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2 demand environment for the two wheeler industry continues to remain challenging in the current fiscal. CARE Research believes tough economic scenario owing to high inflation, depleting growth in all economic activities, coupled with challenges like firm interest rates and spiralling fuel prices have moderated the growth in near term. Urban demand has been affected by the slowdown in the industrial activities that led to the drop in the income levels, while rural demand is impacted by below normal monsoons in most regions that has pulled down the agriculture output. Growth levels likely to moderate in near term Growing young population in both urban and rural areas will continue to fuel TW growth two wheeler sales have been influenced by demand from young population in urban areas since inception. Rise in the industrial activities around tier 1 and metropolitan cities influenced significant migration young and working population from rural and semi urban areas to urban areas, leading to emergence phenomenon called urbanization. As per the data released by Census survey, penetration two wheelers from urban areas is still substantially higher in 2011, although the demand from rural areas have picked considerably during last one decade. Hence f-late manufacturers have enhanced their focus to rural areas that would not only push their sales growth, but also provide cushion against volatile urban markets. motorcycle segment that has been mainstay for the industry since last two decades, has been witnessing considerable pressure from the gearless scooter segment in past 4-5 years. CARE Research foresees it would be difficult for the segment to retain the healthy growth levels it has witnessed in past one decade owing to pressure arising from substitution as well as current concerns looming over economic environment. CARE Research estimates, the motorcycle segment will continue to maintain its dominance in the two wheeler segment and rural demand will drive the growth for this segment. Motorcycle expected to take back seat in near to medium term Scooter likely to remain growth engine in near term Scooters continue to remain the preferred choice young adults mainly by females. Gearless scooters are increasingly becoming popular among the young male buyers especially after the introduction new models such as Suzuki Access, HMCL Pleasure and Maestro, HMSI Aviator, TVS Wego and new Activa which has higher engine capacity and improved styling. CARE Research foresees, the demand for scooters would continue to drive the industry growth in near to medium term period. demand from rural and semi-urban regions have always remained a driving factor for the growth this segment in past. Rise in the rural income owing to creation employment opportunities coupled with healthy growth in agriculture output has pushed the demand for mopeds during last five years (i.e. FY07-FY12), observing a growth around 17 per cent on a CAGR basis. However, FY13 was a challenging year for the segment due to drop in the agriculture output owing to poor and delayed monsoons in most regions. In medium to long term horizon, CARE Research foresees, competition pressure from entry level motorcycles would hurt mopeds as manufacturers are focused towards enhancing their presence in rural markets by launching products catering to the requirements rural customers. Mopeds would continue to remain niche segment

3 Outlook on Domestic market Table Section- I Care Research's Outlook Domestic market expected to grow at a CAGR 9-10 per cent till FY17 Growing young population coupled with improving income levels in both urban and rural areas will continue to fuel two wheeler growth Challenging operating environments kept the demand from urban areas volatile during last five years...influenced manufacturers to increase their focus on rural market f-late Motorcycle expected to take back seat in near to medium term... Greater than 250cc motorcycle market though niche, fers great potential going ahead Scooter likely to remain growth engine in near term; volumes to double in next 5 years Mopeds would continue to remain niche segment Exports too would remain under pressure in short term Investments around Rs 3,500-4,000 crore are expected in next 2 years Outlook on Pritability Top line to witness moderate growth, around 7-8 percent till FY14 Raw material cost may sten marginally, providing some respite for the manufacturers Return on capital employed to witness a drop on account pressure on pritability coupled with capacity expansion Evolution Regulatory phase (upto 1980) Developmental phase ( ) Liberalisation phase ( ) Modernisation phase (2002 onwards) Introduction Motor Vehicle Act Fiscal regulations Import policy Excise policy Value Added Tax (VAT) Investment policy Section- II Section segments Motorcycles segment continue to dominate two wheeler market 75cc-124cc sub-segment 125cc-250 cc sub-segment >250cc sub-segment Ungeared scooter emerging as a significant market Less-than-75cc sub-segment cc sub-segment Mopeds continues to remain small market Electric two wheelers HHI indicates diversity in player concentration between segments and industry

