INDIAN TWO-WHEELER INDUSTRY

INDIAN TWO-WHEELER INDUSTRY Industry volume growth expected to gear down to 8-9% in 2012-13 MAY 2012 Overview The Indian two-wheeler (2W) industry recorded sales volumes of 13.4 million units in 1, a growth of 14.0% over the previous year. In a year wherein growth in other automobile segments particularly, passenger vehicle (PV) and medium & heavy commercial vehicle (M&HCV), slowed down to single digits - marred by demand slowdown due to northward movement of inflation, fuel prices and interest rates - the 14% growth recorded by the 2W industry remained steady. However, the momentum in the 2W industry s volume growth too has been losing steam lately as evident from the relatively lower volume growth of 11.0% recorded in H2, (YoY) against a growth of 17.1% recorded in H1, (YoY). The deceleration in growth is largely attributable to the motorcycles segment which grew at a much lower rate of 7.8% (YoY) in H2, vis-à-vis 16.4% in H1, ; even as the scooters segment continued to post 20%+ (YoY) expansion during both halves of the last fiscal. With this, the share of the scooters segment in the domestic 2W industry volumes increased to 19.1% in from 17.6% in 2010-11. Overall, ICRA expects the domestic 2W industry to report a volume growth of 8-9% in 2012-13 as base effect catches up with the industry that has demonstrated a strong volume expansion over the last three years at cumulative annual growth rate (CAGR) of 21.8%. Over the medium term, the 2W industry is expected to report a volume CAGR of 9-11% to reach a size of 24-26 million units (domestic + exports) by 2016-17, as we believe the various structural positives associated with the domestic 2W industry including favourable demographic profile, moderate 2W penetration levels (in relation to several other emerging markets), under developed public transport system, growing urbanization, strong replacement demand and moderate share of financed purchases remain intact. ICRA RATING FEATURE Corporate Ratings Anjan Deb Ghosh +91 22 3047 0006 anjan@icraindia.com Analyst Contacts: Subrata Ray +91 22 3047 0027 subrata@icraindia.com Jitin Makkar +91 124 4545 368 jitinm@icraindia.com Table 1: Trend in Sales Volumes of the Indian 2W Industry Volumes (Units, Nos.) YoY Growth (%) Domestic 2010-11 Q1 Q2 Q3 Q4 2010-11 Q1 Q2 Q3 Q4 Motorcycles 9,019,090 2,464,143 2,558,515 2,556,782 2,514,699 22.9% 17.5% 15.4% 9.2% 6.3% Scooters 2,073,797 532,867 650,155 659,643 720,176 41.8% 13.3% 29.0% 21.6% 29.4% Mopeds 697,418 190,672 192,859 186,472 206,863 23.5% 21.0% 7.0% 2.6% 16.4% Total Domestic 11,790,305 3,187,682 3,401,529 3,402,897 3,441,738 25.8% 17.0% 17.3% 11.0% 11.1% Exports 2010-11 Q1 Q2 Q3 Q4 2010-11 Q1 Q2 Q3 Q4 Motorcycles 1,480,983 482,566 492,408 448,090 434,521 34.3% 27.1% 31.7% 21.8% 18.1% Scooters 52,312 20,949 24,696 23,950 21,010 73.6% 100.4% 88.5% 92.0% 29.0% Mopeds 6,295 1,461 3,478 2,796 1,341-8.8% -44.0% 159.2% 188.0% -2.3% Total Exports 1,539,590 504,976 520,582 474,836 446,872 35.0% 28.6% 34.0% 24.5% 18.5% Source: SIAM 1 Refers to domestic sales volumes

million MEDIUM TERM DEMAND DRIVERS STAY PUT An analysis of the mix of Indian populace and the structure of the Indian 2W industry brings to the fore several key attributes namely, India s demographic advantage, moderate 2W penetration levels and shrinking of replacement cycle; factors that have combined to propel the industry s volumes over the last 10 years from 4 million units in 2001 to 13 million units in 2011. In ICRA s view, these growth drivers are likely to remain relevant over the medium term and continue to provide impetus to the industry s volumes. Chart 1: Estimated population of India s Youth (20-40 years age) 250 200 150 100 50 161 157 206 189 229 0 2001 2011E 2016E Male Female Source: Census 2001; Census 2011; ICRA s Estimates 207 41 million youth estimated to be added to India s population mix over the next five years Demographic Advantage In the age bracket of 20-40 years, which is the key target segment for 2W, around 77 million youth got added to the Indian population mix in the last decade, which has been the key contributor to the 2W industry s volume growth over the last 10 years. India s demography continues to remain favourably on its side with average age of 25 years, which is 9 years younger than China, and more than 12 years and 19 years younger than the US and Japan, respectively. Over the next five years, the incremental addition in India s youth population is estimated to be ~41 million, a fairly large number that is likely to sustain the strong demand for 2W. The 20-40 years age group is characterized by a combination of earning power and high spending propensity, which should increase the likelihood of conversion of potential ownership into actual ownership. million Chart 2: Trend in 2W Penetration in Indian Households 18 16.8 16 35% 13.8 14 12 25% 10 7.9 8 6 5.4 14% 4 2 7% 0 2001 2011 No. of Rural Households No. of Urban Households 2W Penetration - Rural 2W Penetration - Urban Source: Census 2011 40% 35% 30% 25% 20% 15% 10% 5% 0% Underpenetrated Market The 2W penetration level in Indian households was 12% in 2001. This low 2W penetration provided the structural thrust to the domestic industry s volume growth over the last decade whose annualized volumes expanded by a factor of 3.4x during this period. As of 2011, the 2W penetration levels in Indian households, while having increased to 21%, continue to remain moderate and much lower than in some of the other emerging markets such as Brazil, Indonesia, Thailand and Taiwan. Also, the penetration rates differ vastly between India s rural and urban areas, with rural areas being under-penetrated by a factor of 2.5x as compared to urban areas. Additionally, the social trend in favour of nuclear families is expected to further increase the number of households which could be potential targets for the 2W industry.

million Chart 3: Trend in 2W Population in India 30 25 20 15 10 5 0 100% 90% 80% 70% 60% 50% 40% 30% 20% Population of 22.5 million units, equivalent to cumulative 2W sales volumes from 1995 to 2001 9.3 Chart 4: Age Profile of 2W in India 53% 35% 13.3 39% 21% 40% 24.0 2001 2011 2W Population - Rural 2W Population - Urban Source: Census 2011, SIAM, ICRA s Estimates 27.8 30% 17% 52% 10% 11% 0% Motorcycle Scooters Mopeds > 10 years 6-10 years 0-5 years Source: SIAM, ICRA s Estimates Population of 51.8 million units, equivalent to cumulative 2W sales volumes from 2007 to 2011 Shrinking Replacement Cycle While the 2W population in India has more than doubled over the last decade, the replacement cycle is estimated to have reduced from around 7 years (in 2001) to around 5 years (in 2011). The reduction in 2W replacement cycle implies that the average annual mileage covered per 2W has been on the rise, given that (distance run multiplied by age) of 2Ws is unlikely to have changed much over the years. As per industry estimates, around 50% of the total domestic sales of 2W are now made to first-time buyers, 30% to customers looking to upgrade from their existing vehicle, and 20% to buyers seeking a second vehicle for the household. The break-up suggests that currently around 50% of the sales in the domestic 2W market are made to replacement buyers. Considering that the industry has sold around 49 million 2W in the domestic market in the last five years, the total replacement demand works out to be a fairly large number. Add to this the healthy growth in sales to first-time buyers in recent years, driven in particular by sales to the rural market, the replacement opportunity could only increase in the future. From the consumer perspective, although replacement involves fresh capital spending, the inducement of upgrading to an improved technology 2W, having better performance, features and more attractive styling; complemented with increased spending propensity are expected to be the prime ingredients feeding replacement demand.

