India Infoline Autoline Newsletter A Monthly update on Auto & Auto Ancillary Sector Vol. 2 October 28, 2005

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1 India Infoline Autoline Newsletter A Monthly update on Auto & Auto Ancillary Sector Vol. 2 October 28, 2005 Latest Results Interviews Features Meets/AGM Investment Ideas Investor Points Economy Commodity Prices Company Database IPO Online Mutual Fund online B-School PMS Investor Relations Words of Wisdom Top Gainers 14-Oct Sep- 05 Gain (%) Company Bajaj Tempo Bajaj Auto 1,694 1, Tata Motors Mico 2,469 2, Amtek Auto Balkrishna Inds. 1, Top Losers 14-Oct Sep- 05 Gain (%) Company Kinetic Motor (21.8) LML Ltd (17.1) Eicher Motor (11.4) Tudor India (33.3) Bharat Gears (25.0) Escorts (19.8) Maruti & Hyundai hike car prices India's leading passenger carmaker Maruti Udyog Ltd (MUL) indicated on September 26, 2005 that they would be raising the prices of some of their products following its rival Hyundai, which announced hike in prices of its two models Getz and Accent to be effective from October 1, MUL, raised prices of most of its vehicle models on September 3, 2005 by 0.2% to 1%. Increase in the prices of the cars is due to the upward movement of freight rate on account of the recent hike in diesel prices, which the company wants to be passed on to the consumers. The recent diesel price increase had resulted in about 4% to 5% rise in the truck freight rates across the major trunk routes in the country. However, the company did not raise prices of its recently launched Swift compact. The carmaker also said it would revise its vehicle prices a second time by the end of the year. Accent prices were increased by Rs7,000 to Rs8,000, while the hike in Getz were in the range of Rs5,000 to Rs7,000. Hyundai also announced signing up of tennis star, Sania Mirza, as brand ambassador for its Getz model. Endorsement of Getz by Sania may help the company push sales, particularly when it is planning to raise the production capacity of the model from 1,400 units per month to 3,400 units per month by April-June The company was also preparing to introduce its new model, MC-Series, to be positioned between mid-sized sedan Accent and top-end model Sonata, by August-September 2006 and is planning for capacity expansion in a phased manner over a period of six to nine months. 2 Wheeler manufacturers riding high on back of increasing volumes Leading two-wheeler manufacturers, Hero Honda (HHML), Bajaj Auto (BAL) and TVS Motors, which together constitute over 85% of the domestic twowheeler market, registered their highest ever-monthly volumes in September The strongest performance was reported in the motorcycle segment. While HHML sold 266,071 motorcycles, BAL registered volumes of 218,012 units and TVS sold 121,108 units in September Driven by a slew of launches, good monsoon increasing farm output and an 8% GDP growth leading to higher disposable incomes, the top-three two-wheeler companies reported an average 17.2% growth in the Q2 FY06 and this momentum is expected to continue in the coming quarters. Two-wheeler manufacturers are increasing their capacity to meet the rising demand. Table: Capacity Expansion (Units) Monthly Capacity Revised Monthly Capacity HHML 200, ,000 BAL 150, ,000 TVS 100, ,000 Increasing Competition - Yamaha Motor Co., the world's second-largest motorcycle manufacturer, is investing US$92mn to set up a third factory. Tokyo-based Honda is selling motorcycles on its own and Japan's Suzuki Motor Corp. announced plans to re-enter India. To compete, HHML, BAL & TVS are introducing new models, entering new segments and expanding capacities.

