Hero Motors Ltd.’s electric mobility business is expanding and profits are rising. Its ₹1,000-crore initial public offering, however raises a question: can a richer product mix accelerate modest sales growth and improve returns from underused facilities?
Hero Motors's ₹1,000 crore IPO opens on Wednesday and closes on Friday, with a price band of ₹79-84 a share. It arrives a day ahead of NSE’s much-awaited ₹22,561.5 crore IPO—more than 22 times the size of Hero Motors’ offer.
The offer comprises a ₹600 crore fresh issue and a ₹400 crore offer for sale by promoters OP Munjal Holdings and Hero Cycles. Fresh proceeds will fund ₹190 crore of debt repayment and ₹200 crore of equipment for expansion at its Gautam Buddha Nagar facility. Other uses include unidentified acquisitions, strategic initiatives and general corporate purposes.
Hero Motors supplies components and complete powertrain systems for electric and conventional vehicles. Powertrain solutions contributed 53.7% of FY26 revenue, with alloys and metallics accounting for the rest.
Strengths: A richer mix lifts profits
Hero Motors’ capabilities span design, prototyping, validation and manufacturing. Its majority acquisition of UK-based Hewland Engineering added expertise in high-performance transmissions. The company’s e-mobility revenue more than doubled from ₹128.1 crore in FY24 to ₹273.3 crore in FY26, increasing its share of sales from 12% to 23%.
Net profit rose from ₹17 crore to ₹41.2 crore between FY24 and FY26, at an annualized rate of 55.7%—the fastest among its peers—albeit from a low base. Its peers Uno Minda, Endurance Technologies and Sona BLW recorded growth of 10–18%, while Varroc Engineering reported a decline over the same period.
“Profitability has improved as powertrain solutions, our higher-margin business, has grown faster than alloy metallurgy,” Amit Gupta, managing director and chief executive officer of Hero Motors told Mint. “Ebitda margins in gears and transmissions exceed 20%, compared with 5-7% in alloy metallurgy; so, the changing business mix is lifting overall margins.”
Santosh Meena, head of research at Swastika Investmart, noted that the shift towards higher-value powertrain and EV components was beginning to deliver. “However, sustaining the margin gains would depend on a rising e-mobility share, better utilization at newer plants and narrowing subsidiary losses.”
Weaknesses: Sales and returns lag
Despite a richer product mix, its top line growth was on a slow lane. Revenue increased from ₹1,064.4 crore in FY24 to ₹1,188.4 crore in FY26, at an annualized rate of 5.7%—the slowest among the peers. Endurance led with 19.4%, followed by Uno Minda and Sona BLW at about 18% each, and Varroc at 8.5%.
Gupta attributed slow sales growth to the time needed to develop products, with projects taking two to three years to develop within an overall eight-year cycle. Several projects backed by capital expenditure over the past three years are now moving into production, which he expects to drive the company’s next phase of growth.
Hero Motors also lagged its peers on returns, with the lowest median return on equity and return on capital employed over FY24–FY26, at 7.7% and 19.8%, respectively.
Meena said underused facilities, five loss-making subsidiaries and declining return on capital employed showed that earlier investments had yet to deliver adequate returns. Expanding the better-utilised Gautam Buddha Nagar plant made sense, he said, but stronger utilisation across facilities and firm orders for new capacity would improve confidence.
Hero Motors’ underlying financial metrics present a mixed picture, but the narrative around its recent growth push offers some cushion.
Opportunities: A larger electric market
Electrification offers room to sell more motors, transmissions and integrated drive units. Supplying complete systems could increase Hero Motors’ content per vehicle and deepen customer relationships.
According to the red herring prospectus, the addressable market for bike-powertrain products could expand from ₹31,000–35,200 crore in 2025 to ₹88,000–92,200 crore by 2031.
Within this, electric-drive motors for e-scooters and electric three-wheelers could grow from ₹7,500–9,500 crore to ₹39,500–41,500 crore. Integrated e-bike drive units could rise from ₹23,000–25,000 crore to ₹42,000–44,000 crore.
Gupta said e-mobility accounted for more than 40% of the powertrain solutions business and about 70–80% of upcoming research and development projects. Projects entering production were expected to support growth.
Santosh Meena, head of research at Swastika Investmart also noted that the shift towards higher-value powertrain and EV components was beginning to deliver. “However, sustaining the margin gains would depend on a rising e-mobility share, better utilisation at newer plants and narrowing subsidiary losses.”
Risks: A concentrated customer base
However, the business remains exposed to significant revenue risks. Hero Motors’ largest customer accounted for 35.6% of FY26 revenue. Its top five contributed 61.4%, and the top 10 accounted for 72.9%. While these shares have declined since FY24, dependence on a few buyers leaves the company exposed to order cuts and pricing pressure.
Addressing concerns over revenue concentration, the management pinning hopes on emerging client partnerships that are poised to diversify the company's order book. Gupta said newer customers currently contribute less than 1–2% of revenue in some cases, but their share should rise as production scales up. Some customer programmes taking shape could account for 4–5% of revenue or more, helping reduce dependence on the largest buyers, he added.
Meena said long-standing relationships and multi-year contracts offered comfort, but diversification needed a clearer timeline. “The risk remains significant until newer customer programmes convert into material revenue,” he said.
Meanwhile, the company derived 41.4% of FY26 revenue from overseas markets. Europe’s share increased from 29.3% in FY24 to 33.6%. However, this heightens exposure to regional demand, trade disruptions and currency movements.
Vincent K A, senior research analyst at Geojit Investments, also flagged geopolitical disruptions and export competition. “Raw material costs and the ability to pass them on remain key monitorables,” he said.