SEGMENTAL ANALYSIS OF THE 2W INDUSTRY The motorcycles segment accounts for a bulk of 2W industry s sales volumes; however, the scooters segment has grown relatively faster over the last five years Chart 5: Trend in 2W Segment Volume Mix (Domestic) 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Source: SIAM 4.5% 5.7% 5.8% 6.0% 5.9% 5.8% 12.0% 14.5% 15.5% 15.6% 17.6% 19.1% 83.5% 79.8% 78.7% 78.4% 76.5% 75.1% 2006-07 2007-08 2008-09 2009-10 2010-11 Motorcycles Scooters Mopeds Chart 6: Trend in segment-wise sales volume growth of 2W 45% With sales volumes of 10.1 million units, the motorcycles segment is the largest sub-segment of the domestic 2W industry accounting for a bulk of its volumes. However, over the last five years, the motorcycles segment has seen its volume share in the domestic 2W industry slide down to 75.1% in from the highs of 83.5% recorded in 2006-07. Although domestic motorcycle volumes grew at 9.0% CAGR during the last five years, both the scooters segment as well as the mopeds segment grew at a much faster CAGR of 22.2% and 17.0%, respectively; contributing to reduction in the motorcycle segment s volume share. The three 2W sub-segments are targeted at distinct consumer categories. The motorcycles are targeted at the male population in both rural areas as well as urban areas (with further segmentation based on usage pattern family bike or individual bike, consumer profile - commuter Vs performance seeker etc); the scooters are more of an urban phenomenon targeted at the female population (TVS Scooty, Hero Pleasure), male population (Hero Maestro) as well as unisex offerings (Honda Activa, TVS Wego); mopeds are targeted at the lower middle-class segment and derive a large part of their volume share from the rural sector where they are used as a utility vehicle bearing heavy loads on rough village roads. While each of the three sub-segments has distinctive growth drivers, we expect the scooters segment to maintain its pace of growth faster than that of the 2W industry as a whole. The faster volume growth of the scooters segment is expected to be driven by (a) growing acceptability of gearless scooters, particularly by women; (b) rising urbanization and increasing proportion of working women; (c) expanding product offerings in the scooters segment; and (d) comparatively lower base. Accordingly, ICRA expects the scooters segment to gradually increase its share in the domestic 2W market from 19.1% in to ~27% by 2016-17E. With this, the volumes in the domestic scooters market are estimated to get doubled by 2016-17E over the current levels. 35% 25% 15% 5% -5% -15% Source: SIAM 2006-07 2007-08 2008-09 2009-10 2010-11 Motorcycles Scooters Mopeds

TREND IN SALES VOLUMES AND MARKET SHARE IN MOTORCYCLES Chart 7: Trend in Sales Volumes of Motorcycles (Domestic) 10 million units 8 6 4 2 0 Source: SIAM, ICRA s Estimates Chart 8: Trend in Market Share in Motorcycles Segment (Domestic) 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Source: SIAM, ICRA s Estimates 5.8 5.8 7.3 3.6% 4.3% 4.4% 4.3% 4.8% 4.4% 6.2% 6.2% 7.3% 7.6% 8.7% 7.9% 6.7% 7.0% 6.2% 28.7% 21.9% 24.3% 26.8% 25.4% 54.5% 59.8% 58.5% 54.6% 56.0% 2007-08 2008-09 2009-10 2010-11 Hero MotoCorp Bajaj Auto TVS Honda Motorcycles Others 9.0 10.1 2007-08 2008-09 2009-10 2010-11 Motorcyle Volumes Growth (YoY) 30% 25% 20% 15% 10% 5% 0% -5% -10% -15% Sales Volumes Analysis - Motorcycles Based on SIAM data, around 70% of the motorcycles sold in India in belonged to the 75-125cc (engine capacity) segment, bikes which are positioned for the mass commuter segment where better fuel economy and low price are the prime customer considerations. However, the volume share of this segment has been coming down over the years with the share gradually being taken away by bikes in the 125cc and 150cc segments. While the domestic motorcycles segment recorded a volume growth of 11.9%, the >125cc sub-segment grew at a relatively faster rate of 17.4% in. With this, the contribution of the >125 cc segment to the total motorcycle segment volumes increased from 26.0% in 2009-10 to 29.7% in. Market Share Trends The Indian motorcycles segment continues to be dominated by Hero MotoCorp which has maintained its market share at ~55% in the domestic motorcycles segment over the last several years, despite intensifying competition. The top three players accounted for 89.0% of the industry s volumes in (92.0% in 2007-08), with Honda emerging as the third largest player, having overtaken TVS since 2010-11. In the 75-125cc segment of motorcycles (that represented 70.3% of total motorcycles sales volumes in ), Hero MotoCorp continues to be a strong market leader with a share of 75.0% in (71.0% in 2010-11). In the >125cc segment of motorcycles, while Bajaj Auto continues to account for nearly half the segment s volumes (48.0% in ), it has been ceding market share to Honda and Yamaha, whose volumes in the >125cc segment grew significantly by 27.9% and 38.8%, respectively in. Medium Term Outlook ICRA expects the entry segment (bikes having price less than Rs. 40,000) volumes in the domestic market to grow at a much slower pace than the overall 2W industry and volume growth in this segment to be driven mainly by exports. This is because the segment is no longer a key focus area of OEMs due to limited scope for margin expansion and high interest rate sensitivity. While the executive segment (bikes in the Rs. 40,000-50,000 price range) is expected to maintain its steady growth, competition is likely to intensify following aggressive model refurbishment and new model launch plans of most OEMs. The premium segment (bikes having price greater than Rs. 50,000) is expected to remain the fastest growing over the medium term, given the strong growth in purchasing power in the hands of middle-class urbanites, especially in the age group of 20-30 years. This should also translate into superior profit margins for players that are stronger in the premium segment.