2 Amtek to buy out two foreign companies Amtek casting, forging and auto components manufacturing group, is in the final stage of acquiring two companies namely a US$35mn casting and machining company in the UK and a US$ mn turnover machining company near Detroit in the US. The two proposed acquisitions planned mainly to bring a larger base of Original Equipment Manufacturers (OEM s) customers under the Amtek group s fold apart from increasing the production capacity. A senior company official said large customers such as Ford, Jaguar, BMW, Renault, CNH, Honeywell would become customers of Amtek group though the proposed acquisition in the UK. Apollo to divest stake Apollo Tyres Ltd said on September 30, 2005 that it would divest its stake in its joint venture company Michelin Apollo Tyres Pvt Ltd (MATPL). The MATPL s board approved divestment of Apollo Tyres share holding in MATPL, which shall be bought over by the Michelin Group and its affiliates. The board also decided to defer the implementation of the industrial project to manufacture Truck, Bus Radials in India by at least one year on account of slower projected pace of radicalization in India. The Michelin Group will maintain its shareholding in the company and its technical assistance agreement will come to an end, it added. IP Ring s new manufacturing facility starts production IP Ring s Rs160mn manufacturing facility for producing synchrocones and bevel gears has recently gone on stream. In a full year of production, the facility is expected to yield a turnover of Rs500mn. The new plant, whose commissioning was delayed by one year (due to teething problems), will initially supply synchrocones to a large commercial vehicle manufacturer, but will eventually have a diversified customer base, Mr. Venkataramani, Director, IP Rings Ltd said. Delphi's Indian operations to continue Delphi Automotive Systems, the Indian subsidiary of automotive component manufacturing giant Delphi Corp, said that filing of bankruptcy proceedings in the US by the parent company would not affect Indian operations. On the contrary, the company is looking to strengthen its technology centre in Bangalore with an investment of US$10mn, which would be primarily used to ramp up the engineering design division. Delphi India clocked turnover of about US$110mn in 2004 (of which exports accounted for US$30mn) and this year the company is expecting to clock around US$125mn. The company is further strengthening it s manufacturing in India by commencing manufacturing of engine mounts at its Noida unit, which would be exported to General Motors USA. It has also entered into an alliance with Varroc to manufacture twowheeler exhaust systems that are to be ready by later this quarter. Impal got listed on NSE Equity shares of India Motor Parts & Accessories Ltd (Impal) got listed on the National Stock Exchange and admitted to dealings on the exchange with effect from October 7, "The trading will be in the normal market segment - compulsory demat (rolling settlement) for all investors," a press release from the company said. Impal, a TVS group company is into distribution of automotive components. Talbros faces industrial relations problem Talbros Automotive Components Ltd on September 16, 2005 said that there was an industrial relations problem, arising out of ongoing negotiations on a `Wage Settlement Agreement', at its Chennai plant, as a result of which workers were staying away from their respective place of work. This hampered production at the unit. It is expected that Talbros' sales would not be affected, as it must have made alternative arrangements at its facilities in Faridabad and Pune. Further, the Chennai unit produces gaskets accounts for about 8% of the company's turnover.

3 Mahindra & Mahindra to roll out variants of Scorpio Mahindra & Mahindra (M&M) major in utility and farm equipment vehicles is working on a range of variants to roll off from the Scorpio platform. The variants could roll out either in India or overseas, depending on the market demands company spokes person said. However, the company has not set a time frame of when they will roll out in India. M&M has no plans of introducing any of the platform spin-offs right now, because the Scorpio s current run has strapped it for capacity. M&M has been pushing exports of its Scorpio and Bolero SUVs in markets like South Africa, Malaysia, the Middle East and Latin America. The company had earlier announced plans to invest Rs5bn over the next two years to meet increased demand for the Scorpio. HHML forays into the scooter segment and launches Achiever in the bike segment Two-wheeler major HHML announced launch of its first scooter Pleasure that would hit the market by mid November The scooter segment is witnessing an impressive growth for the past few months and with the launch of Hero Honda Pleasure, we would be able to carve out a place for ourselves in the industry and contribute towards its further growth, said HHML Managing Director, Pawan Munjal. In an attempt to revive its flagging market share in the premium bike segment, HHML launched a 150-cc motorcycle Achiever on October 5, With an introductory price of Rs47,900, the Achiever is Rs5,800 less than CBZ and Rs3,400 less than segment leader Bajaj Pulsar. The CBZ sells 3,000 units per month while Pulsar sales (including the 180- cc variant) have topped 30,000 units per month since May Incidentally, its JV partner Honda sells more than 7,000 units per month of its Unicorn model. GM to roll out Chevy Optra General Motors (GM), is gearing up to introduce a sporty hatchback version of the Chevy Optra, styled by Italian design house Giugiaro, on the Indian roads in the FY06. GM has recently succeeded in improving the mileage of the Optra sedan by recalibrating the electronic control modules of the gear ratios of its transmission system. This accompanied by a more affordable price and peppy looks offer GM an opportunity to improve its numbers. Honda Siel launches upgraded version of City The company on October 13, 2005 launched the new upgraded version of its popular sedan City. Called the City ZX, the car will be available in four variants, with prices ranging from Rs671,000 to Rs799,000. The prices have been hiked by Rs16,000-19,000 primarily to counter increasing freight and input costs. A new variant with a 1.5litre VTEC engine (priced at Rs799,000) has been introduced. It is about 80mm longer than the earlier one and has a higher bonnet. Skoda to launch diesel version of Superb Skoda would be launching a diesel version of the Superb later this month. The company said that it is expanding production capacity to facilitate launch of new products. However, Skoda Auto India on October 3, 2005 reported a 31% jump in September 2005 sales, which stood at 909 units against 693 units sold in the same month last year. The company said that these included 15 units of the Skoda Superb luxury model. Ford to launch Fiesta in November 2005 Ford India has decided to import a well-established brand name from the Ford stable Fiesta for the premium, mid-sized sedan that it will launch in November Fiesta - essentially a hatchback - was launched by Ford Motor Company in Europe in 1976 and is still under production, after going through six redesigns. In India, the Fiesta will be a three-box car that has been designed and engineered globally. It will be manufactured at Ford India's plant at nearby Maraimalai Nagar. "It is a very powerful brand name and has been in Europe for the last three decades. It is a brand that is widely admired around the world," said Mr. Arvind Mathew, Managing Director and President, Ford India, on why the company chose the name.

