Business Profile of the Hero Motors Limited

Hero Motors began its operations in 2001 with the Alloys and Metallic’s segment and today is India's leading automotive technology company. The company specializes in designing, developing, manufacturing, and supplying highly engineered powertrain solutions for automotive OEM manufacturer across the world. Their products are used in various categories, including two-wheelers, performance automotive, e-bikes, off-road vehicles, electric and hybrid cars, heavy duty vehicles, and electric vertical take-off and landing (eVTOL) categories.

The company has a diverse product portfolio catering to electric vehicles (EVs) and internal combustion engine vehicles (ICEs).  They are the only player manufacturing and exporting CVT hubs to global e-bike OEMs from India and are the only manufacturer of integrated electric powertrain products for e-bikes in India. The company has been involved in acquisition and joint venture to step into new horizons. The company has developed in-house design and engineering capabilities, as well as manufacturing and validation capabilities, with adequate R&D resources, equipment, assembly lines, and end-of-line testing machines.

The Main Objectives to Launch the Hero Motors Limited IPO

As per the draft red hearing prospects, the IPO issue consists of both Offer for sale and fresh issue by the company.

• The OFS consists of up to [●] equity shares aggregating up to Rs. 400 crores. Nothing from those proceeds of OFS will be allotted to company.
• Hero Motors IPO offer also has a fresh issue of Rs. 500 crores; of which Rs. 200 crores will be used for settlement of certain debt, around Rs. 124 crores will be used for purchase of equipment, Rs. 50 crores for working capital and rest for general corporate purposes.

Particulars	Estimated Amount
Repayment of certain outstanding borrowings	2009.18
For Capex through purchase of equipment required for expansion in capacity of our Gautam Buddha Nagar, UP facility	1240.82
Funding working capital requirements of Company	500
General corporate purposes	[●]
Net proceeds	[●]

 

IPO Details of Hero Motors Limited:

IPO Open Date	N.A.
IPO Close Date	N.A.
Basis of Allotment	N.A.
Listing Date	N.A.
Face Value	₹10 per share
Price	N.A.
Lot Size	N.A.
Total Issue Size	Up to [●] Equity Shares
	Aggregating up to ₹ 9,000 million
Fresh Issue	Up to [●] Equity Shares
	Aggregating up to ₹ 5,000.00 million
Offer For Sale	Up to [●] Equity Shares
	Aggregating up to ₹ 4,000 million
Issue Type	Book Built Issue IPO
Listing At	BSE & NSE
QIB Shares Offered	Not more than 50% of the Net Issue
Retail Shares Offered	Not less than 35% of the Net Issue
NII (HNI) Shares Offered	Not less than 15% of the Net Issue

 

Hero Motors Limited IPO Issue Price & Size

The issue price of Hero Motors Limited hasn’t been released yet. Upon releasing the dates, the investors can bid between these price ranges. The company has an OFS of up to [●] equity shares consisting of Rs. 400 crores and fresh issue of Rs. 500 crores.

Launch Date of Hero Motors Limited IPO

The IPO of Hero Motors Company is launching on (Opening Date XXXX), hence the opening date for bidding is (Open Date) and the IPO is closing on (Closing Date). Investors can bid in this IPO between these days during the primary market hours.

Hero Motors Limited Financial Statements

Particulars	FY24	FY23	FY22
Income
Revenue from operations	10643.86	10546.24	9141.91
Other income	190.33	153.72	69.55
Total income	10834.19	10699.96	9211.46
Expenses
(a) Cost of materials consumed	6404.49	7562.94	5204.43
(b) Purchases of stock-in-trade	-	-	1398.8
Changes in inventories of finished goods work in progress, stock in trade	45.6	-377.44	-275.15
(d) Employee benefits expense	1808.35	933.12	558.63
(e) Finance costs	299.45	269.33	143.89
(f) Depreciation and amortisation expenses	285.51	182.85	159.09
(g) Other expenses	1747.6	1591.58	1302.82
Total expenses	10591.07	10162.38	84.92.51
Restated profit for the year	170.35	405.06	990.22

 