million units TREND IN SALES VOLUMES AND MARKET SHARE IN SCOOTERS Chart 9: Trend in Sales Volumes of Scooters (Domestic) 3.0 2.5 2.0 1.5 1.0 0.5 0.0 1.1 1.1 Source: SIAM, ICRA s Estimates Chart 10: Trend in Market Share in Scooters Segment (Domestic) 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Source: SIAM, ICRA s Estimates 1.5 2007-08 2008-09 2009-10 2010-11 Scooter Volumes Growth (YoY) 0.0% 0.0% 2.3% 7.5% 9.8% 13.3% 23.8% 20.9% 58.9% 57.0% 20.5% 50.6% 2.1 21.6% 2.6 4.8% 7.7% 5.2% 9.6% 11.1% 11.3% 14.3% 16.5% 16.3% 19.4% 43.1% 47.8% 2007-08 2008-09 2009-10 2010-11 Honda Motorcycles TVS Hero MotoCorp Suzuki Mahindra 45% 40% 35% 30% 25% 20% 15% 10% 5% 0% Sales Segment-Wise Volumes Analysis - Scooters Barring The Q1, strong, double-digit the growth volume in scooter growth segment s recorded sales by the volumes motorcycles has generally segment outperformed in Q1, that of (Refer the motorcycles Chart 1) was segment, not consistent partly due across to the all former s segments smaller - Entry, base. Executive In, and the Premium. sales volumes The volume of the growth domestic was a scooters blend segment of: at 2.6 million units recorded a growth of 23.6% (YoY), higher than The the flattish 11.9% growth growth (~3%) in motorcycle of the entry sales. segment With (bikes this, the having share price of the scooters less segment than Rs. in 40,000) the total which domestic accounts two-wheeler for around volumes 16% of increased the total to 19.1% domestic in motorcycles from 17.6% sales in 2010-11. volumes The steady growth (~17%)of the executive segment (bikes in the Rs. Market Share 40,000-50,000 Trends price range) which accounts for around 65% of the Overall, Honda total domestic continues motorcycles maintain sales its leadership volumes position in the scooters segment The through fast growing its flagship (~30%) brand premium Activa segment (besides (bikes Aviator having and Dio) price enjoying greater a market than share Rs. of 50,000) 47.8% which in accounts (43.1% for around in 2010-11). 19% of While total capacity domestic shortfall motorcycles at the company s sales volumes plant at Manesar (Haryana) had restricted its volume growth in the recent past, the company began commercial Short to Medium production term at Outlook its new plant at Tapukara (Rajasthan) in July 2011. ICRA This expects allowed the entry the company segment volumes to consolidate in the domestic its market market position to during grow at the a much last slower three pace quarters than the of overall. 2W industry However, and volume Hero MotoCorp s growth be demonstrated driven mainly success by exports. in improving This is because market the share segment (through is not its sole a key brand focus Pleasure) area of OEMs coupled due with to limited new scooter scope for models margin launched expansion by and Hero high MotoCorp interestrate sensitivity. TVS (Wego), While the Suzuki executive (Swish) segment in the is recent expected past to could maintain imply its (Maestro), shrinkage steady growth, of market competition share gap between is likely the to market intensify leader following and others aggressive over time. existing model refurbishment and new model launch plans of most OEMs. The premium segment is expected to remain the fastest growing over the Medium medium Term term, Outlook given the disproportionate growth in purchasing power in ICRA the hands expects of the middle-class scooters segment urbanites, to especially gradually increase the age its group share of in 20-30 the domestic years. This 2W should market also from translate 19.1% in into superior to ~27% profit by margins 2016-17, for growing players at that 16% are CAGR stronger during in this the period. premium With segment. this, the domestic scooters market is estimated to nearly double in size by 2016-17 over the current levels. Thus, even Market as a Share multitude Trends of brands already dot the segment s landscape and more The are Indian expected motorcycles follow, segment the likely continues expansion to be in the dominated pie should by offer Hero sufficient MotoCorp volumes (erstwhile for Hero the Honda) industry which to grow has been profitably. recording For sequential the new entrants, gains in market a faster share gain over in market the last share three quarters. could hasten The top the three process players of profitability accounted improvement. for 88.2% of the industry s volumes in Q1, (92.0% in 2007-08), with Honda Motorcycles having overtaken TVS since Q1, 2010-11 as the third largest player after Hero MotoCorp and Bajaj Auto.

MARKET SEGMENTATION 100cc Motorcycle Segment As 2W Original Equipment Manufacturers (OEMs) attempt to segment the market, the endeavour so far has borne mixed results Table 2: Snapshot of 2W models in 75-110cc segment of Motorcycles Entry Segment Executive Segment Price (Rs.) bhp@rpm Price (Rs.) bhp@rpm Remarks Hero CD CD Dawn, Platina, Crux and Hayate are in the lowest 36,000-42,000 7.7@7,500 Hero Splendor 43,000-46,000 7.7@7,500 Dawn/ Deluxe price segment of Rs. 35,000-40,000 Bajaj Platina 39,000 8.2@7,500 Hero Passion 45,000-50,000 7.7@7,500 Splendor, Discover100 and YBR110 are in the next higher price segment of Rs. 43,000-45,000 Bajaj Discover100 43,000-45,000 7.6@7,500 Passion, Star City and Twister are in the next higher price segment of Rs. 45,000-50,000 TVS Sport 41,000-44,000 7.4@7,500 TVS Star City 44,000-47,000 8.2@7,500 Honda Twister 45,000-51,000 9.0@8,000 Honda Dream Yuga 45,000 8.5@7,500 Yamaha Crux/ YBR110 38,000-45,000 7.5@7,500 Suzuki Hayate* 38,000-40,000 NA *Hayate: 112.8 cc engine; Note: Prices mentioned are ex-showroom, Gurgaon (Haryana) Source: ICRA Research, Company websites Going by the traditional segmentation approach based on engine capacity of bikes, the 100cc segment is by far the largest segment that accounted for 64% of motorcycle sales volumes in April 2012. The 100cc segment of bikes could be further classified into three sub-segments based on price (a) Rs. 35,000-40,000; (b) Rs. 40,000-45,000; and (c) Rs. 45,000-50,000; representative of a wide price range with presence of features (or lack thereof) appealing to a diverse set of customer needs. For instance, Hero MotoCorp, the market leader in this segment, offers 20 variants distributed amongst its three brands - CD Dawn, Splendor and Passion. Apart from styling differences, the price ladder is mainly influenced by the presence of kick start or self start option; spoke wheel or alloy wheel option; and drum brake or disc brake option. Although all major 2W OEMs in India have a presence in this segment, none have been able to challenge the dominance of Hero MotoCorp that remains a clear leader with a market share of 76.4% in April 2012 (Refer Table 3). In fact, in 2008-09, Hero MotoCorp s market share in this segment had touched the highs of 80%, due to subdued competition in that period following lowering of Bajaj s focus on the 100cc segment and the absence of contemporary products in TVS portfolio. Since then, both Bajaj Auto and TVS have introduced new products - Bajaj launched the Discover100 in July 2009; and TVS launched the Jive (110cc bike) in December 2009. While the market share of Bajaj Auto s Discover100 in the 100cc bike segment has hovered between 15-20% over the last two years, the volumes of TVS Jive have not scaled up much, even as it is uniquely positioned as the only auto-clutch bike in the country. Honda too, had launched the Twister (110cc) model in December 2009, but its monthly volumes have generally remained below 14,000 units. Still, the strong opportunity provided by this segment due to its large size is likely to continue to draw regular new product introductions from all players. In the last one month, two new bikes have been launched in this segment Suzuki Hayate and Honda Dream Yuga. While Hayate marks Suzuki s maiden entry into the mass segment; with Dream Yuga, Honda now has a second offering in the mass commuter segment, a product having austere looks and styling, to go along with the sportier-looking Twister.