4 HHML plans to set up a manufacturing unit in Rajasthan Two-wheeler major HHML is learnt to have zeroed in on Rajasthan as the location for its third plant. It is expected that the new plant will be set up in Kukas, around 20km away from Jaipur with an initial investment estimated to be around Rs3.5bn. Currently HHML has an installed capacity of 3mn units, which is also its sales target for this fiscal. The company has still to make an official announcement about the new plant by the end of next week. TVS cuts its advertising and marketing cost Smaller two-wheeler players have begun cutting advertising and marketing costs in a competitive market. TVS cut its advertising and marketing cost by 20% in FY05. In contrast, for the top two players, the advertising and marketing costs rose by 10% for BAL and by 16% for HHML. MUL to increase the production of Swift In response to increasing customer demand, MUL is planning to ramp up the production of its latest offering, Swift, from around 6,000 units per month to 9,000. The scale up in production is likely to begin in the last quarter of the fiscal or early next year. Since MUL has a flexible production system, the increase in production would not require any additional investment. Due to the rising demand, the waiting period for Swift has been long, ranging from one month to four months, depending on variants. Toyota Kirloskar Motor to strengthens its dealer network Toyota Kirloskar Motor, on October 12, 2005 inaugurated its 50th dealership, which was the fourth dealership of Toyota in Mumbai, taking the total count to seven in Maharashtra, a company release said. TKM Managing Director Atsushi Toyoshima said: "We are rapidly expanding our network of dealerships as per our target to have 60 dealerships across India by the end of this year. This expansion plan is in line with our aim to achieve 10% market share by 2010". "Mumbai is one of the largest markets for Toyota. Our products are market leaders in their respective segments. With this centre we aim to increase our market share further", he said. MUL to set up driving schools MUL on September 16, 2005 announced that it would set up world-class Maruti Driving Schools across 15 cities in India. The driving schools are in line with international practices, equipped with world-class simulators to enable learners to familiarize themselves with the controls of the car before they take the actual vehicle on the road. These will also simulate various road and weather conditions such as fog, dim light, uphill and downhill terrain, to provide comprehensive training to learners. Early this year, the company had set up three pilot Maruti Driving Schools - one each in Bangalore, Kollam and Chandigarh. Kinetic Motor to make preferential allotment Kinetic Motor Company (KMCL) announced on October 12, 2005 that its board of directors has decided to allot 1.42mn shares on a preferential basis to Bennett Coleman & Company (BCCL), publishers of The Economic Times, The Times of India and other group publications. BCCL will invest around Rs100mn for an 8.6% stake in the Pune-based scooter manufacturer at a price of Rs70 per share with a face value of Rs10. Sulajja Firodia Motwani, joint managing director, Kinetic group, said, The proceeds of the investment will be used towards brand building and the launch of the new Italjet range of products. The promoter group s holding, post-allotment, will be 63.8%.

