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Investors of Bajaj Auto and Hero MotoCorp stocks have little to complain about their March quarter (Q4FY26) performances. After all, Bajaj and Hero’s Ebitda grew by 36% and 31% year-on-year, respectively, to ₹3,323 crore and ₹1,856 crore.
The companies tackled sequential profitability concerns over high input costs well. This reflects in the sequential improvement in Ebitda per vehicle by 3% for Bajaj to ₹24,200 and by 1.5% for Hero to ₹10,800.
So, what led to the stellar show? Profitability protection by increasing the average selling price (ASP) and robust sales volume growth. ASP was about 3% higher QoQ for both. Bajaj’s ASP was almost ₹1.17 lakh per vehicle, while Hero’s was at about ₹75,000.
Bajaj derived about 15% of its sales volumes from higher-priced commercial vehicles (CVs), thus boosting its overall ASP. To that extent, Bajaj’s CV sales also distort the comparison of the two. Bajaj’s Q4FY26 Ebitda margin was comparatively higher and flat QoQ at 20.8%, versus Hero’s margin at 14.5%, which fell 20 basis points (bps) QoQ.
Volumes grew by 24% year-on-year for both. Pulsar and its variants with richer product mix have been growth drivers for Bajaj Auto in the higher-than-125cc motorcycle segment. On the other hand, Hero MotoCorp continues to dominate in the 100cc-125cc motorcycle market with its flagship Splendour.
Overall, the market share for Bajaj in two-wheelers rose by 20 bps sequentially to 10.8%, while for Hero, it fell by 50 bps to 27.5%. Bajaj is gaining market share in the motorcycle segment—a larger segment vis-à-vis scooters.
Meanwhile, there are worries on profitability as well as volume growth in FY27. Earnings may come under pressure in Q1FY27 due to rising input costs.
Bajaj estimates material cost inflation impact at 3.5%-4% of revenue, while Hero quantified it at a high-single digit, which could work out to 4%-5% of revenue. While both increased prices effective April, that may not be enough to offset the full impact of material cost inflation.
Besides, there are several challenges for the auto industry in terms of volume growth. First, the base is much higher for H2FY27. Secondly, if El Nino weather conditions lead to less rain and consequently lower agricultural income, it could adversely impact rural demand.
Third, retail fuel prices have not been increased yet in the wake of the war in West Asia, but if that happens, then the running cost of vehicles will rise, which can hurt demand. Cognizant of this, both rivals estimate the two-wheeler industry will grow in a high single-digit in FY27.
Bajaj is better placed than Hero for two reasons. Its sales volume had a 44% component from exports versus 7% for Hero. Bajaj is relatively more insulated from domestic market headwinds.
The other benefit from exports is the sharp fall in the rupee, which bolsters profitability. The average export realization is likely to grow sequentially as the current rupee-dollar rate is ₹94.6 vis-à-vis ₹90.6 in Q4FY26.
However, Hero’s valuations appear relatively attractive. As per Bloomberg consensus FY27 estimates, the Hero stock trades at a standalone price-to-earnings multiple of 18 versus 27 for Bajaj. The valuation gap widens if Hero’s market price is adjusted for its 30% stake in Ather Energy.
True, Bajaj has announced a buyback, but that is unlikely to move the needle in terms of boosting EPS, as it is less than 2% of its outstanding equity shares.
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