Shares of Hero MotoCorp (HROM.NS) rose about 3% on Friday, as investors bet that India’s largest two-wheeler maker will use cost controls and a richer product mix to offset the impact of higher raw material costs.
The stock was trading at 5,720 rupees and was the second-biggest percentage gainer on the Nifty Auto (.NIFTYAUTO) index, which was about 1% higher.
The company's first-quarter profit jumped nearly one-third and core earnings rose by a fourth, driven by strong volume growth and higher average selling prices, although core margin contracted 300 basis points as commodity costs rose.
The results suggest Hero is better positioned to navigate raw material inflation than previously feared, analysts said.
The company's focus is shifting to rural demand, market-share gains in premium motorcycles and scooters, and its electric-vehicle strategy, they said.
Rising commodity costs due to the Mideast war have affected automakers' margins in the quarter, forcing them to hike prices.
While EVs make up only 3% of Hero's total volume, the company's flagship VIDA V2 Pro received approval for production-linked incentives on July 8, indicating further ramp-up in volumes, said Goldman Sachs analysts.
Citi said Hero's earnings beat was driven by cost-reduction efforts that helped offset higher-than-expected commodity costs, resulting in lower selling, general and administrative expenses.
Morgan Stanley said revenue growth was supported by volume expansion, with revenue and EBITDA exceeding consensus estimates.
Goldman Sachs additionally noted gross margins remained under pressure from higher input costs.
The brokerage said investors will focus on the company's festive-season market-share strategy and ability to mitigate further cost inflation.
The auto company's shares are rated "buy", on average, by 33 analysts, with a median price target of 5,861 rupees, according to LSEG-compiled data.
($1 = 95.2600 Indian rupees)