Particulars	FY24	FY23	FY22
Revenue from Operations	10643.86	10546.24	9141.91
Revenue from operations growths (%)	0.93%	15.36%	-
Gross Profit	4193.7	3360.74	2813.83
Gross Margin	39.40%	31.87%	30.78%
EBITDA	828.08	973.51	1679.34
EBITDA Margin	7.78%	9.23%	18.37%
Adjusted EBITDA	1222.7	1107.01	1021.93
Adjusted EBITDA Margin	11.49%	10.50%	11.19%
Restated profit after tax (₹ in million)	170.35	405.06	990.22
PAT Margin	1.60%	3.84%	10.83%
Return on Equity	4.54%	12.01%	61.61%
Return on Capital Employed	22.59%	26.16%	29.38%
Net Debt to Adjusted EBITDA (times)	1.76	1.59	2.07
Fixed Asset Turnover Ratio	2.4	3.2	4.69
Asset Turnover Ratio	1	1.06	1.3
Receivable Days	67	87	75
Inventory Days	62	68	57
Trade payable days	47	51	55
Cash Conversion Cycle	82	104	77

 

Hero Motors Limited Promoters & Shareholding

As per the filled DRHP, Hero Motors has four promoters; Pankaj Munjal, Charu Munjal, Abhishek Munjal and O P Munjal Holdings.  The promoters in aggregate hold 284,172,126, Equity Shares in the company, representing 74.45% of the issued paid-up equity share capital of company, on a fully diluted basis.

Name of the Shareholder	Pre-Offer no. of Eq. Shares on a fully diluted basis	% of the pre-offer Eq. on a fully diluted basis	Max. amount of Equity Shares offered in the OFS
Promoter
O P Munjal Holdings	27,31,23,055	71.55%	Rs. 250 Crores
Pankaj Munjal	94,00,436	2.46%
Charu Munjal	9,42,425	0.25%
Abhishek Munjal	7,06,210	0.19%
Promoter Group
Bhagyoday Investments Private Limited	2,39,78,804	6.28%	Rs. 75 crores
Pankaj Munjal (on behalf of Om Prakash Pankaj Munjal AOP)	1,05,37,140	2.76%
Hero Cycles Limited	77,52,750	2.03%	Rs. 75 crores
Aditya Munjal	7,07,022	0.19%
Pankaj Munjal (on behalf of Munjal Sales Corporation)	3,92,344	0.10%
Other
South Asia Growth Invest LLC	4,68,55,307	12.27%
Total	37,16,47,492	97.35

 

Should You Subscribe to Hero Motors Limited IPO or Not

While investing or subscribing to any IPO, consider the investment rationales related to the company. Hence, here you can find out the strength of the company that will be its growth factors. And also check the risk factors that can affect the growth and operational efficiency of the company.

Competitive Strengths of Hero Motors Limited:

Leading Solutions Provider

Hero Motors is India's leading solutions provider to the global e-mobility industry. The company has more than twenty years of experience in providing solutions to the automotive, aerospace, and marine electrified power train markets. They have also expanded to non-automotive sectors and secured orders from global customers. Their products focus on micro mobility solutions, such as e-bikes, consisting of CVTs, motors, and electric drive units (EDUs).

Growing market presence

Over the past five years, the company has expanded its market presence across automotive segments and partnered with premium two-wheeler OEMs globally. The company offers power train solutions for design, development, prototyping, validation, and high volume manufacturing in the premium two-wheeler segment. They also provide complete system solutions for e-bikes, maintaining stringent quality standards.

The global electric two-wheeler market is also surging, with overall volumes expected to clock a CAGR of 3% to 5% between 2024 and 2029.

The company entered the bike power train segment in 2019 and empowering over half a million e-bikes globally with their CVT systems. They entered the EDU segment under the brand 'ESYNC' in 2023, offering a complete e-bike system combining engineering expertise in motor design, battery technology, connectivity solutions, and market understanding. They secured orders for transmission systems from an Indian electric-two-wheeler OEM, contributing 12.03% of their revenue from operations in Fiscal 2024.

Geographically Diverse Operations

The company has strategically established manufacturing and assembly facilities in India, the UK, and Thailand to meet diverse market and customer demands.

