homeauto NewsHero needs a new Splendor – and it's better if it's an electric two wheeler

Hero needs a new Splendor – and it's better if it's an electric two-wheeler

While Hero MotoCorp is yet to launch its own branded EV product, it still holds an ace having a 35 percent stake in Ather Energy.

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By Ajay Vaishnav  Jul 14, 2022 6:23:18 PM IST (Updated)

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Hero needs a new Splendor – and it's better if it's an electric two-wheeler
There are two issues with Hero MotoCorp. One, rivals TVS Motor and Bajaj Auto have been ahead of the country's largest two-wheeler in making the transition to electric vehicles. While Hero still holds more than a third of the two-wheeler market share in India, much of the sales are still reliant on the popularity of the entry-level model, Splendor, which has been a bestseller for over two decades now.

It still has time to catch up — not just with TVS or Bajaj but also with the likes of Ola Electric, Ather and Okinawa — but for the company’s shareholders, it is sooner the better.
As it stands in 2022, the New Delhi-based Hero has to find a model that gets as much love as Splendor did for over 20 years and, preferably, it has to be an electric vehicle because that wave is here to stay.
While the EV-two-wheeler space is still small, the pie has expanded over fourfold in just three years. Not having a product is a disadvantage, especially when pure EV players are lining up multiple products and garnering good sales numbers.
A lot of those fears are visible in the stock price.
Hero MotoCorp, TVS Motor, Bajaj Auto Hero Moto shares are up 11% this year so far, while TVS Motor shares have raced 34% and Bajaj Auto is up 12%
But the market leader isn’t worried and says EV adoption is a priority area for the company.
"The adoption of environment-friendly mobility solutions is a priority area for Hero MotoCorp," a company spokesperson told CNBC-TV18.com.
While there are those who doubt Hero's ability to repeat the magic of Splendor, there are also those who believe it won’t be a problem for the Munjals-led company.
Hero has found an ace in Ather — but that's not all
While Hero MotoCorp is yet to launch its own branded EV product, it still holds an ace having a 35 percent stake in Ather Energy. Hero will be adopting Ather’s fast-charging technology for its own electric scooter.
From an investment point of view, a Bank of America (BofA) report published on June 23, 2022, estimates the value of Hero's stake in Ather at Rs 200 a share, which is 7.3 percent of Hero's market value at Monday's closing price of Rs 2758.55.
EV businesses will get a lot more attention from the market, said Nilesh Shah, MD, Kotak Mahindra AMC.
"Market wants to give much higher valuation to electric vehicle business," he told CNBC-TV18.
And Hero's portfolio of entry-level bikes is less vulnerable to the EV shift, BofA analysts added, suggesting a "case for a strong volume rebound in FY23".
"HMCL's e-scooter launch delay has not been taken well by investors — this we think is more a fall-out of supply chain shortages rather than product readiness," BofA analysts said in the report.
Not just Aether, Hero MotoCorp has a tie-up with Taiwanese Gogoro for the swapping-based model and Bharat Petroleum Corporation Ltd (BPCL) for the rollout of charging infrastructure.
That said, Hero needs an EV product that can replicate the success of its Splendor or Honda Activa. In fact, Activa’s success was revealing and indicated a strong preference for gearless scooters.
EV players are attempting to build on that formula and the initial sales trends are encouraging as well. EV players such as Ola and Aether sold around 9,000 units in May 2022. And funding is not a problem for them at least.
Dipan Mehta, Director at Elixir Equities, said that EV competition could damage the financials of the existing incumbent players.
"The EV competition is coming from within the industry and outside the industry, which is funded by private equity. And those companies have the wherewithal to bear losses for many quarters while they gain market share. And that may certainly damage the financials of the existing incumbent players," Mehta told CNBC-TV18.
Some of the fear visible in Hero's share price may be an opportunity for fresh entrants too
Hero MotoCorp is poised to benefit from a demand revival and opening up following two years of pandemic-induced slowdown, said Girish Pai, head of research at Nirmal Bang Institutional Equities.
"We think that there has been a rural income growth issue at Hero MotoCorp in the past many months, which has kind of impacted demand. A replacement cycle-related demand is going to come through and valuations are fairly cheap in relation to Bajaj Auto," Pai told CNBC-TV18.
And what could just help not only Hero Moto but also other legacy automakers is the recent incidents of fire in EVs and a bad image for many new players.
Vinkesh Gulati, President, Federation of Automobile Dealers Associations, (FADA) recently told CNBC-TV18 that the EV inquiry level is going down after such incidents but the trend may not last long.
"You will see a subdued retail happening for at least a month or two, but this phenomenon will not continue long," said Gulati.
"EV two-wheelers are doing really great, no doubt the numbers are low but the growth is phenomenal. The core legacy players, the ICE players are still not very aggressive on the EV two-wheeler foray. For example, Hero still is not giving any product to their dealers, which is an EV; TVS or Bajaj are giving, but the numbers are too low to get that effect. There are startups which are slowly increasing their market share and they are eating up to in ICE players," Gulati added.

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