4 Demand Exports Two-wheelers sales witness moderate growth in FY13, hit by economic uncertainties Motorcycles continue to remain on a strong foothold Scooter segment helps to keep the two wheeler industry afloat in FY13 Moped segment demand register nominal rise in FY13 Demand Drivers Economic Factors Financing Key to industry growth Demographic environment Infrastructure factors Asian and African markets remain preferred export destinations Exports observe a decline in FY13 on account hike in import duty and uncertainties in global environment BAL continues to dominate two wheeler exports Cost Analysis Stening in raw material prices provided a respite to the manufacturers in FY13 Steel Rubber Selling and distribution witness a substantial rise in FY13 Efficiency measures have led industry to control its employee cost during past 2-3 years Credit Prile Operating Margins Net Margins Return on Capital Employed Fixed Asset Turnover Debt-Equity Working Capital Management Table Hero MotoCorp Limited Bajaj Auto Limited TVS Motor Limited SECTION- III Company Section Player wise motorcycle domestic sales Player wise motorcycle exports Player wise scooter domestic sales Player wise scooter exports Player wise mopeds sales Player wise mopeds exports SECTION- IV Annexures

5 Outlook on Pritability Regulations Key financial indicators Table List Tables SECTION- I CARE Research's Outlook SECTION- II Section Change in technology for meeting various emission norms Custom duty trend for two wheelers and key raw materials Excise duty trend for two wheelers and key raw materials segments Motorcycles classification - segment wise Scooters classification segment wise Cost analysis Trend in Raw Material Cost as a % net sales Trend in Selling and Distribution expenses as a % net sales Trend in Employee cost as a % net sales Two wheeler industry : Aggregate financials (April- December) Credit Prile Trend in Operating Margins Trend in Net Margins Trend in Return on Capital Employed Trend in Debt Equity Key financial indicators Outlook on Domestic Two wheeler market Outlook on domestic two wheeler industry Growth in Urban population Two wheeler penetration rural v/s urban List Graphs SECTION- I CARE Research's Outlook Growth in two wheeler demand and GDP growth Outlook on domestic motorcycles segment Price comparison among greater than 250 cc motorcycle segment Outlook on domestic scooter segment Outlook on domestic mopeds segment Outlook on two wheeler exports Trend in current and expected rise in manufacturing capacity Outlook on Pritability Outlook on Sales, Volume and Realization Outlook on input prices and EBITDA

6 Table segments SECTION- II Section Segment wise share in FY07 Motorcycles Segment wise share in FY12 Motorcycles Player wise share in motorcycle segment FY12 Player wise share in motorcycle segment FY13 (Apr-Feb) Player wise share in FY cc sub-segment (Motorcycles) Player wise share in FY13 (Apr-Feb) cc sub-segment (Motorcycles) Player wise share in FY cc sub-segment (Motorcycles) Player wise share in FY13 (Apr-Feb) cc sub-segment (Motorcycles) Snapshot various motorcycle models at multiple price points Motorcycles Player wise share in FY12 - Less-than-75cc sub-segment (Scooters) Player wise share in FY13 (April-February) - Less-than-75cc sub-segment (Scooters) Player wise share in FY cc sub-segment (Scooters) Player wise share in FY13 (April-February) cc sub-segment (Scooters) Snapshot various scooter models at multiple price points Scooters Herfindahl Hirschman Index (HHI) for different segments in two wheeler industry Demand Trend in domestic two wheeler industry Trend in domestic motorcycle demand Trend in domestic scooter demand Trend in domestic mopeds demand Trend in per capita income Trend in repo rate Proportion target age mix in male and female population Proportion female in working population India Trend urbanization in India Exports Major export markets in FY12 Major export markets in FY13 (April-December) Trend in exports for last five years Player-wise export share in FY12 Player-wise export share in FY13 (April-February) Cost analysis Annual trend in steel prices Monthly trend in steel prices Annual trend in rubber prices Monthly trend in rubber prices Credit Prile Trend in fixed asset turnover

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