• The facilities in Uttar Pradesh, India, utilize advanced technologies for precise EV gear manufacturing.
• In Thailand, a gearbox manufacturing facility was established, offering advanced machinery and technology.
• In the UK, a hub for concept studies, design, prototyping, and low-volume gearbox manufacturing was established.
• The UK's technology center in Southam, UK, focuses on design, testing, and validation efforts for gears and transmissions, with a focus on EV powertrain technology.
• The joint venture, HYM, focuses on design, validation, and production of two-wheeler motors.\

Strong R&D capabilities

The company has increased its research and development expenses to invest in the future and has expanded its resources through technology centers, global facilities, and in-house engineering and testing equipment. The company's R&D expenses are higher than the top 10 listed auto component companies in India for FY24. The acquisition of a majority stake in Hewland has allowed the company to enhance its e-mobility and high-performance transmission solution offerings. The company has also strengthened customer relationships by providing Value Added engineering services.

Particulars	FY24	FY23	FY22
	% of Revenue from operations
R&D Expense	7.45%	1.45%	1.82%

 

Risk Factors of Hero Motors Limited:

Dependence on oversees jurisdiction

The company generates significant portion of its revenue from operations outside India, as can be seen from table below. Three years ago, revenue from India contributed to about 70% of total revenue. The company has since diversifying markets and today, overseas revenue primarily from Europe, US, Thailand contributed to substantial portion of its revenue. Economic slowdowns in these regions could negatively impact the business conditions, its financial standing, cash flows. Inability to manage global operations and risks could lead to blockage of capital and unanticipated costs arising from it.

Geography	FY24	FY23	FY22
	% of Revenue from Operations
India	58.72%	62.56%	70.21%
Europe	29.33%	32.47%	29.34%
US	7.70%	3.71%	0.30%
Others	4.25%	1.27%	0.15%

 

Dependence on certain industry

The power train sector, primarily catering to domestic and global original equipment manufacturers, is exposed to fluctuations in the performance of these industries. Sales are directly dependent on production levels and inventories. Factors beyond our control, such as government policies, consumer demand with credit condition, energy prices, economic conditions, shifting trend can affect the production and sales of these products.

End-Use category	FY24	FY23	FY22
	% of Revenue from Operations
E-Bikes	9.75%	22.55%	19.62%
Motorsport and Performance Automotive	27.52%	15.84%	10.63%
Two Wheelers	41.37%	45.98%	47.95%
Others	21.36%	15.63%	21.80%

 

Strict quality standards

Hero motors manufactures and supplies a wide range of powertrains, alloys, and metallic components. The company has to follow strict quality standards, as failure to meet these standards could lead to heavy repercussions like repairs, product recall, warranty claims, and also cancellations of orders. Defective products may result in returns, rescission of supply contracts, and litigation, potentially harming our reputation, business, financial condition, and cash flow.

Revenue concentration from clients

The company's generates significant portion of its revenue from its top 10 customers. As of FY24, top customer provide one third of total revenue to the company, whereas, top five customers provide near about two-third revenue to the company. The company has select no of customer for revenue contribution and any loss of these customers or lowering of demand by customers could negatively impact the company's business, results of operations, financial condition, and cash flows. For Fiscal 2024, the top 10 customers include Hero MotoCorp Limited, BMW-AG, enviolo, HWA AG, Makino Auto Industries Private Limited, and Ducati.

Category	FY24	FY23	FY22
	% of Revenue from Operations
Top Customer	38.01%	43.25%	45.61%
Top five Customer	65.14%	79.15%	77.74%
Top 10 Customer	76.96%	88.84%	85.97%

 

Hero Motors Limited Grey Market premium

Grey market premium is the premium quoted over the IPO issue price. GMP shows that investors are ready to pay above the upper band of the IPO issue price. GMP is determined in the grey market as per the demand and supply of the shares in the primary market. A grey market is that unofficial ecosystem of unlisted companies' stocks that start trading even before the launch of the IPO to the date of its listing.

Also Read: What is Grey Market Premium in IPO: How is GMP Calculated & Reliable

However, GMP is not a reliable factor, as it keeps fluctuating as per the demand and supply of shares in the primary market. There are numerous factors that affect the stock market in India and individual stock prices of different companies that are already listed and trading in the secondary market. However, for an IPO-bounded company, you can consider the GMP as the speculative listing price of the share

According to various online sources, the Grey Market Premium or GMP of the Hero Motors is trading around Rs XX in the grey market. It means shares are trading at the upper band issue price of Rs XX with a premium in the grey market and may list around the same price.