Markets
Why Hero Moto's electric scooter has failed to wow investors
Summary
- VIDA V1’s overall features are impressive, but its positioning at the upper-end of the two-wheeler electric vehicle band is seen as a dampener.
Investors gave a lukewarm response to Hero MotoCorp Ltd launching its electric scooter VIDA V1 and opening bookings on 10 October, leading shares to fall by 2% on Monday.
VIDA V1’s overall features are impressive, but its positioning at the upper-end of the two-wheeler electric vehicle (2W EV) band is seen as a dampener. There are two variants available at an ex-showroom price of ₹1.45 lakh and ₹1.59 lakh, respectively. Thus, it is natural that investors are worried that the higher prices could restrict the product’s volume and scale potential. “Currently, about 80% of the 2W EV industry volumes are in the lower ₹60-120k price bucket, where customers find the price-value equation favourable. This would become even more relevant when governments (Centre and states) reduce the quantum of subsidies," said a report by IIFL Securities Ltd dated 10 October. It also pointed out that Hero’s strength in the internal combustion engine (ICE) business is in the mass-market category, but it has seen limited success in premium.
VIDA V1 is being launched in a phased manner, with the product first being available for retail sales in Delhi, Bengaluru, and Jaipur only. Deliveries would start from the second week of December. “With Hero’s EV, the company has tried to address the market’s concern on Hero’s lack of R&D capabilities post its de-merger with Honda," said Varun Baxi, an analyst at Nirmal Bang Institutional Equities. However, it is yet to be seen how bookings fare for this model given its steep price for a scooter. Moreover, execution and pace of expansion remain key factors that investors should watch out for.
“The proof of the pudding would lie in execution, given Hero Moto’s brand equity in ICE products is diminishing. We expect Hero Moto to speed up its new product cycle and get it right first time, unlike hits and misses in the past," according to Nuvama Research.
Meanwhile, Hero Moto’s shares have put up a dull show marred by market share loss in its crucial segment of entry-level motorcycles. So far in CY22, the shares have gained 4.40%, while the Nifty Auto index is up 16%. Hero stock trades at FY24 price-to-earnings multiple of 13.61 times, lower than peers TVS Motor Co. Ltd and Bajaj Auto Ltd, showed Bloomberg data. “For the stock’s performance to turnaround, the company has to see a sustained and meaningful recovery in the entry-level segment. That is a key trigger. We do not expect valuations to see a re-rating just based on this EV launch," Baxi said.