Table 3: Monthly Sales Volumes (75-110cc segment) Model April 2012 Market Share Hero Dawn, Splendor, Passion 419,199 76.4% Bajaj Platina100, Discover100 89,563 16.3% TVS Star City, Sport, Jive 26,774 4.9% Honda Twister, Dream Yuga 7,290 1.3% Yamaha Crux, YBR110 5,639 1.0% Source: SIAM Honda Twister Was launched in December 2009; however, monthly volumes remain low (~7,000 units in April 2012). Honda Dream Yuga Launched in May 2012; has rather conventional looks unlike the sportierlooking Twister. Suzuki Hayate Launched in May 2012; Like in other 2W segments, Suzuki has priced this new model also lower than competition. Hero MotoCorp: Going forward, although competition for Hero MotoCorp is likely to intensify, we do not expect its market leadership status in the 100cc segment to come under threat any time soon. The target segment for 100cc bikes are largely commuters and families, with the purchase meant to address the consumers basic transportation needs at high fuel economy and low operating costs. Despite being amongst the oldest 2W brands in India, Hero MotoCorp s CD Dawn/ Deluxe, Splendor and Passion models continue to enjoy strong brand equity in both rural as well as urban markets, supported by regular product upgrades even as the fundamental platform of these models has remained largely unchanged. The Splendor brand alone has sold some 17 million units since its launch in 1994; a testimony that familiarity breeds consumer confidence, not contempt. Bajaj Auto: Bajaj Auto had lowered its focus on the lower cc motorcycle segment in 2008-09 to focus more on the Pulsar brand in the higher cc performance bike segment. However, the exit from the 100cc segment lasted only for a brief while as the company staged a comeback soon thereafter through the launch of Discover100 realizing that the market for lower-priced commuter bikes was unlikely to fade away at the pace envisaged. Although the Discover100 is now amongst the top three selling bikes in India, Bajaj Auto remains a distant second ranker in the 100cc bikes segment. The company has recently initiated a fresh marketing campaign positioning the Discover100 as a superior product to challenge the leadership of Hero MotoCorp; however, its ability to grow market share and sustain it thereafter remains to be seen in the backdrop of its past record of strategy flip-flop and multiple product portfolio realignments. Adopting a clear product and brand strategy is all the more imperative for Bajaj Auto now given that it may be difficult for it to compete with the likes of Hero MotoCorp and Honda on the basis of other factors such as product strength, distribution network strength or lower price. If it could do so, Bajaj Auto would enhance its ability to remain a relevant competitor in the 100cc segment. Honda: When Honda had launched the Twister (110 cc) in December 2009, it was expected to redefine the 100cc segment of motorcycles on the back of its aggressive styling, higher horse power, better power-to-weight ratio and competitive pricing. However, the target consumer segment (lower-middle to middle income group) perhaps preferred to attach greater preference to conventional looks, lower overall cost of ownership and higher resale value than the attributes which the Twister stood for. Honda seems to have drawn on these consumer insights to have launched a second bike in the commuter segment, Dream Yuga a model that has plane looks but is priced Rs. 2,500 higher than the entry level Splendor NXG. While it remains to be seen to what extent this new model from Honda s stable grows its volumes, the biggest challenge for Honda would be to strengthen its distribution network, brand and mind share, particularly in the rural market which is expected to be the primary growth driver for 100cc bikes over the medium term.

125cc Motorcycle Segment An evenly contested segment with no dominant leader Table 4: Snapshot of 2W models in 110-125cc segment of Motorcycles Price (Rs.) bhp@rpm Remarks Hero Super Splendor 51,000 9.0@7,000 Pricing parity exists in the similar feature variants of Super Splendor/ Glamour/ Shine/ YBR125/ SS125 in the price range of Rs. 50,000-55,000 Hero Glamour 52,000-54,000 9.0@7,000 Bajaj Discover125 48,000-50,000 10.8@8,000 Discover125 and Slingshot are more competitively priced than other 125cc bikes Honda Shine 48,000-55,000 10.1@7,500 Honda Stunner 56,000 11.0@8,000 Yamaha YBR125 51,000 10.7@7,500 Yamaha SS125 55,000 10.8@7,500 Slingshot 48,000-50,000 NA Note: Prices mentioned are ex-showroom, Gurgaon (Haryana) Source: ICRA Research, Company websites Table 5: Monthly Sales Volumes (110-125cc segment) Model April 2012 Market Share Honda Shine, Stunner 52,600 31.7% Hero Super Splendor, Glamour 49,980 30.2% Bajaj Discover125 46,060 27.8% TVS Flame 13,108 7.9% Yamaha SS125, YBR125 2,188 1.3% Suzuki Slingshot 1,748 1.1% Source: SIAM The market share of top three players is more evenly balanced in the 125cc segment of motorcycles, unlike in the 100cc segment. The 125cc segment of motorcycles accounted for 19% of total motorcycle sales volumes in April 2012. Like the 100cc segment of motorcycles, the 125cc segment too is targeted at the commuter category but those commuters who desire superior performance characteristics compared to typical 100cc bikes (in terms of power, acceleration and ride quality) and are willing to compromise on fuel economy to an extent. In this segment, the top three players are Honda, Hero MotoCorp and Bajaj Auto, each having a market share in the region of ~30% (Refer Table 5). Honda: The company has two product offerings in the 125cc motorcycles segment viz., Shine and Stunner. While the Honda Shine is more of a commuter bike, the Honda Stunner has attributes of a performance bike reflected in its aggressive styling and higher engine power than other bikes in the segment. Thus, each of the two Honda products in this segment has a distinct product positioning. Hero MotoCorp: Hero MotoCorp s offerings in the 125cc segment - Super Splendor and Glamour also have limited conflicting overlap in terms of product positioning. In ICRA s view, one of the key benefits enjoyed by the 125cc and >125cc bikes of Hero MotoCorp is the large pool of customer footfalls in the sales showrooms of Hero MotoCorp s dealers for the company s 100cc bikes Splendor and Passion. Even if a small proportion of these customers up-trade from Splendor/ Passion to Super Splendor and Glamour, it could translate into a steady demand pattern for the company s higher cc bikes, which highlights the statistical advantage that favours market leaders. Bajaj Auto: Bajaj Auto had first launched the Discover brand in 2004 as a replacement of its Wind125 and Caliber125 brands. The company followed it up with six line extensions, out of which three models currently remain and are offered with 100cc, 125cc and 150 cc engine configurations (the rest having been discontinued). Each of the existing Discover models are priced more competitively than other models in respective segments; yet Bajaj Auto s EBITDA margins remain industry leading, highlighting the company s ability to effectively manage product development and operating costs. Notwithstanding the multiple product portfolio rejigs done by Bajaj Auto in the past, the company has been successful in going beyond conventional customer segmentation approach. This is evident from Bajaj Auto s introduction of the Discover 150cc, targeted as a family bike for the commuter segment wishing to ride a higher displacement bike. Likewise, the Pulsar 135cc is also targeted at the commuter segment aspiring to experience sports biking.

