Hero Motocorp (HEROMOTOCO)

FairStock Score: 87/100 — HIGH CONVICTION

Score breakdown: P/E: 1/3 · ROCE: 2/2 · Growth: 2/2 · Dividend: 1/1

Key Financials

Strengths

• Outstanding returns with ROE of 28.24% and ROCE of 30.34%
• Near-zero debt at 0.03 D/E with strong free cash flow of ₹2,594 Cr
• Financially healthy with Piotroski F-Score of 8/9 and Altman Z-Score of 5.38
• Latest quarterly net profit of ₹1,275 Cr on sales of ₹12,487 Cr and dividend yield of 2.89%

Concerns

• Valuation is rich: P/E of 20.65, P/B of 5.22, and EV/EBITDA of 17.59
• Graham Number of ₹2,429 implies a negative 135% margin of safety at ₹5,032
• Five-year revenue CAGR of only 5.74% suggests modest long-term top-line growth
• Promoter holding at 34.73% is not overwhelming and needs monitoring for alignment

AI Analysis

As a value investor, I first look for a business I understand, with durable economics and honest capital allocation. Hero Motocorp fits much of that bill. The company earns an outstanding 28.24% ROE and 30.34% ROCE, meaning every rupee retained is being put to work. Its balance sheet is almost debt-free, with a debt-to-equity of just 0.03, and it generated ₹2,594 Cr of free cash flow. The Piotroski F-Score of 8/9 and Altman Z-Score of 5.38 point to a financially sound operator. This is the kind of franchise that can compound for decades. The FairStock Score of 80/100 echoes that quality. But price matters. At ₹5,032, the market caps the company at ₹1.14 lakh Cr, or 20.65 times earnings and 5.22 times book value. Graham's number, a conservative benchmark, is only ₹2,429, which gives me a negative margin of safety of 135%. Even though the DCF fair value is ₹5,824, I do not rely on precise models when the earnings multiple and EV/EBITDA of 17.59 leave little room for error. The top-line story is moderate—five-year revenue CAGR is 5.74%, with latest sales growth of 9.45%. The 31.41% profit growth is excellent, but I must ask whether it comes from margins or one-time effects, and whether it can be repeated. In Buffett's terms, this is a wonderful business, but not an obvious bargain. I would wait for a lower price, or for earnings to grow further into the current valuation. For now, Hero remains on my watchlist as a high-quality stalwart, not a compelling buy.

Data from BSE/NSE filings. AI analysis is for educational purposes only — not investment advice. Scoring methodology · Disclaimer