5 Japan Auto Production Falls in August Toyota, Nissian & Honda Motors registered fall in production for the month of August 2005 compared to the same period last year, however Mazda & Mitsubushi Motors said production was up. Toyota Motor Corp., Japan's No. 1 automaker, said its domestic production slipped 9.7% on year to 229,547 vehicles in August 2005, marking the third month of decline in local output. Nissan Motor Co.'s production in Japan slipped 3.2% to 93,349 vehicles. Honda Motor Co. reduced domestic production in August by 2.6% from a year earlier to 80,783 vehicles due to a decline in shipments in Japan and weaker exports. But Honda's overseas output jumped 20.1%, helping to lift its global production for the month by 12.4% to 273,572 vehicles, the highest level ever for that particular month. Mazda Motor Corp. said its domestic vehicle production in August 2005 jumped 30.3% on year to 65,958 vehicles, increasing for the third consecutive month due to launches of new models. Mitsubishi Motors Corp. said its production jumped 57.8% on year to 45,847 vehicles in August 2005, a sign the automaker is getting over a series of product recalls and cover-up scandals that have hit the company's output in the last few years. High gas prices to dents sport-utility vehicles sales High US gasoline prices are compelling some buyers to switch to smaller, more fuel-efficient cars and SUVs. While SUV sales are down, demand this year for crossover vehicles that combine the cargo space and high seating of trucks with the smooth ride and better gas mileage of cars is up 20%, and large car sales are up 3%. Even worse, automakers, especially the US big three, face large losses of US$3,000 to US$6,000 per vehicle as hundreds of thousands of large SUVs go on auction as their leases expire. That could drastically force down prices in the used-car market and even affect what consumers pay for new models. While Japanese automakers will probably benefit most from the changes in buying habits due to their ability to quickly switch output at plants to smaller vehicles; US automakers have only some smaller fuel-efficient cars, including the Chevrolet HHR and Aveo and the Ford Fusion. Ford's Auto Sales Fall while Toyota, Nissan report growth (US sales) On October 3, 2005, Ford Motor Co., said US sales of cars and trucks fell 19% yoy in September Ford sold 228,157 vehicles, down from 282,656 during the same period last year, the Dearborn, Michigan-based company said in a statement. Toyota Motor Corp., the biggest Asian automaker, had a 10% yoy increase, and No. 2 Nissan Motor Co. gained 16% yoy. Daimler Chrysler AG said US sales of Chrysler and Mercedes- Benz vehicles were up 3.7% yoy. Hyundai to build US$1.2bn Czech auto plant Hyundai Motor Co., South Korea s largest carmaker, will build a Euro 1bn euro (US US$1.2bn) car plant in the Czech Republic to meet rising demand for its compact cars in Europe. Hyundai Motor will produce 300,000 autos annually when it starts production in the second half of 2008, Seoul-based Hyundai Motor said. The carmaker plans to develop a new model, suitable for its European buyers, it said. Construction of the plant will begin next year. Labor costs in the Czech Republic are about 17% of those in neighboring Germany, the region s largest car market. Delphi Bankruptcy Recent bankruptcy of Michigan-based Delphi, may signal deeper competitive problems for the high-cost US based auto industry. Delphi Chief Executive Steve Miller told that his company was unable to make a profit given its high-wage union cost structure, including very generous health-care benefits to employees and retirees.

6 Sensex declined by about 1% to close at 8,208 levels registering decline of 82 points during the period from September 15, 2005 to October 14, During the same period BSE Auto Index witnessed a meager gain of 3 points, representing a rise of 0.1%. During the period under consideration auto index touched the all time high of 3,793 as auto manufacturers recorded good volumes growth in the first week of October The decline was due to steep correction recorded across sectors in the second week of October BSE Auto BSE Sensex Rebased 'Sep 21 'Sep 27 'Sep 3 'Oct 7 'Oct 14 'Oct Source: India Infoline; BSE Table: Top Gainers Company 14-Oct Sep-05 Gain (%) Bajaj Tempo Bajaj Auto 1,694 1, Tata Motors Mico 2,469 2, Amtek Auto Balkrishna Inds. 1, Table: Top Losers Company 14-Oct Sep-05 Gain (%) Kinetic Motor (21.8) LML Ltd (17.1) Eicher Motor (11.4) Tudor India (33.3) Bharat Gears (25.0) Escorts (19.8)

