Hero Motors, one of India's leading automotive technology companies, is gearing up for a major initial public offering (IPO) that could be a game-changer in the automotive industry. This move not only reflects Hero Motor’s growth ambitions but also positions the company to capture a larger share of the global market, particularly in the powertrain solutions segment.
Company Overview
Hero Motors is a well-established name in the automotive sector, recognized for its expertise in designing, developing, manufacturing, and supplying advanced powertrain solutions to original equipment manufacturers (OEMs) worldwide. The company operates across key markets in the U.S., Europe, India, and the ASEAN region, offering comprehensive solutions, including design, prototyping, validation, development, and delivery of both electric and non-electric powertrain systems.
With a diverse product portfolio, Hero Motors caters to a range of applications, including two-wheelers, performance vehicles, e-bikes, off-road vehicles, electric and hybrid cars. Among its prestigious clients are global giants such as BMW, Ducati, Formula Motorsport, Hummingbird EV, and HWA AG.
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IPO Insights
Hero Motor’s IPO includes an offer for sale (OFS) of up to ₹400 crore and a fresh equity issue of up to ₹500 crore. Promoter OP Munjal Holdings is set to sell shares worth ₹250 crore through the OFS, while Bhagyoday Investments and Hero Cycles will each divest shares worth ₹75 crore. OP Munjal Holdings currently holds a 71.55% stake in Hero Motors, with Bhagyoday Investments and Hero Cycles owning 6.28% and 2.03%, respectively. South Asia Growth Invest LLC holds a 12.27% stake in the company.
ICICI Securities, DAM Capital Advisors, and JM Financial are managing the IPO, and the proceeds will be utilized to clear debts and expand the Noida manufacturing facility, positioning Hero Motors for further growth.
Financial Highlights
Despite the exciting IPO news, Hero Motors faced some financial challenges in the fiscal year ending March 2024. The company reported a 58% decline in net profit, down to ₹17 crore from ₹40.5 crore in the previous year. This drop was primarily due to slow revenue growth, weaker operational performance, and rising employee costs.
Revenue grew slightly by 0.9%, reaching ₹1,064.4 crore compared to ₹1,054.6 crore in the prior year. EBITDA fell by 23.7% to ₹63.8 crore, with margins shrinking by 190 basis points to 6%, despite lower input costs.
Competitive Landscape
In the competitive automotive landscape, Hero Motors faces tough competition from companies like Uno Minda, Endurance Technologies, and Varroc Engineering. Hero Motors reported revenue of ₹1,064.4 crore, which is modest when compared to Uno Minda’s ₹14,030.8 crore and Endurance Technologies’ ₹10,240.8 crore.
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Moreover, Hero Motor earnings per share (EPS) stands at ₹0.4, significantly lower than Varroc Engineering's ₹344 and Endurance Technologies' ₹48.4. This indicates that Hero Motors is currently less profitable on a per-share basis compared to its competitors. Additionally, the company's return on net worth (RoNW) reflects difficulties in converting sales into profits, unlike its peers who are achieving greater financial efficiency.
Future Roadmap
Looking ahead, Hero Motors is focusing on expanding its export footprint and advancing its technology to better serve global markets. The company aims to leverage its expertise to manufacture components with reduced material waste and lower machining costs, a strategy well-suited for the aerospace and automotive industries.
Hero Motors also plans to invest in capital expenditures to enhance manufacturing capacity, particularly at its Gautam Buddha Nagar facility in Uttar Pradesh. This expansion will enable the company to increase production and meet the growing demand for automotive components worldwide.
A Promising Investment Opportunity
Hero Motors is well-positioned to capitalize on growing global demand for automotive components, with India's auto component exports projected to reach US$30 billion by FY26. The company’s focus on export expansion could significantly boost revenue. Additionally, Hero Motors stands to benefit from the Indian government’s Production Linked Incentive (PLI) schemes, expected to attract significant investment and enhance the company’s financial performance over the next five years.
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