150-220cc Motorcycle Segment Characterized by high model clutter and high degree of market segmentation Table 6: Snapshot of 2W models in 150-220cc segment of Motorcycles OEM Brand Price (Rs.) bhp@rpm Achiever 58,000 13.4@8,000 Hunk 65,000-68,000 14.1@8,500 Hero MotoCorp CBZ 66,000-69,000 14.1@8,500 Impulse 70,000 13.0@7,500 Karizma220 79,000 17.0@7000 Karizma ZMR 99,000 17.6@7000 Discover 150 52,000 12.8@7,500 Pulsar135 59,000 13.3@9,000 Bajaj Auto Pulsar 150 67,000 14.8@9,000 Pulsar180 70,000 16.7@8500 Pulsar220 82,000 20.7@8500 TVS Apache RTR160 70,000 15.2@8,500 Apache RTR180 86,000 17.0@8500 Unicorn 64,000 13.3@8,000 Honda Unicorn Dazzler 68,000 14.0@8,500 CBR150 120,000 17.6@10,500 Yamaha SZ-X, SZ-R 56,000-59,000 11.9@7,500 FZ-16, FZ-S, Fazer 70,000-77,000 13.8@7,500 R-15 111,000 16.7@8,500 Suzuki GS-150R 62,123 13.8@8,500 Note: Prices mentioned are ex-showroom, Gurgaon (Haryana) Source: ICRA Research, Company websites Bajaj Auto: When Bajaj Auto had launched the Pulsar150 model in 2001, it was with the objective of building a strong brand in a segment where Hero MotoCorp (the overall market leader) was not as strong as it was in the 100cc commuter segment. The segment itself was quite small then in terms of volumes, but was expected to be a fast growing one over the next decade. The next decade indeed was a high growth period for the >150cc segment and Bajaj Auto s Pulsar was a key brand that helped expand the segment s pie. The company has introduced several line extensions since then two that are >150cc viz., Pulsar 180cc and Pulsar 220cc; and one that is sub 150cc viz., Pulsar 135cc (Pulsar200-NS is also scheduled to be launched in Q1, 2012-13). What had started as a quintessential flanking attack on Hero MotoCorp, and a successful one too reflected in the >50% market share enjoyed by the Pulsar brand during the better part of the last decade, is now finding itself surrounded by a large number of competing brands from the stable of Hero MotoCorp, Yamaha, Honda and TVS. Still, the Pulsar family of bikes continues to out-volume the rest by a long way. From a strategic perspective, the ability of Bajaj Auto to sustain its leadership position in the 150-220cc segment of bikes holds a critical importance for it; something which can have a virtuous effect on its Discover brand as well. To strengthen its position in the >150cc segment of bikes, in India and internationally, Bajaj Auto had acquired 14.7% equity stake in the Austria-based KTM Power Sports AG in 2007 and has gradually increased its equity ownership in the company to around 47%. The company also launched the KTM Duke200 in India in January 2007 at a price tag of Rs. 1.17 lakh (ex-showroom, Delhi) and proposes to launch the new Pulsar 200NS in Q1, 2012-13, a model that uses the same platform and engine as the Duke200. Bajaj Auto and KTM plan to take their synergistic product development partnership further and are understood to be currently developing several new bikes for the domestic and global markets. These initiatives are likely to enable Bajaj Auto maintain its stronghold in the premium motorcycles space over the medium term. The >150cc segment of motorcycles accounted for 17% of total motorcycle sales volumes in April 2012. These premium segment bikes are characterized by greater visual appeal, higher speeds, heady acceleration and superior ride, handling and braking attributes. The price point of these bikes starts from Rs. 60,000 (although there are few exceptions) and runs into lakhs of rupees as one goes up the engine capacity, power rating and technology ladder. This category is the most segmented and includes: Performance bikes, ranging from 150cc to 220 cc, and consisting of Bajaj Auto s Pulsar family, Hero MotoCorp s Glamour, Achiever, CBZ Extreme, Hunk, Impulse and Karizma;, Honda s Unicorn, and TVS Apache RTR, besides models from the stable of Suzuki and Yamaha Leisure bikes such as Royal Enfield s Bullet, Thunderbird and Classic (350cc and 500cc) Cruiser bikes of Harley Davidson and Triumph Super bike range consisting of Bajaj Auto s Kawasaki Ninja, Honda s CB 1000R, Suzuki s Hayabusa, Yamaha s YZF-R1 and bikes introduced by Hyosung, Ducati etc The discussion in this section, however, is restricted to bikes in the 150-220cc segment. Overall, this segment is expected to remain the fastest growing one over the medium term, given the rising purchasing power of middle-class urbanites, especially in the age group of 20-30 years. This should also translate into superior profit margins for players that are stronger in the premium segment.

Table 7: Monthly Sales Volumes (150-220cc); Source: SIAM OEM Brand April 2012 Market Share Bajaj Auto Discover150, Pulsar135, Pulsar150, Pulsar180, Pulsar220, Avenger 64,605 46.8% Hero MotoCorp Achiever, Hunk, CBZ, Impulse, Karizma 25,294 18.3% Yamaha SZ, FZ, Fazer, R15 19,110 13.9% Honda Unicorn, Dazzler, CBR 150R 17,068 12.4% TVS Apache RTR160, RTR180 10,981 8.0% Suzuki GS150R 880 0.6% Hero MotoCorp: In the 150cc segment of motorcycles, Hero MotoCorp offers four brands Achiever, Hunk, CBZ and the recently launched Impulse. While the Hero Achiever is pitched against Bajaj Auto s Discover150 in terms of target customer segment and is priced at the lower-end of the premium segment; both the Hunk as well as the CBZ compete with Bajaj Auto s Pulsar150 and are priced between Rs. 65,000-70,000. Even as the Hunk and the CBZ are priced quite similarly; yet each carries a distinct positioning (one has masculine styling, the other is a performance bike). To challenge the Pulsar brand, Hero MotoCorp has chosen to have a wider product portfolio relying on the principle of force two is better than one. Hero MotoCorp has also launched an off-roader bike Impulse (150cc) recently that is targeted at a niche segment; however, in our opinion, the Impulse brand is unlikely to contribute meaningfully to the overall volumes of Hero MotoCorp s 150cc bikes portfolio. Over the last one year, Hero MotoCorp s advertising spends have been directed largely towards communicating its new corporate brand Hero and the share of individual brands in total advertisement spends has been relatively lower. As competition intensifies in the premium segment with even greater market segmentation on the cards, we believe it will be essential for Hero MotoCorp to continue its investments in building individual brands for sustaining its market position. Yamaha: Despite having a presence of over 25 years in the Indian market, Yamaha, the second largest two-wheeler manufacturer in the world, continues to have a low single-digit market share in the domestic motorcycles segment. This has been partly due to the company s relatively lower focus on the Indian market in the past and partly due its frequent model churn. Having discontinued several brands in the past such as Alba, G5 and Gladiator, Yamaha s quest for achieving a balanced product portfolio continues to evolve. Although the domestic scale of Yamaha is small in relation to the size of the Indian 2W industry, the company remains a full-range player with products offered across segments, exposing it to the risk of having spread itself too thin. Yet, Yamaha remains amongst the fastest growing motorcycle companies in India, albeit on a smaller base, with growth driven in particular by its 150cc segment bikes (i) SZ-X and SZ-R for the price conscious commuters seeking to have a higher cc bike; (ii) FZ-16, FZ-S and Fazer as sporty 150cc models; and (iii) R-15 as the super sports bike. In our view, Yamaha s biggest challenge for sustaining its volume growth in India is going to be its ability to win over its own past which implies restoring the confidence of vendors, dealers and other stakeholders that may have suffered earlier due to the company s lower focus on the Indian market. The company, however, has announced fresh capital investments in India towards setting-up a new plant in Tamil Nadu with an investment of Rs. 1,500 Crore (proposed to be incurred over the next five years), a pointer to the now rising commitment of Yamaha towards the Indian market. The company has also announced its intention to capture a share of 10% in the domestic 2W market to achieve sales volumes of 2 million units by 2016-17 (0.4 million units in ), implying a sales volume CAGR of 41%, which is significantly higher than the sales volume CAGR of 11% recorded by the company during the last five years. Even as the premium segment of motorcycles is currently at an inflection point, we believe Yamaha s ability to grow volumes at the pace envisaged is likely to be met with strong challenges including commensurate expansion of dealership network and fending off competition which remains formidable, particularly from Bajaj Auto. Honda: Honda too has been sprucing up its offerings in the premium segment of motorcycles, but its pace of new model introductions has been relatively slow vis-à-vis other players. The company had launched the Unicorn in 2004, the Unicorn Dazzler in 2010 - in the usual Rs. 65,000-70,000 price range. Lately, the company has also launched its sports bikes CBR150 and CBR250R, priced upwards of Rs. 1.2 lakh. From being a company which thus far derived a bulk of its sales volumes from the scooters segment, Honda is now getting aggressive in the motorcycles segment as well; but its initial focus is likely to be restricted to the entry segment. The market for premium segment motorcycles is largely concentrated in urban centres. Since Honda already has a well-established distribution network in urban areas, the company should have ideally done better in terms of leveraging the opportunity offered by the growing size of premium segment motorcycles. However, the company s capacities have remained largely allocated towards scooters production over the last several years with the company ranked a distant #4 in the 150-220cc of motorcycles. Over the medium term, we expect Honda s endeavour to grow its market share in the motorcycles segment to be led by its entry segment offerings. By implication, even as Honda may remain a full range player, its market share in the premium segment is less likely to see any major push and its pace of product refurbishments is likely to remain slower vis-à-vis competition over the medium term.