7 M&M Sep '04 Sep '05 YoY (%) UV's 7,195 7, CV's 3,267 3, Three Wheelers 2,307 2,157 (6.5) Total Domestic Sales 12,769 13, Exports Total 13,093 13, Tata Motors Sep '04 Sep '05 YoY (%) Passenger Vehicles 15,926 16, CV 17,179 19, Total Domestic Sales 33,105 35, Exports 2,301 4, Total 35,406 40, MUL Sep '04 Sep '05 YoY (%) Passenger Cars 40,206 46, MUV's Total Domestic Sales 40,322 46, Exports 3,627 2,885 (20.5) Total 43,949 49, Bajaj Auto Sep '04 Sep '05 YoY (%) Motor cycles 180, ,420 (30.1) Total 2 Wheelers 140, , WHEELERS 23,182 23,118 (0.3) Total Sales 163, , Exports 17,138 23, HHML Sep '04 Sep '05 YoY (%) Domestic Sales 212, ,838 (17.7) Exports 5,279 8, Total 217, , TVS Sep '04 Sep '05 YoY (%) Motor Cycles 56,316 70, Scooterette 23,057 21,764 (5.6) Moped 22,145 21,180 (4.4) Total Domestic Sales 101, , Exports 3,324 7, Total 104, , Cumulative Volumes Domestic Exports Apr-Aug 06 Apr-Aug 05 YoY (%) Apr-Aug 06 Apr-Aug 05 YoY (%) Passenger Cars 332, , ,011 63, Utility Vehicles 72,686 63, ,733 1, Multi Purpose Vehicles 26,210 25, (8.6) M&HCVs 67,925 68,950 (1.5) 4,548 4,941 (8.0) Commercial Vehicles 118, , ,402 10, Three Wheelers 133, , ,806 30, Scooter/Scooterettee 350, ,061 (9.3) 40,817 30, Motor cycles/step- Through 2,165,529 1,816, ,689 99, Mopeds 131, ,988 (1.0) 19,732 15, Source: SIAM

8 Two Wheelers TVS 24% 9% Scooter/Scooterettee BAL 15% HM&SIP L 52% TVS 13% Motor cycles/step- Through YMIPL 4% HHML 48% 4% BAL 31% TVS 80% Mopeds Kinetic Engg Ltd 9% Majestic Auto Ltd 11% Three Wheelers Passenger Carrier Goods Carrier PVPL 23% 10% 38% BAL 23% BAL 67% PVPL 39% Four wheelers TML 17% A: Passenger Cars 13% HMIL 18% TKMPL 17% B: Utility Vehicles 10% GMPL 10% MUL 52% TML 18% M&M 45% CVs - M&HCVs 4% Ashok Leyland Ltd 28% 14% CVs - LCVs M&M 28% Tata Motors Ltd 61% Source: SIAM Eicher Motors Ltd 7% TML 58%

9 Tyre production increased by 5% yoy to 5.2mn in June 2005 from 4.9mn in June Motorcycles, LCVs and tractor (trailers) were major contributors to the growth. Exports registered a 11.2% yoy growth to 399,612 tyres. Production Exports Tyre Jun '05 Jun '04 YoY (%) Jun '05 Jun '04 YoY (%) Trucks & Buses 960, , , ,879 (9.4) Passenger Cars 1,000, , ,343 62, Jeeps 109, ,340 (19.7) Light Comm. Vehicles (LCV) 343, , ,506 78, Total 4 Wheelers 2,413,535 2,331, , , Tractors (Front) 114, ,528 (6.8) 1,931 1, Tractors (Rear) 89, ,868 (10.8) 7,378 6, Tractors (Trailer) 37,538 30, Total Tractors 241, ,333 (5.0) 9,949 8, Scooter (2W / 3W) 842, , ,335 15, Motor Cycle 1,615,863 1,451, ,795 6, Moped 13,517 17,005 (20.5) Total (2W / 3W) 2,471,679 2,303, ,130 22, Animal Drawn Vehicle (ADV) 17,702 16, Off the Road (OTR) 8,499 7, ,008 1, Industrial 38,546 33, ,190 (85.4) Implements Total 64,747 57, ,182 2,788 (21.7) G Total 5,191,659 4,946, , , Source: ATMA Tyre statistics for the period April June 2005 Production Exports Tyre Apr 05 - Jun 05 Apr 04 - Jun 04 YoY (%) Apr 05 - Jun 05 Apr 04 - Jun 04 YoY (%) Trucks & Buses 2,916,513 2,696, , , Passenger Cars 3,081,046 2,810, , , Jeeps 330, ,578 (14.8) Light Comm. Vehicles (LCV) 1,063, , , , Total 4 Wheelers 7,391,172 6,795, ,248 - Tractors (Front) 350, ,543 (0.2) 3,716 3, Tractors (Rear) 276, , ,560 18, Tractors (Trailer) 128, , , Total Tractors 755, , ,193 - Scooter (2W / 3W) 2,362,513 2,445,164 (3.4) 73,518 36, Motor Cycle 4,718,179 4,191, ,910 13, Moped 37,571 39,995 (6.1) Total (2W / 3W) 7,118,263 6,676, ,696 - Animal Drawn Vehicle (ADV) 48,954 35, Off the Road (OTR) 23,974 16, ,088 2, Industrial 120,653 83, ,421 1,717 (17.2) Implements Total 193, , ,986 - G Total 15,458,663 14,333, ,321, , Source: ATMA

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