do we really need to destock and then restock with OBD-II? And what is the cost on the portfolio or increase on the portfolio that we may see on back of this?

Question: Gunjan Prithyani - BofA Global Research - Analyst : Just last question, if you can just share the --

Question: Gunjan Prithyani - BofA Global Research - Analyst : Got it. And if you can share the Hero FinCorp where whatever you can share from a business fundamentals perspective, where are the operating metrics because we keep hearing delinquencies and asset quality deteriorating with some of the other NBFCs on two-wheeler lending. So if you can share some comments on that, please? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. FEBRUARY 07, 2025 / 5:00AM, HROM.NS - Q3 2025 Hero MotoCorp Ltd Earnings Call

Question: Kumar Rakesh - BNP Paribas Exane - Analyst : My first question was a continuation on the Hero FinCorp performance. So you reported a loss in this quarter, and you spoke about that the credit cost has also inched up. So where is the credit cost currently sitting? Is it now more than 7% for you? And also how is the funding cost trending for you?

Question: Kumar Rakesh - BNP Paribas Exane - Analyst : And funding cost for the business, how is that trending? Is it still going up?

Question: Kumar Rakesh - BNP Paribas Exane - Analyst : My second question was on your EV strategy, more a little from medium to longer-term perspective. So what is it that you're targeting with the EV business? Are there any milestones that you are looking for that, say, you want to be the top three EV companies or you want to be a niche player and get to profitability first in the industry. Are any of those longer-term milestones that we can hinge you against that? What exactly is our strategy here in the EV business?

Question: Kumar Rakesh - BNP Paribas Exane - Analyst : But as a market positioning of the EV products, so what is the aspiration here? Do we want to be present in all the markets, we want to be a niche player, how -- that's what I'm trying to understand here is that we have created a separate brand Vida. It's been more than 1.5 years now and the market share. We haven't seen something which Hero would want to have in that segment. So how should we look at the aspiration or the target that you are achieving?

Question: Kumar Rakesh - BNP Paribas Exane - Analyst : That's why I was asking more from a medium-term perspective. Today's market share, I understand is not reflective of the potential, absolutely agree. Just one final clarification on margin side. You spoke about ICE margin is about 16% in the quarter. So there's a quarter-on-quarter decline of about 50 basis points. Despite higher spare part revenue contribution this quarter sequentially. So what drove that 50 basis point margin contraction in ICE?

Question: Kumar Rakesh - BNP Paribas Exane - Analyst : And it should reverse in the coming quarters? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. FEBRUARY 07, 2025 / 5:00AM, HROM.NS - Q3 2025 Hero MotoCorp Ltd Earnings Call

Question: Mumuksh Mandlesha - Anand Rathi Securities Private Limited - Analyst : Nice to see the new Hero website. Sir, firstly, can you help us understand plans to revive the HF Deluxe brand or the 100CC portfolio? And also, I've seen recently, there has been changes made in the pricing. Just want to understand over medium term, what's the plan for to revive this brand, sir?

Question: Mumuksh Mandlesha - Anand Rathi Securities Private Limited - Analyst : Sir, on the Harley-Davidson partnership, you recently mentioned about the extended partnership and plan to launch a new motorcycle. Just can you share what are the plans still on the product portfolio there? And also, I just want to understand, are there any export opportunities where we can leverage the global Harley-Davidson network for the X440 brand?

Question: Mumuksh Mandlesha - Anand Rathi Securities Private Limited - Analyst : So it would be a new engine CC platform, sir? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. FEBRUARY 07, 2025 / 5:00AM, HROM.NS - Q3 2025 Hero MotoCorp Ltd Earnings Call

Question: Mumuksh Mandlesha - Anand Rathi Securities Private Limited - Analyst : And any export opportunity for the brand, sir?

Question: Amit Hiranandani - PhillipCapital (India) Private Limited - Analyst : Congrats team for a good set of number and reporting half years EBITDA ahead. Sir, my two question is, if you can give some color on how the rural and urban you view in quarter three and outlook for the same for next fiscal? Secondly, according to your evaluation, what product gaps have you identified? And additionally, do you have any intentions to enter into the electric three-wheelers?

Question: Amit Hiranandani - PhillipCapital (India) Private Limited - Analyst : Like expanding in motorcycle and scooter segment?

Question: Amit Hiranandani - PhillipCapital (India) Private Limited - Analyst : Within two-wheelers, any product gaps? .

Question: Pramod Kumar - UBS Equities - Analyst : Before I go ahead with my questions, congratulations and wish Niranjan and Ranjivjit Singh, all the best for the future endeavor. Sir, it was great interacting with you guys and look forward to hearing from you, Niranjan, particular alone. With that, I'll just move on to the first question, sir. It's been pretty categorical that rural has done much better than urban for the last year or so across every category. But what surprises me is that despite that motorcycle as a category is losing category share at the industry level. Scooters plus moped is already 37% plus as per CRM data, excluding some of the EV manufacturers. If you include them, the scooter format or the non-motorcycle format has breed the 40% mark, right? So what is happening? Is there a tectonic shift in terms of the customer preference in the rural urban market or the semi-urban rural market, which is putting pressure on our growth because we are down on market share in a year when rural demand has done very, very well. Ideally, we should have gained market share and particularly with all the new launches. So what are you seeing on the ground? And what can we do to further double down on the nonmotorcycle categories? Because we have the portfolio, we have the launches. Xtreme's been great hit, but we haven't had the desired result in the market share, especially on the scooter side and the EV side. So if you can just help us understand what's happening here. And what is the course correction what Hero can do in the next year or so? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. FEBRUARY 07, 2025 / 5:00AM, HROM.NS - Q3 2025 Hero MotoCorp Ltd Earnings Call

Question: Pramod Kumar - UBS Equities - Analyst : So if I understood you right, you're not seeing any structural shift or change in the consumer preference away from motorcycles towards scooters, EVs and the nonmotorcycle format. You don't see that because the numbers clearly show that very clearly.

Question: Pramod Kumar - UBS Equities - Analyst : Okay. Fair enough. And on the EV side, sir, I understand there's a transition happening, but our volumes have kind of collapsed after Diwali. So is there a production issue which we are facing? Or what exactly is driving it? Because volumes are just capsulated, right? And not having the presence in the marketplace as a brand over a period of time does start hurting the customer perception, right? The more you see it on the road, it drives positivity in its own, right, for the consumer.

Question: Pramod Kumar - UBS Equities - Analyst : So how do you see the volumes ramping up in the near to medium term on the Vida, sir? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. FEBRUARY 07, 2025 / 5:00AM, HROM.NS - Q3 2025 Hero MotoCorp Ltd Earnings Call

Question: Amyn Pirani - JPMorgan - Analyst : I just wanted to go back to the discussion around lending and to some extent Hero FinCorp. You mentioned that there were some steps on the personal loan book. But is personal loan a very large proportion of Hero FinCorp, and how much will be the auto book size for Hero FinCorp, if you can share that? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. FEBRUARY 07, 2025 / 5:00AM, HROM.NS - Q3 2025 Hero MotoCorp Ltd Earnings Call

Question: Amyn Pirani - JPMorgan - Analyst : So just as a follow-up, in general, outside of Hero FinCorp from third-party lenders, are you seeing any pullback? Because I'm guessing a lot of them have also been talking about stress, not just in personal loan, but also on the two-wheeler loan book. Are you seeing some pullback from their side? Or do you continue to see willingness to lend and availability of finance not being a challenge?