Scooters Segment As the pie grows in size, the number of claimants too on the rise Table 8: Snapshot of Scooter Brands OEM Brand Price (Rs.) bhp@rpm Hero MotoCorp Pleasure 102cc 42,000 6.7@7,000 Maestro 109cc 46,000 8.1@7,500 TVS Scooty 88cc 42,000-45,000 5.0@6,500 Wego 110cc 49,000 8.0@7,500 Dio 109cc 44,000 8.0@7,500 Honda Activa 109cc 46,000 8.0@7,500 Aviator 109cc 47,000-52,000 8.0@8,000 Suzuki Access 124cc 45,000 8.6@7,000 Swish124cc 46,000 8.6@7,000 Piaggio Vespa 125c 67,000 9.9@7,500 Note: Prices mentioned are ex-showroom, Gurgaon (Haryana) Source: ICRA Research, Company website Table 9: Monthly Sales Volumes (Scooters) OEM Brand April 2012 Market Share Honda Activa, Dio, Aviator 115,846 50.8% Hero Pleasure, Maestro 40,354 17.7% Suzuki Access, Swish 27,995 12.3% Like the motorcycles segment, the scooters segment too has experienced a trend in growing segmentation with the category having three differentiated sub-segments consisting of sub-100cc models, 100cc models and 125cc models, each having its own value proposition and target segment. While the sub-100cc segment scooters are light weight having fibre-bodies, the 125cc scooters are positioned as power scooters with metal bodies. Amongst these three sub-segments, the 100cc scooters subsegment remains the largest, whose share in the total scooters market increased from 67% in 2010-11 to 70% in. TVS M&M Scooty Teenz, Streak, Pep+ 20,073 8.8% Wego 12,663 5.6% Duro, Rodeo, Flyte 9,939 4.4% Kine 252 0.1% Piaggio Vespa 802 0.4% Source: SIAM Honda: In the Indian 2W market, one premise that remains valid across 2W segments is that brand strength precedes company primacy. This is evident from the fact that there is a conspicuous absence of across-the-board market leadership for any one player, or in other words select players enjoy segment-specific leadership. This is true for the 100cc segment of motorcycles (where Splendor and Passion brands are the clear market leaders), the 150cc segment of motorcycles (where the Pulsar brand rules the roost) as even the Scooters segment (where Honda s Activa brand far outsells competition). When scooter sales were flagging a decade ago, it was Honda s Activa brand that had revived the segment and its pioneer coterie of products (Dio, Activa and Aviator) continue to command over 50% market share in the scooters segment. Honda has regularly refurbished its three scooter offerings over the years, with the latest one being the introduction of the 109cc engine in the Dio, replacing the earlier 102cc displacement engine. Although over the last couple of years Honda s market share had suffered due to capacity constraints, the commencement of operations of the company s second plant at Tapukara (Rajasthan), from July 2011 is expected to give it the headroom to scale-up production and consolidate its market position. We believe competition for Honda s scooters is not strong enough yet, notwithstanding several new product launches by other OEMs over the last few months (including Hero s Maestro, Suzuki s Swish and Piaggio s Vespa); and the company is expected to retain its top slot in the scooters segment. Hero MotoCorp: The company had made a debut in the Scooters segment in January 2006 with the launch of the Pleasure model in the ungeared scooters segment, whose sales volumes have grown from around 92,000 units in 2006-07 to over 400,000 units in, a volume CAGR of 35%. The company s market share in the scooters segment, on the back of its sole brand Pleasure, has also grown from 9.8% to 16.3% during the above period. While the market leader s flagship brand Activa is positioned as a unisex scooter, Hero MotoCorp s Pleasure is targeted at the female population. With the launch of its new product Maestro in March 2012, targeted at the male population, the company has continued with its strategy (as evident even in other 2W segments) of having specific products for specific market segments. Overall, we believe Hero MotoCorp s scooter volumes to continue to maintain a healthy growth rate over the medium term, in line with the industry, while maintaining its position as the second largest player in the scooters segment.

TVS: Based on industry volumes in, TVS was the second largest player in the domestic scooters segment with a market share of 19.4%. However, the company s market share has been sliding sharply since February 2012, being below 15% in each of the last three months. With this, Hero MotoCorp s scooter volumes have overtaken that of TVS with the latter sliding down to the third place in the ranks of the domestic scooters segment. TVS has the widest portfolio of products in the scooters segment including the 60cc Scooty Teenz, the 88cc Scooty Streak and Scooty Pep+ models and the 110cc Wego model. However, the trend in demand for sub-100cc scooters has been softening over the last several years, reflected in the reduction in proportion of sub-100cc scooters in the overall scooters market from 28% in 2006-07 to 15% in. To sustain its market share in this growing segment, the company plans to launch two new products in 2012/ 2013 (a) a new 125cc scooter to compete with the likes of Suzuki Access125 and Mahindra Duro125; and (b) a new 100cc hybrid two-wheeler whose test marketing is proposed to be initiated from June 2012 onwards before its launch in 2013. While the company s product strategy in the scooters segment appears to be targeted at having models across segments, it will have to be synchronized with the pricing strategy, given that most of the company s offerings currently are priced higher than competition s. Suzuki: In terms of value proposition, Suzuki s scooter Access125 scores well over competition given that it is a higher powered, higher engine capacity scooter that also comes along with a penetrative price tag. When other scooters offered by competition were either sub-100cc or 100cc, Suzuki, through the launch of the Access125 in September 2007, endeavoured to create a new segment of power scooters. Since the first year of its launch, Suzuki s market share has increased from 2.3% in 2007-08 to 11.3% in, registering a volume CAGR of 86% (on a low base). In February 2012, Suzuki launched a new brand Swish125 that is similar to the Access125 in terms of platform, features and engine specifications; except that it comes with an improved styling and lower weight (115 kgs Vs 110 kgs) that should improve fuel efficiency. Since the target segment for both Access125 as well as Swish125 remain the same, we believe the brands are more likely to cannibalize into each others volumes rather than increase the addressable market for Suzuki.

