Hero Motors opens IPO at steep valuation despite solid EV growth

Hero Motors is launching its ‣1,000 crore initial public offering on Wednesday, 16 September, testing investor appetite for its electric vehicle transition at a valuation that several analysts warn is expensive.

The company has set its price band at ‣79 to ‣84 per share, with the subscription window closing on Friday, 18 September. At the upper limit of the price band, Hero Motors will have a market capitalisation of ‣3,815 crore. The transaction consists of a fresh issue of shares worth ‣600 crore and an offer for sale of ‣400 crore from existing shareholders. This will reduce the promoter group's stake from about 85% to roughly 61%.

Early grey market activity suggests healthy initial demand, with the shares trading at a premium of around ‣19. That points to an estimated listing price of ‣103—roughly 23% above the upper issue price.

What is on offer in the Hero Motors IPO?

Incorporated in 1998, Hero Motors operates six manufacturing plants globally, including four in India. The company supplies integrated powertrain solutions and metallic components to major international automotive brands like BMW, Ducati, and Enviolo.

The company's growth story is closely tied to the shift toward electric vehicles. Hero’s revenue share from the EV segment grew to 23% in the 2026 financial year, up from 12% in 2024. Master Capital Services has viewed the IPO as a potential long-term opportunity, pointing to a projected 40% annual growth rate in electric two-wheeler volumes over the coming years as a major tailwind for Hero's powertrain division.

The company has stated that it plans to use the ‣600 crore from the fresh issue of shares to pay down its debts and purchase equipment to expand its manufacturing site in Uttar Pradesh.

Why is the Hero Motors valuation causing debate?

Despite the strong growth of the EV sector, some analysts are urging caution due to the high price of admission.

Swastika Investmart, which has a neutral rating on the issue, pointed out that Hero's valuation of 69 to 74 times its price-to-earnings (P/E) ratio is significantly higher than its competitors' average of 50.2 times. Calculations by the ET Intelligence Group put the post-IPO P/E multiple even higher, at 93 times based on its 2026 financial year net profits. In comparison, other auto-component suppliers such as CIE Automotive India, Uno Minda, and Sona BLW trade at P/E multiples between 18 and 79.

Critics also note that Hero's return on net worth, though improving to 8.53%, and its operating margins remain below those of its key industry peers.

What are the key financial risks?

Beyond its valuation, potential investors have a few key risks to consider. The company relies heavily on a small group of customers. Its top ten clients account for between 73% and 78% of its total revenue, with its single largest buyer alone contributing 36% of sales.

Hero’s financial performance has shown growth, but it comes with a rising need for capital. Between the 2024 and 2026 financial years, operating revenue rose by 5.7% annually to ‣1,188.4 crore, while net profit jumped by 55.5% annually to ‣41.2 crore.

However, its cash conversion has slowed down. Trade receivable days—the time it takes to collect payments from buyers—increased from 67 days in 2024 to 78 days in 2026. Over the same period, trade payable days fell from 47 to 43, indicating that the business needs more working capital to run its daily operations. Net debt also rose to ‣428.2 crore in the 2026 financial year, up from ‣245.7 crore two years prior.