Why:
- Execution: the engine is the Indian gear factory, not the electric story on the cover. The powertrain half of the company is 54% of sales and earns ₹104 crore of segment profit, two and a half times the whole company's ₹41 crore of net profit, on a margin that rose from 12.9% to 16.3% in two years, while the other half lost money (T1). Inside that half the profit sits in the Indian parent company, whose own profit went from ₹19 crore to ₹66 crore (T1). Customers behave the way they do when switching is hard: getting approved on a programme took 14 to 33 months, the top five customers have stayed more than 12 years and the largest for 25, no top-ten customer has been lost in three years, none has asked for a price cut in three years, and the company spends 7.54% of sales on research against 0.8% to 2.8% for the listed Indian peers (T1). The honest counterweight: every one of the six subsidiaries lost money last year, ₹22 crore between them, in the same year the Indian parent tripled its profit (T1).
- Share: the growth is real, and three quarters of what makes it look good will not repeat. Reported profit is up 142% in two years, but of a 4.3 point rise in operating margin only about 0.6 points came from operations; the rest is a share-award charge winding down, a currency gain that is four fifths unrealised, and a one-off pension credit (T1). Almost all of last year's revenue growth was electric products, and two thirds of that was the e-bike line rebounding 83% off a year it had fallen 20% (T1). Our own outside work says that rebound is mostly the supply chain refilling rather than more bikes being sold: German e-bike unit sales fell about 5% and the market's turnover about 8% in calendar 2025, while German bicycle-parts imports rose about 20% (T2). And the one product where the company is genuinely different, the continuously variable bicycle hub, has no independent market to win share in: the ₹5 to ₹7 billion pool nobody outside the filing sizes is close to one private Dutch firm's own product revenue, and that firm owns the patents, supplies the imported internals and buys most of the output (T1, plus our outside check).
- Price: the band leaves no room for those doubts. At ₹84 the company is asked to be worth ₹3,850 crore, 93.5 times last year's profit, for a business earning 8.5% on its equity against 10.8% to 19.6% for the five listed peers the issuer itself printed (T1). A deep dive has to decide whether the Indian gear franchise can grow into that number, because last year's reported profit cannot.
Valuation at the band
| Floor ₹79 (T1) | Cap ₹84 (T1) | |
|---|---|---|
| Bid window | 16 to 18 September 2026 | |
| Fresh shares | 75,949,367 | 71,428,571 |
| Post-issue shares (filing's fully diluted pre-Offer base, 386,863,494) | 462,812,861 | 458,292,065 |
| Market capitalisation | ₹3,656 cr | ₹3,850 cr |
| P/E on FY2026 profit | 88.8x | 93.5x |
| P/E stripping the unrealised part of the currency gain | 119.4x | 125.7x |
| EV/EBITDA (reported net debt) | 27.2x | 28.5x |
| EV/EBITDA (illustrative, net of the ₹190 cr earmarked repayment) | 25.9x | 27.2x |
| Promoter and promoter group holding after | 59.8% | 61.1% |
The filing's own peer table runs from 17.7 times earnings (CIE Automotive India) to 76.5 times (Sona BLW Precision Forgings) and averages 50.2, so at either end of the band this offer is priced above every company the issuer chose to be compared with (T1).
The price does not move the verdict: the six ratings below judge the business and the shape of the offer, not what it costs.
The story
A buyer is buying the Indian precision-gear business, wearing an electric-vehicle wrapper. The gear and transmission half of Hero Motors earns all of the profit and more and its Indian plant runs nearly full, while the electric story the prospectus leads with is mostly the same gears sold to customers who build electric vehicles, plus an e-bike drive line of 12.5% of sales that runs on someone else's patents.
