Can Hero Motors IPO deliver long-term growth for high-risk investors?

ET Intelligence Group: Hero Motors, an automotive company, plans to raise ₹600 crore through a fresh issue towards capital expenditure, repayment of debt, and strategic investments. It will also raise ₹400 crore through an offer for sale. The promoter group's stake will fall to 61.1% after the IPO from 84.7%. It offers integrated powertrain solutions for electric and non-electric vehicles across segments such as two-wheelers, e-bikes, performance automotive, off-road, hybrid and electric cars, heavy-duty vehicles, and electric vertical take-off and landing (eVTOLs). The EV segment's revenue share increased to 23% in FY26 from 12% in FY24. About 41% of the revenue comes from international markets. Nearly 36% of the revenue comes from the top customer and 73% from top 10 clients, signalling customer concentration. Given these factors, investors with high-risk appetite may consider the IPO.

Business

Incorporated in 1998, Hero Motors supplies products across the United States, Europe, India and Association of Southeast Asian Nations region. The company operates through two segments, powertrain solutions, which contributes 54% to revenue, and alloys & metallics (A&M). Powertrain solutions includes gears & transmissions for automotive and mobility applications and bike powertrain for micro-mobility and e-bike makers, while A&M supplies sheet metal and tubular assemblies to automotive OEMs.


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Hero Motors has six manufacturing plants globally, including four in India. It caters to global customers such as BMW AG, Ducati Motor Holding S.P.A., Enviolo International Inc, Formula Motorsport, Hummingbird EV and HWA AG.

Financials

Between FY24 and FY26, revenue from operations rose 5.7% annually to ₹1,188.4 crore and net profit surged 55.5% annually to ₹41.2 crore. Operating margin before depreciation and amortization (EBITDA margin) improved to 12.4% from 8.1% during the period. Net debt increased to ₹428.2 crore in FY26 from ₹245.7 crore in FY24 though net debt-EBITDA ratio remained at around 2.9, implying profitable deployment of borrowed funds. Trade receivable days increased to 78 days in FY26 from 67 days in FY24, while trade payable days declined to 43 days from 47 days, implying higher working capital requirements.

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Valuation

The company has no direct listed peer. Considering the post-IPO equity and FY26 net profit, it demands price-earnings (P/E) multiple of 93 and price-sales (P/S) multiple of three. Some of the other auto-component suppliers such as CIE Automotive India, Endurance Technologies, UNO Minda, Varroc Engineering and Sona BLW Precision Forgings have P/Es in the range of 18-79 and P/S between two and 11.