HERO MOTOCORP LIMITED - Performance Overview (Q4, ) Volume growth slows down in line with the two-wheeler industry Hero MotoCorp - Fact Sheet Year of Incorporation 1984 Chairman Manufacturing Facilities Brands Net Sales FY12 PAT FY12 Net Worth, March 31, 2012 Mr. B. M. Munjal Gurgaon, Dharuhera, Haridwar CD Dawn, CD Deluxe, Splendor, Passion, Super Splendor, Glamour, Achiever, Hunk, CBZ Xtreme, Impulse Karizma, Pleasure, Maestro Rs. 23,368.1 Crore Rs 2,378.1 Crore Rs. 4,289.8 Crore Q4 FY11 Q4 FY12 Q3 FY12 Operating Income 5,350.9 5,962.5 5,983.6 YoY Growth (%) 30.7% 11.4% 16.9% OPBDIT 789.9 852.9 895.1 Less: Depreciation 237.4 280.4 298.7 Other Income 106.2 177.4 127.4 Exceptional Gain/Loss - - - PBT 658.8 746.9 723.8 Less: Tax 157.2 143.3 110.8 PAT 501.6 603.6 613.0 OPBDIT/OI (%) 14.8% 14.3% 15.0% PAT/OI (%) 9.4% 10.1% 10.2% Source: Company Data, ICRA Estimates Revenue Growth In Q4,, Hero MotoCorp Limited (HMCL) reported revenues of Rs. 5,962.5 Crore, a growth of 11.4% (YoY). The company s revenue growth was driven by 8.1% YoY growth in sales volumes and 3.1% YoY growth in average realizations. While HMCL had recorded a volume growth of 18.1% (YoY) in 9m, the company s volume growth slowed down to 8.1% (YoY) in Q4, given the higher base of Q4 2010-11. In fact, after having recorded positive sequential volume growth over the last eight quarters, HMCL s QoQ sales volume growth turned negative at -1.1% in Q4. Overall, HMCL s sales volumes grew by 15.4% in over the previous year to reach 6.2 million units. For 2012-13, the management expects HMCL s sales volumes to grow by 9-10%; and export volumes to grow substantially over the next four years. Profitability HMCL s OPBDIT margins at 14.3% in Q4, declined by 46 basis points (bps) YoY and 66 bps QoQ due to increase in raw material costs, which could not be neutralized fully through price hikes. The margin decline may have been higher but for the steadily rising share of production of HMCL s Haridwar plant (that entails relatively superior profit margins) in the overall production mix vis-a-vis the company s other two plants at Gurgaon and Dharuhera. Going forward, the direction of commodity price movement, besides HMCL s ability to sustain the scale required to absorb the additional expenses being incurred for creating a new corporate brand, introduction of new models, building of R&D capability, exploring overseas markets for exports would be the key factors influencing the company s margins. HMCL s Q4 PAT at Rs. 603.6 Crore grew by 20.3% YoY but declined by 1.5% QoQ. Overall in, HMCL s PAT was also supported by lower effective tax rate of 17.0%, against 19.8% in 2010-11 due to higher proportion of sales from Haridwar plant where the company currently gets 100% income tax exemption. Q1 FY11 Q2 FY11 Q3 FY11 Q4 FY11 Q1 FY12 Q2 FY12 Q3FY12 Q4FY12 Operating Income 4,264.6 4,511.3 5,118.2 5,350.9 5,637.6 5,784.3 5,983.6 5,962.5 Growth (%) - YoY 11.9% 11.7% 34.2% 30.7% 32.2% 28.2% 16.9% 11.4% OPBDIT 570.5 567.3 533.1 789.9 772.1 873.7 895.1 852.9 PAT 491.7 505.6 429.0 501.6 557.9 603.6 613.0 603.6 OPBDIT/OI (%) 13.4% 12.6% 10.4% 14.8% 13.7% 15.1% 15.0% 14.3% PAT/OI (%) 11.5% 11.2% 8.4% 9.4% 9.9% 10.4% 10.2% 10.1% Source: Company Data, ICRA Estimates; Amounts in Rs. Crore ICRA Ratings Long Term Short Term Outlook Shareholding Pattern (%) Promoters 52.2 FIIs 33.4 DIIs 5.7 Others 8.8 Price Performance (%) 3M 12M HMCL -5.0% -1.5% BSE Auto -6.3% 6.4% CNX Nifty -8.6% -12.9% Relative Stock Price Movement 130 110 90 70 May-10 Jul-10 Sep-10 Nov-10 Jan-11 Mar-11 May-11 Hero MotoCorp [ICRA]AAA [ICRA]A1+ Stable Jul-11 Sep-11 Nov-11 BSE Auto Jan-12 Mar-12 Bloomberg Code HMCL Market Capitalization Rs. 36,879 Cr Valuations FY13e FY14e Price/Earnings 13.4 12.5 EV/ EBITDA 10.1 8.9 Source: Bloomberg Consensus Estimates May-12

