Hero Motors launches IPO after decades under family brand

The division traces back to 2010, when the Munjal family split its holdings into four branches following the end of a 27-year joint venture with Honda.

The Hero Motors initial public offering opened for subscription on September 12, marking a new phase for a business that has spent decades supplying automotive components while retaining a name linked to India’s most recognizable two-wheeler brand. The separation from Hero MotoCorp, however, means the two entities now operate independently despite their shared family origins.

The division traces back to 2010, when the Munjal family split its holdings into four branches following the end of a 27-year joint venture with Honda. The motorcycle business remained under Brijmohan Lall Munjal’s branch, evolving into Hero MotoCorp under his son, Pawan Munjal. Meanwhile, Om Prakash Munjal’s branch took control of Hero Motors, along with Hero Cycles and Munjal Sales Corporation. Today, Pankaj Munjal, Om Prakash’s son, serves as the primary promoter of Hero Motors.

The name “Hero” persists across both companies under a trademark agreement, provided Pankaj Munjal’s family maintains at least 26% ownership in Hero Motors. This arrangement allows unrelated businesses to use the brand while their financial structures have diverged significantly.

Hero Motors has transformed since beginning commercial operations in 2001, initially focusing on sheet-metal parts and castings. Over two decades, it expanded into two core areas: alloys and metallics (A&M), which now accounts for 46% of revenue, and powertrain solutions, contributing 54%. The latter includes transmission systems, electric motors, and components for micro-mobility vehicles like e-scooters and e-bikes.

Internationally, the company has pursued strategic acquisitions. In 2022, it acquired a stake in Hewland Engineering, a British transmission specialist, gaining access to design capabilities, testing infrastructure, and a UK manufacturing facility. A 2021 partnership with Yamaha Motor Japan launched the HYM brand for electric motors, while the 2023 acquisition of Spur Technologies strengthened its position in premium motorcycle and e-bike components. By March 2026, the company operated six manufacturing plants across India, the UK, and Thailand, along with two technology centers.

Financial growth with rising debt concerns

Financial performance shows steady but modest growth. Revenue increased from ₹1,064 crore in FY24 to ₹1,090 crore in FY25, then to ₹1,188 crore in FY26, with a 9% rise in the latest fiscal year. Gross margins improved from 39.4% to 41.7%, EBITDA margins from 11.8% to 13.5%, and net profit margins more than doubled, reaching 3.5%. As of July, Hero Motors had about ₹427 crore of borrowings on a standalone basis. Its net debt compared with its EBITDA also increased from 1.72 times in FY24 to 2.79 times in FY25, before coming down to 2.24 times in FY26.

The ₹1,000 crore IPO aims to address these financial challenges. Of the ₹600 crore fresh issue, ₹190 crore will reduce debt, while the remainder will fund powertrain capacity expansion, other capital expenditure, acquisitions that haven’t been identified yet, and general corporate purposes. Investors question whether the valuation justifies the asking price.

At the upper price band of ₹84 per share, Hero Motors’ valuation reaches ₹3,815 crore, or 74 times FY26 earnings. Compared to peers like CIE Automotive India (18x earnings) or Sona BLW Precision Forgings (77x), it sits on the pricier end. However, those competitors generate far higher revenue—Varroc Engineering’s FY26 revenue alone was ₹8,900 crore, nearly eight times Hero Motors’ ₹1,188 crore. Profitability also lags, with Hero Motors’ 8.5% return on net worth falling behind competitors’ 11% to 20% range.

Electric mobility drives powertrain expansion globally

The company’s growth strategy hinges on its powertrain segment, which has expanded into electric mobility. The 2023 acquisition of Spur Technologies positioned it as a supplier for Yamaha’s electric scooters under the HYM brand, while its Hewland Engineering stake connects it to European automakers. In India, partnerships with Ather Energy and Ola Electric for e-scooter powertrains remain undisclosed in revenue terms.

Regional revenue breakdowns show India contributing 59% of FY26 sales, followed by Europe (34%)—primarily through Hewland—and North America (7%). The UK facility produces transmission systems for commercial vehicles, while the Thailand plant focuses on motorcycle components for Southeast Asia. These international operations reduce reliance on domestic demand but expose the company to geopolitical risks.

The A&M segment, though loss-making, remains a strategic anchor. It supplies sheet-metal parts to Hero MotoCorp, its largest customer. However, raw material cost inflation and competition from Chinese suppliers have squeezed margins. IPO proceeds may fund automation upgrades to counter these pressures, though no specific projects have been announced.

IPO funds expansion but leverage risks remain

Analysts highlight that EBITDA growth has outpaced revenue growth, signaling operational improvements. Yet, the net debt-to-EBITDA ratio of 2.24x in FY26 remains higher than peers like CIE Automotive (1.5x). The ₹190 crore debt repayment from the IPO will ease this burden, but leverage could rise again if planned acquisitions materialize. The company has prioritized powertrain capacity expansion, aiming to double output at Indian plants by FY28.

The IPO’s subscription window closes on September 18, with the issue structured to include both fresh capital and an offer for sale by existing shareholders. The ₹600 crore fresh issue allocates ₹190 crore to debt reduction and ₹410 crore to expansion, acquisitions, and working capital. The ₹400 crore offer for sale will reduce Pankaj Munjal’s family stake from 85% to 62%, unlocking value while retaining control. Retail investors can apply for up to ₹2 lakh worth of shares, while institutional buyers face a ₹2 crore minimum.