Hero MotoCorp’s Q3FY26 performance reinforces the durability of its core business at a time when the company is simultaneously investing heavily in electric mobility and global scale-up. While reported PAT marginally missed estimates due to one-off labor-related costs, revenue exceeded expectations and operating profitability remained intact. Domestic demand is showing clear signs of revival, premium models are gaining traction, and overseas operations are transitioning from scale-building to profitability. With EBITDA margins holding firm despite EV investments and valuation multiples moderating, Axis Securities sees a favorable risk-reward equation unfolding over the medium term.

Q3FY26 Performance Shows Operational Strength Beneath the Headline Miss

Revenue delivery exceeded expectations, confirming demand momentum.
Hero MotoCorp reported standalone revenue of Rs 12,328 crore for Q3FY26, marking a 21% year-on-year increase and a modest 2% sequential rise. This translated into a 2% beat over Axis Securities’ estimates, largely driven by higher volumes and improved average selling prices.

Profitability held firm despite ongoing EV investments.
EBITDA came in at Rs 1,810 crore, up 23% YoY and broadly in line with expectations. EBITDA margins stood at 14.7%, reflecting disciplined cost control, operating leverage, and benefits from the company’s internal efficiency programs, even as EV-related investments continued.

PAT miss attributed to non-recurring factors.
Reported PAT of Rs 1,349 crore rose 12% YoY but declined 3% QoQ, falling marginally short of estimates due to one-time labor code-related expenses. Excluding these, underlying profitability remained stable.

Margin Stability Highlights the Resilience of the ICE Franchise

Core ICE margins continue to expand.
The internal combustion engine (ICE) business delivered a notable 100 basis point YoY improvement in EBITDA margins, reaching 17.0%. Pricing actions, scale benefits, and savings under the “Leap” cost-efficiency initiative played a central role.

EV investments absorbed without margin erosion.
During the quarter, Hero invested approximately Rs 208 crore into its EV business. Despite this drag, consolidated EBITDA margins improved 20 bps YoY, underscoring the strength of the company’s legacy portfolio.

Long-term margin guidance remains intact.
Management continues to guide toward sustainable EBITDA margins in the 14–16% range, balancing growth investments with profitability discipline.

Global Operations Shift From Expansion to Profitability

International volumes outpace industry growth.
Hero’s global volumes surged 41% YoY in Q3FY26, lifting market share to 7.5%. The company has already crossed the 10% market share threshold in three key international markets.

Colombia turns profitable, validating the strategy.
Colombia emerged as a major milestone, with operations turning profitable as scale and operating leverage kicked in. This signals a transition from market entry to earnings contribution.

Premium mix reshapes global portfolio.
Premium motorcycles now account for roughly 40% of international volumes, reflecting Hero’s deliberate move toward higher-value products across Europe, West Africa, North Africa, and Southeast Asia.

Domestic Demand Recovery Strengthens the Investment Case

Industry-wide recovery gains momentum.
The domestic two-wheeler market witnessed a sharp rebound, with January 2026 retail volumes growing 21% YoY. Management expects this double-digit growth trend to persist through the current quarter.

Entry and 125cc segments drive market share gains.
Hero achieved a record 91% market share in the 100cc category, its highest since FY18. In the 125cc segment, products such as the Glamour X and Extreme 125R continue to gain traction, aided by premium variants.

Premium launches support upward migration.
Recent launches—including HF Deluxe Pro, Destiny 125, and updated Splendor variants—are encouraging customers to upgrade within the Hero ecosystem.

EV Business Scales Gradually With Improving Market Presence

VIDA brand gains traction across urban markets.
Hero’s EV market share rose to 10.8%, led by the VIDA VX2e scooter. The company now commands over 20% share in 28 towns and ranks among the top two EV players in 37 towns.

Battery-as-a-Service model expands accessibility.
Innovations such as Battery-as-a-Service have lowered entry barriers for EV adoption, supporting broader consumer reach.

Near-term margins remain under watch.
While EV volumes are still modest, continued scale-up is essential to mitigate margin pressure from upfront investments.

Valuation Framework Supports Upside Potential

Target price revised upward to Rs 6,400.
Axis Securities values Hero MotoCorp at 18x core FY28E EPS, lower than earlier multiples, reflecting a more conservative yet realistic valuation approach.

Embedded value from strategic investments.
The valuation incorporates Hero’s 38% stake in Ather Energy and assigns 1.5x FY25 P/B to Hero Fincorp, enhancing the sum-of-the-parts assessment.

Upside remains attractive.
At a CMP of Rs 5,756, the stock offers an upside of approximately 11%, supported by earnings visibility and improving demand conditions.

Key Financial Snapshot

Risks That Could Alter the Outlook

Premium segment execution remains unproven.
Motorcycles such as the X440, Karizma XMR, and Mavrik 440 must demonstrate sustained volume traction.

EV scale-up delays could weigh on margins.
Failure to achieve meaningful EV volumes could prolong margin pressure from upfront investments.

Final Take: A Measured Buy in a Recovering Cycle

Hero MotoCorp stands at the intersection of recovery and reinvention.
The company’s ability to protect margins while investing for the future, combined with a cyclical upturn in demand, positions it well for steady earnings growth. With valuations turning reasonable and execution improving across geographies, Axis Securities’ BUY call appears grounded in both fundamentals and forward visibility.