What this business is
Hero Motors makes three things. It makes precision gears and transmission parts, cut and ground to tolerances of a thousandth of a millimetre, for motorcycle and scooter makers, for BMW's hybrid car programmes, for racing gearboxes and for aerospace. It makes drive systems for electric bicycles, chiefly the continuously variable hub that lets an e-bike change gear without a chain derailleur. And it makes alloy and sheet-metal parts, tubes, brackets and pressed assemblies, for the same kinds of buyers. Gears and transmissions plus e-bike drives are 54% of sales and are reported together as Powertrain Solutions; alloys and metal parts are the other 46%.
The money is made by being designed into a customer's platform. An engineer picks a supplier at the concept stage, approval takes a year to nearly three, and once the part is in a running programme it is expensive to change. That is why the company can name customers it has supplied for 12 to 25 years, why it has not lost a top-ten buyer in three years, and why nobody has demanded a price cut. The largest customer is 35.6% of sales and is not named in the filing; that buyer sits in the alloys half, and bought no more last year than the year before (T1).
The company grew out of Hero Cycles, the family's bicycle business, which hived the auto-components arm into this company under a court scheme in December 2022. It sells into 23 countries and runs plants at Gautam Buddha Nagar in Uttar Pradesh, Ludhiana in Punjab, and smaller units in Thailand, the United Kingdom and elsewhere. The Indian gear plant ran at 88.25% of capacity last year; the plants built for the global electric story ran at 3.87% (Thailand), 14.56% (the Yamaha motor venture) and 24.19% (the British motorsport unit) (T1).
Easy or difficult business? The gear half is genuinely hard. Grinding a gear to grade 5 or 6 with fewer than 10 defects per million parts, holding it across a programme that runs for a decade, and getting qualified in the first place over 14 to 33 months, is process control that takes years to build and is why the customers stay. The alloys and sheet-metal half is not hard in the same way: it is pressing and welding metal to a drawing, the buyers are large and few, and the last two years show what that means, with volumes up and the price per part down 15.5%. The e-bike hub is somewhere in between and the difficulty is not the company's own: the design and the patents belong to the Dutch partner, which also supplies the patented internals.
Key numbers
| ₹ cr | FY2024 | FY2025 | FY2026 |
|---|---|---|---|
| Revenue | 1,064 | 1,090 | 1,188 |
| Revenue growth % | n/a | 2.4 | 9.1 |
| Gross margin % | 39.4 | 41.5 | 41.7 |
| EBITDA | 86 | 114 | 148 |
| EBITDA margin % | 8.1 | 10.5 | 12.4 |
| PAT | 17 | 33 | 41 |
| PAT growth % | n/a | 92.5 | 25.5 |
Profit grew far faster than sales in both years, and the P&L says why: the share-award charge fell from ₹39 crore to ₹11 crore, the net currency gain rose from ₹2 crore to ₹19 crore, and a Thai pension charge of ₹9 crore turned into a ₹2 crore credit (T1). Sales themselves grew 0.9%, 2.4% and 9.1%, so the whole of the improvement sits in the year before the filing.
| Segment, ₹ cr | FY2024 | FY2025 | FY2026 |
|---|---|---|---|
| Powertrain Solutions | 520 | 534 | 638 |
| Powertrain Solutions growth % | n/a | 2.7 | 19.4 |
| Powertrain segment profit | 67 | 68 | 104 |
| Powertrain segment margin % | 12.9 | 12.7 | 16.3 |
| Alloys and Metallics | 544 | 555 | 551 |
| Alloys and Metallics growth % | n/a | 2.1 | -0.9 |
| Alloys and Metallics segment profit | 30 | 6 | (16) |
| Alloys and Metallics segment margin % | 5.5 | 1.1 | -2.9 |
Powertrain pays for everything: its ₹104 crore of segment profit covers the alloys loss, the ₹41 crore interest bill and still leaves ₹61 crore of pre-tax profit (T1).
