Hero Motocorp — Q1 FY26 earnings call

When the year started, rural was outpacing the urban growth. For the last couple of months, it's urban that's actually growing a little stronger. What we see is the larger reason, some early arrival of monsoon. I mean, in some sense, it has disrupted the last couple of months, but it augurs well for the upcoming festive season.

Analyst questioned the industry slowdown in June/July and financing trends. Management attributed it to monsoon seasonality and clarified that financing penetration is recovering to 65% in July, similar to previous year, indicating seasonality rather than a change in lending norms.

Asked by Gunjan Prithyani

Yes, Gunjan, so I mean, both these launches are planned in this quarter. They are I mean, new value propositions for the customers, exciting interventions in the technology space and we expect new customers to be driven into our showrooms basis these new launches.

Analyst asked for more details on two new 125cc launches. Management confirmed they are new value propositions planned for the current quarter but deferred specific details, indicating strategic importance for market share.

Asked by Gunjan Prithyani

We have launched the HF Deluxe Pro, which has improved mileage and a lot of new features, graphics, digital meter, LED head lights, all that adds to a lot of aspiration in this category. And we feel that, I mean, we should be addressing both these issues, which is affordability, at the same time, aspiration, which is why the portfolio has been made a bit more robust.

Analyst questioned the strategy of launching a higher-priced HF Deluxe Pro in an affordability-challenged segment. Management explained it addresses both affordability (improved mileage) and aspiration (new features), aiming to make the portfolio more robust.

Asked by Amyn Pirani

Yes. Thanks Amyn, Vivek here. First of all, I'll say that the margins, we're holding on to our EBITDA margins at 14.4% that's a normal course of business, right. So I'll answer this in 2 parts. One, we've seen the improvement in gross margin during the quarter versus last year by 100 bps that was largely driven by mix and price increase and that was fully offset by adverse operating leverage, yes.

Analyst inquired about margin sustainability given the production pause and cost management. Management clarified that gross margin improved by 100 bps due to mix and price, offset by operating deleverage, and reiterated the 14-16% EBITDA margin guidance, with short-term likely at the lower end.

Asked by Amyn Pirani

So Kumar, I think on HFCL, I think the loan book grew by 4% versus last year. Yes, you're right, the performance got impacted during the quarter by high credit cost and NPA, right. But that's the trend we are seeing across the industry. And with interest rates falling, and we are seeing improvement in credit quality and collection efficiency, and we are confident that going forward, HFCL will go back to profitable growth.

Analyst asked about HFCL's profitability and asset quality issues. Management acknowledged impact from high credit cost and NPA, but noted it's an industry trend and expects profitable growth with falling interest rates and improving credit quality. Loan book is ₹54,735 crores.

Asked by Kumar Rakesh

It's at a very simple level, it's a pay per kilometer battery subscription model that allows customers to look at the total cost of ownership in a different way. It allows them to finance the 2 elements separately. And basis their usage of the actual scooter, they can actually look at different offerings. It's addressed some of the key elements of the category growth, and we are very optimistic about the offtake of this particular product.

Analyst sought details on the BaaS model. Management explained it as a pay-per-kilometer subscription model reducing upfront ownership cost and allowing separate financing for battery and scooter, addressing key barriers to EV adoption.

Asked by Arvind Sharma

On Xtreme 125, it continues to be an extremely loved product. In fact, if you look at the sporty 125cc segment as a whole, that has seen some headwinds in this quarter. I mean, hovers around 43-odd percent in terms of contribution to the entire 125cc. I mean, in this segment and almost all players have faced those headwinds. Xtreme continues to gain market share within this sporty 125cc.

Analyst questioned the slipping volumes/market share of Xtreme 125. Management clarified that the sporty 125cc segment faced headwinds but Xtreme continues to gain share within it, and new interventions (single seat variant, color options, Q2 launches) are planned to make it more attractive.

Asked by Pramod Kumar

As far as the regulation is concerned, MoRTH issued a draft notification on 23rd June, which made ABS mandatory for ICE vehicles less than -- greater than 50 cc and EV greater than 4 kilowatt and effective 1st January '26. Now please note, this is a draft notification. The requirement for this is also going to grow multifold from the current capacity. It will go up as much as 5x. And, the entire industry is trying to look at how to meet these requirements, number one.

Analyst asked about the impact of new ABS regulations. Management confirmed the draft notification for mandatory ABS from Jan 1, 2026, for ICE >50cc and EV >4kW, noting it will be expensive and require significant capacity building (up to 5x current), with the industry working on solutions and alternative options with the government.

Asked by Mumuksh Mandlesha