Hero MotoCorp - ICE leader unveils plans to build EV ecosystem - ICICI Securities

Hero MotoCorp (HMCL) and Taiwan's Gogoro Inc. have announced a joint venture to collaborate on development of a battery-swapping network in India based on the latter's tech platform. Hero-branded vehicles would be powered by Gogoro swappable batteries. Gogoro is a global leader in urban battery swapping and smart mobility innovation. This partnership could aid HMCL's EV products' acceptance as customer capital cost could be reduced significantly (we anticipate ~30-40%) as vehicles can also be sold without a battery. We believe battery as a service (BaaS) could be an additional revenue stream for the JV; access to this in future be offered to other OEMs too. Recently other OEM's e.g. Honda, Yamaha, KTM, Piaggio had also announced setting up a consortium for swappable batteries. We believe this JV is likely to work alongside other HMCL EV investments (Aether). Valuations are attractive (14x FY23E EPS). Upgrade to ADD.

Key highlights of the partnership:

- The JV would launch Hero-branded electric vehicles (EVs) with Gogoro battery technology and also set up battery swapping platforms across India.

- This is Gogoro's first JV outside of Taiwan and promises to be a win-win for both the companies given HMCL's scale alongside Gogoro's battery technology, swapping architecture.

- Gogoro Network is a globally recognised hyper-efficient battery swapping platform with >375,000 vehicles and 2,000 battery swapping stations. It manages 265,000 daily battery swaps with a total of >174mn swaps to date. Gogoro Network is an open platform for battery swapping and smart mobility services, which combines the power of connectivity, artificial intelligence and machine learning.

- The partnership could address the need for sustainable, affordable mobility solutions which could aid in expediting the shift towards EVs in India. Leveraging Hero's market strength with Gogoro's industry-leading innovations on battery swapping can potentially lead to reduction in upfront vehicle cost (potentially ~30-40%) for the customer. Battery cost could be considered akin to current fuel costs.

- The 'Powered by Gogoro Network' program gives Gogoro's OEM partners access to its innovations and intellectual property including its intelligent drivetrains and controllers, and components and smart systems. This would enable the OEMs to develop unique EVs incorporating Gogoro Network battery swapping.

- Gogoro in the last few years has been working with other industry giants like Yamaha to aid electrification through deals to license its plug-and-play batteries.

- Being absent in the major 2W-using countries of China and Vietnam, the deal with Hero enables Gogoro to be present in the world's second-largest 2W market with the world's largest producer of motorcycles.

Outlook and valuations

Post the pandemic in Q1FY21, HMCL has benefited from demand revival on the back of rural recovery, and enhanced need for personal mobility. However, in recent months, the industry has witnessed significant demand slack. We have revised our earnings (1.7)% / 0.8% for FY22E/FY23E on the back of rising commodity pressures. We have also pruned our multiple on the back of moderation of growth outlook as covid resurges. However, the stock has corrected ~20% from its Feb'21 highs, which factors-in the key near-term risks. We upgrade our rating to ADD (from Hold) on the stock at a target multiple of 16x FY23E EPS (earlier: 17x) arriving at a target price of Rs3,197 (earlier: Rs3,372).

Shares of HERO MOTOCORP LTD. was last trading in BSE at Rs.2824.2 as compared to the previous close of Rs. 2786.55. The total number of shares traded during the day was 34223 in over 3423 trades.

The stock hit an intraday high of Rs. 2847.85 and intraday low of 2800. The net turnover during the day was Rs. 96769348.

Source : Equity Bulls

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