On Thursday, UBS reiterated its Sell rating on Hero MotoCorp Ltd. (HMCL:IN) stockwith a price target of INR3,350.00. The firm's stance comes after Hero MotoCorp exhibited a 20% stock price rally post its first-quarter earnings call despite a Q1FY25 earnings miss and continuous retail market share loss. The stock's performance significantly outpaced the BSE Auto Index by approximately 1300 basis points.
The surge in Hero MotoCorp's shares is attributed to the anticipation of increased wholesale volumes in September and October, bolstered by management's optimistic commentary regarding the festive season.
Investors have set expectations for September's wholesale volumes to surpass 600,000 units, a figure also suggested by dealers. This contrasts sharply with the retail volumes projected by Vahan, which are estimated to be around 300,000 units for September.
The discrepancy between wholesale and retail volumes suggests that Hero MotoCorp is likely to see a substantial inventory buildup. The anticipated inventory level for dealers, including sub-dealers, is expected to rise above 1.3 million units, exceeding the company's entire month's retail sales. The high inventory levels are occurring in a market where Hero faces stiff competition from rivals like Honda (NYSE:HMC).
As the festive season approaches, both Hero MotoCorp and Honda are expected to increase discounting efforts due to the intense competitive landscape and the pressure of elevated inventories. This strategy may be employed in an attempt to stimulate sales and reduce dealer stockpiles.
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