Scorecard
| Block | Rating | Why |
|---|---|---|
| Right to win | PASS | Customers pick this supplier because getting approved took 14 to 33 months, 25 on average, and the part is then designed into a programme that runs for years: the company is the exclusive supplier on several BMW programmes and the only supplier at certain customers, holds gear tolerances of a thousandth of a millimetre with under 10 defects per million, and spends 7.54% of sales on research against 0.8% to 2.8% for the listed Indian peers. The top five customers have stayed more than 12 years and the largest 25 years, no top-ten customer has left in three years, and none has asked for a price cut in three years. That evidence belongs to the Indian gear business, which is also where the profit is. The caveat is the part the prospectus leads with: the e-bike drive line, 12.5% of sales, is built on a Dutch partner's patents with no term, royalty or termination disclosed, and that partner owns the design, supplies the imported internals and buys most of the output, which makes it a large subcontract rather than a market position of its own. |
| Industry and TAM | PASS | Under 1% share of its market on every version we built, including a deliberately harsh one, so there is plenty of room; the qualification is that about seven eighths of sales go into markets growing 1% to 6% a year, and the fast-growing parts carry roughly an eighth of revenue. |
| Financial momentum | MARGINAL | Sales grew 0.9%, then 2.4%, then 9.1%, and of a 4.3 point two-year rise in operating margin only about 0.6 points came from operations. Half the company, the alloys business, lost money before depreciation last year. |
| Risks, governance, RPTs | MARGINAL | Nothing disqualifying: the same auditor for three years with no qualification, no promoter pledges, no fraud or debarment found anywhere we looked. But dealings with family-owned companies run at 9.99% of sales, and several of the directors who approve those dealings sit on the board of the group company on the other side of them. |
| Promoter and cap table | MARGINAL | Control stays with the family, nothing is pledged and the 2022 institutional investor sells nothing. Against that: the selling partnership's shares cost it ₹0.027 each, the filing's own fully diluted share count is 2.1% too low, and a ₹900 crore listing was filed in August 2024 and withdrawn that October. |
| Offer structure | PASS | Fresh money is 60% of the offer, and ₹390 crore of the ₹600 crore has named work behind it: a lender-by-lender debt schedule and 26 machines with dated vendor quotations. Up to ₹210 crore, 35% of the fresh issue and more than either named use, has no named use at all. |
Watch out for
- Half the company went from profit to loss and the 582-page document never explains it. The alloys and metal-parts business, 46% of sales, went from ₹37 crore of profit before depreciation to a ₹8 crore loss in two years on sales that did not grow, a swing of ₹45 crore, close to the size of the whole company's net profit (T1). Every mention of the segment across the filing is a revenue figure, a plant description or a competitor list. Our own outside work bounds the friendly explanation: the steel-price spike of the last quarter of FY2026 can carry roughly a quarter to two fifths of the swing, and the sector as a whole lost 100 to 150 basis points of margin while this business lost 833 (T2). No lost programme shows up in any public source. Most of it is price or mix, and the filing gives the segment no cost lines to check.
- Last year's cash looks better than it is, and the reason is not disclosed as to terms. Reported operating cash flow was ₹144 crore, 3.5 times net profit. It includes a ₹143 crore book of supplier finance and factored receivables that grew by ₹101 crore during the year, money banks pay to suppliers and against customer bills (T1). Counted consistently, operating cash flow is ₹83 crore, twice net profit, and free cash flow is a small negative (T1). Both readings are defensible and the filing is clear about the mechanism, but it discloses no counterparty, no limit, no rate and no settlement period, and none of the offer money touches that book.
- A first attempt at this listing was abandoned, and the family's share of it never changed. A ₹900 crore issue was filed with the regulator in August 2024 and withdrawn that October with no reason given; the regulator later cleared ₹1,200 crore; this offer is ₹1,000 crore (T2). The offer for sale is ₹400 crore in all three versions, so the only thing that moved is the money the company itself raises, which is now ₹200 crore below what was already approved. Withdrawals are commonly for ordinary reasons and nothing public says why this one happened, so the fact is the whole of it. Whether the offer document mentions it anywhere is UNVERIFIED: we did not check all 582 pages for it.