BAJAJ AUTO LIMITED - Performance Overview (Q4, ) As domestic volume growth slows down, sustenance of exports momentum becomes crucial for sustaining earnings growth Bajaj Auto - Fact Sheet Year of Incorporation 1945 Chairman Manufacturing Facilities Brands Revenues FY12 PAT FY12 Net Worth, March 31, 2012 Mr. Rahul Bajaj Akurdi, Chakan, Waluj, Pantnagar 2W: Boxer, Platina, Discover, Pulsar, Avenger; 3W: GC Series, RE Series, Mega Max Rs. 19,529.0 Crore Rs. 3,004.1 Crore Rs. 6,041.1 Crore Standalone Q4 FY11 Q4 FY12 Q3 FY12 Operating Income 4,200.0 4,651.4 5,063.2 YoY Growth (%) 23.1% 11.4% 20.2% OPBDIT 861.5 920.6 1,061.4 Less: Depreciation 30.1 43.4 32.1 Other Income 101.0 139.5 90.8 Exceptional Gain/Loss 724.6 20.3 (58.9) PBT 1,656.9 1,035.1 1,061.2 Less: Tax 256.5 263.1 266.0 PAT 1,400.4 772.0 795.2 OPBDIT/OI (%) 20.5% 19.8% 21.0% PAT/OI (%) 33.3% 16.6% 15.7% Source: Company Data, ICRA Estimates Revenue Growth In Q4,, Bajaj Auto Limited (BAL) reported revenues of Rs. 4,651.4 Crore, a growth of 11.4% (YoY). The company s revenue growth was driven by 7.3% YoY growth in sales volumes (2W + 3W) and 3.9% YoY growth in average realizations. While BAL had recorded a volume growth of 15.9% (YoY) in 9m, the company s volume growth slowed down to 7.3% (YoY) in Q4, mainly due to sharp slowdown in its 2W sales in the domestic market. Against 11.1% volume growth recorded by the industry in Q4,, BAL s domestic 2W sales volumes declined by 0.1% during the last quarter (the domestic 2W segment accounts for ~60% of BAL s volumes). However, continued strong growth of 27.9% (YoY) in 2W exports, which constitute ~30% of BAL s volume mix, partially neutralized the impact of slowdown experienced by BAL in the domestic 2W segment. BAL s 2W exports growth was driven by rising sales to the African continent, even as sales to Sri Lanka (that accounts for ~20% of BAL s exports) suffered following the hike in import duty by the country that caused around 30-35% increase in 2W retail prices. For H1, 2012-13, the management expects BAL s domestic 2W sales volumes to grow by 6%; and sales volumes (2W+3W) for 2012-13 to touch 5 million units, a growth of 15% over. Profitability: BAL s reported OPBDIT margins at 19.8% in Q4, declined by 72 bps YoY and 117 bps QoQ, largely due to reclassification of line items as per revised Schedule VI and partly due to relatively weaker product mix. The management maintains that BAL s OPBDIT margins for 2012-13 are expected to remain at around 20%. However, since 100% exemption on income tax currently available for BAL s Pantnagar plant is going to reduce to 30% from 2012-13 onwards, the resultant increase in average tax rate is expected to weigh on the company s net margins during the current fiscal. Standalone Q1 FY11 Q2 FY11 Q3 FY11 Q4 FY11 Q1 FY12 Q2 FY12 Q3FY12 Q4FY12 Operating Income 3,890.1 4,341.8 4,177.1 4,200.0 4,777.3 5,267.3 5,063.2 4,651.4 Growth (%) - YoY 65.4% 49.7% 27.2% 23.1% 22.7% 19.3% 20.2% 11.4% OPBDIT 776.9 897.2 849.3 861.5 910.8 1057.4 1061.4 920.6 PAT 590.2 682.1 667.1 1400.4 711.1 725.8 795.2 772.0 OPBDIT/OI (%) 20.0% 20.7% 20.3% 20.5% 19.1% 20.1% 21.0% 19.8% PAT/OI (%) 15.2% 15.7% 16.0% 33.3% 14.9% 13.8% 15.7% 16.6% Source: Company Data, ICRA Estimates; Amounts in Rs. Crore ICRA Ratings Long Term Short Term Outlook Shareholding Pattern (%) Promoters 50.0 FIIs 16.4 DIIs 8.4 Others 25.1 Price Performance (%) 3M 12M BAL -16.3% 7.1% BSE Auto -6.3% 6.4% CNX Nifty -8.6% -12.9% Relative Stock Price Movement 170 160 150 140 130 120 110 100 May-10 Ju l-1 0 Sep -10 No v-10 Jan-11 NA NA NA Mar-1 1 Bloomberg Code BJAUT Market Capitalization Rs. 43,503 Cr Valuations FY12e FY13e Price/Earnings 12.8 11.4 Price/Sales 9.5 8.8 Source: Bloomberg Consensus Estimates May-11 Bajaj Auto Ju l-1 1 Sep -11 No v-11 BSE Auto Jan-12 Mar-1 2 May-12

TVS MOTOR COMPANY LIMITED - Performance Overview (Q4, ) Weaker product portfolio hampers revenue growth; company planning several new 2W model launches in 2012-13 TVS Motor - Fact Sheet Year of Incorporation 1982 Chairman Manufacturing Facilities Brands Consolidated Revenues FY12 PAT (Concern Share) FY12 Net Worth, March 31, 2012 Mr. Venu Srinivasan Hosur, Mysore, Nalagarh 2W: Sport, Star City, Jive, Flame, Apache RTR, Scooty, Wego; 3W: King Rs. 7,419.8 Crore Rs. 131.6 Crore Rs. 725.3 Crore Standalone Q4 FY11 Q4 FY12 Q3 FY12 Operating Income 1,633.5 1,627.2 1,762.2 YoY Growth (%) 34.6% -0.1% 7.4% OPBDIT 109.1 98.9 122.3 Less: Depreciation 42.1 31.7 36.4 Other Income 0.3 8.3 0.1 Exceptional Gain/Loss - - - PBT 61.6 62.2 75.6 Less: Tax 19.9 5.0 19.0 PAT 41.7 57.2 56.5 OPBDIT/OI (%) 6.7% 6.1% 6.9% PAT/OI (%) 2.6% 3.5% 3.2% Source: Company Data, ICRA Estimates Revenue Growth In Q4,, TVS Motor Company Limited (TVS) reported revenues of Rs. 1,627.2 Crore, which were flat on YoY basis; and were 7.5% lower on QoQ basis. While the 2W industry s domestic volume growth had also moderated to 11.1% YoY in Q4, (vis-avis 15.0% YoY volume growth in 9m, ), the slowdown in TVS domestic 2W volumes was much steeper, with the company s domestic 2W volumes expanding by only 2.2% YoY. This apart, TVS 2W exports as well as 3W volumes also declined sharply by 17.6% and 36.0% in Q4,, respectively, contributing to the company s relatively weaker revenue growth compared to the industry at large. The company plans to launch a series of new products in 2012-13 along with upgrades of existing products. TVS recently launched the 2012 edition of the Apache Series RTR, while one new executive segment motorcycle is planned to be launched in August 2012. The company plans to launch another motorcycle and a new scooter in Q4, 2012-13. These new product launches are expected to enable the company grow faster than the domestic 2W industry in 2012-13. Profitability: TVS OPBDIT margins at 6.1% in Q4, declined by 60 bps YoY and 86 bps QoQ mainly due to increase in employee expenses. However, in view of other income of Rs. 8.3 Crore and lower tax rate, TVS s PAT grew by 37.3% YoY in Q4,. The company s PAT, on a consolidated basis, continues to be weighed down by losses at the Indonesian subsidiary. Consequently, TVS consolidated PAT grew at a much lower rate of 3.4% in compared to PAT growth of 28.0% reported on a standalone basis. The management expects losses in the Indonesian subsidiary to reduce in 2012-13 on the back of expected traction in volumes led by increase in dealer count along with planned increase in exports from Indonesia to other geographies. Standalone Q1 FY11 Q2 FY11 Q3 FY11 Q4 FY11 Q1 FY12 Q2 FY12 Q3FY12 Q4FY12 Operating Income 1,393.0 1,616.2 1,646.7 1,633.5 1,746.0 1,991.8 1,762.2 1,627.2 Growth (%) - YoY 40.4% 42.5% 50.4% 34.6% 24.7% 22.8% 7.4% -0.1% OPBDIT 103.7 122.8 117.1 109.1 125.4 146.0 122.3 98.9 PAT 40.4 54.8 55.8 41.7 58.8 76.5 56.5 57.2 OPBDIT/OI (%) 7.4% 7.6% 7.1% 6.7% 7.2% 7.3% 6.9% 6.1% PAT/OI (%) 2.9% 3.4% 3.4% 2.6% 3.4% 3.8% 3.2% 3.5% Source: Company Data, ICRA Estimates; Amounts in Rs. Crore ICRA Ratings Long Term Short Term Outlook Shareholding Pattern (%) Promoters 59.3 FIIs 2.6 DIIs 16.5 Others 21.6 Price Performance (%) 3M 12M TVS -27.0% -35.8% BSE Auto -6.3% 6.4% CNX Nifty -8.6% -12.9% Relative Stock Price Movement 160 140 120 100 80 60 May-10 Jul-10 Sep-10 Nov-10 Jan-11 NA NA NA Mar-11 May-11 TVS Motor Jul-11 Sep-11 Nov-11 Jan-12 BSE Auto Mar-12 Bloomberg Code TVSL Market Capitalization Rs. 1,634 Cr May-12 Valuations FY12e FY13e Price/Earnings 7.1 6.6 Price/Sales 5.2 4.8 Source: Bloomberg Consensus Estimates

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