- The family company on the other side of most of the related dealings is itself under strain. Hero Cycles has been cut four rating steps in about three years, lost money in both years for which figures exist and did not cover its interest for two of them, and the rating agency attributes the cause to hiving off this very business, which took more than half the group's operating profit (T2). The other side, at equal weight: the same agency rates Hero Motors a notch above Hero Cycles, does not treat them as one credit, and records no default, ₹140 to ₹150 crore of cash, debt coming down and a return to positive operating earnings in FY2025 (T2). None of this appears in the offer document.
- Rent for 33 years, mostly paid in the first three. Three plants are leased from HMC E-Valley, a loss-making company wholly owned by Hero Cycles, on 33-year leases. Of ₹16 crore of total rent for all 33 years, ₹10.8 crore has already been paid (T1). The same company is one of the ten largest customers, and five Hero Motors directors, including the chief executive and the two independent directors who approve related-party dealings, sit on its board.
- The tailwind in the profit line is nearly used up. The share-award charge that supplied most of the two-year margin gain has fallen from ₹39 crore to ₹11 crore and there is little left to fade, employee costs fell last year on a 144-person headcount reduction and a pension credit that do not repeat, and pay was restructured with effect from 1 April 2026 (T1).
- Yamaha can already walk out of the motor venture. In the 90-10 joint venture that makes e-bike hub motors, the partner's withdrawal rights were triggered at 31 March 2026 because accumulated losses passed two thirds of net worth and the venture had lost money three years running; a twelve-month support undertaking and a going-concern note are attached (T1). The plant runs at 14.56% of capacity against a stated ambition of a million motors a year by 2030.
The offer
- Raising ₹1,000 crore: ₹600 crore of new shares whose money goes to the company, and ₹400 crore of offer for sale, meaning existing owners selling their own shares, from which the company gets nothing (T1).
- For three things. ₹190 crore repays bank borrowings, which is worth ₹12 crore to ₹14 crore of interest a year before tax, about a fifth to a quarter added to last year's profit for no operating effort; it retires 37.9% of net debt once the ₹143 crore supplier-finance and factoring book is counted as debt, or 53% on the filing's narrower definition which leaves that book out (T1). ₹200 crore buys 26 gear-cutting and grinding machines quoted by a single European vendor in July 2026, for the Indian plant already running at 88.25%, though ₹74 crore of that is not scheduled to be spent until FY2029. The remaining ₹210 crore, 35% of the fresh issue and the regulatory ceiling for it, is for unidentified acquisitions and general corporate purposes; the company has spent ₹9.6 crore on acquisitions in its entire history.
- Implied valuation is in the table at the top: ₹3,656 crore to ₹3,850 crore, or 88.8 to 93.5 times last year's profit.
- Promoters hold 85.6% of the shares in issue before the offer, 82.9% once every outstanding employee option is counted on the corrected basis rather than the filing's own, which understates the count by 2.1%. Both sellers are on the family side and the institutional investor of 2022 sells nothing. The partnership firm owned by two family members sells ₹395 crore of shares that cost it ₹0.027 each, which is court-scheme paper from December 2022, and Hero Cycles sells ₹5 crore. That is 17% to 18% of the partnership's own stake at this band, and the family keeps 59.8% to 61.1% of the company after the offer, or 58.8% to 60.0% on the corrected count. Because the rupee amount is fixed, the fraction of their stake they part with rises as the price falls.
Initial assessment from the RHP, with outside verification on the load-bearing claims and no outside verification beyond the price band and offer dates, which come from the exchange public records. Numbers carry source tiers: (T1) the filing's audited sections, (T2) exchange, rating-agency and trade data, (T3) the issuer-commissioned industry chapter, UNVERIFIED where the filing does not support them. Not a recommendation. The valuation section states what the announced band implies and is not a view on whether that price is right.