An Overview

1

EVOLUTION OF THE HERO GROUP FROM A SMALL COMPANY TO BEING THE WORLD’S LARGEST MANUFACTURER OF BICYCLES AND TWO WHEELERS

EVOLUTION OF THE HERO GROUP FROM A SMALL COMPANY TO BEING THE WORLD’S LARGEST MANUFACTURER OF BICYCLES AND TWO WHEELERS

Bicycle

ServiceTrade Manufacturing

BasicProduct

Parts

Progenic Product

ProductKnowledge

Collaboration

Auto Components

• BPO• IT• Training & Education• Financial

Product ReverseEngineering

Castings Shock AbsorbersSheet MetalCycle, moped and motorcycle comp.

Bicycle Mopeds Motorcycles

2

Revenues

510

829

1,810

1997-98 1999-2000 2002-03

CAGR = 29%

Brief profile

• Commenced operations in 1950s and today ranks in the Top 10 business houses of India

• Comprises 18 companies with Hero Honda, Hero Cycles and Munjal Showa being the top 3

• Two of the group companies are the world’s largest manufacturers of two-wheelers (Hero Honda) and bicycles (Hero Cycles)

Net Profits

2539

137

CAGR = 40%

USD million

THE HERO GROUP HAS A TREMENDOUS TRACK RECORD OF SUCCESSTHE HERO GROUP HAS A TREMENDOUS TRACK RECORD OF SUCCESS

“We, at the Hero Group are continuously striving for synergy between technology, systems, and human resources to provide products and services that meet the quality, performance, and price aspirations of the customers. While doing so, we maintain the highest standards of ethics and societal responsibilities, constantly innovate products and processes, and develop teams that keeps the momentum going to take the company to excellence in the new millennium”

MISSION STATEMENT

USD million

1997-98 1999-2000 2002-03

3

TODAY, THE HERO GROUP IS INTEGRATED BACKWARDS AND HAS 18 COMPANIES IN ITS FOLD

PRODUCT/ SERVICECOMPANY

Product & Engineering DesignHero Global Design

Payment servicesEasy Bill Limited

Distribution Munjal Sales Corporation

BPO Services, IT, Training & Education Hero Corporate Service Ltd

Financial Services Hero Financial Services Ltd

Sheet Metals and Fabricated Auto Components Satyam Auto Components Ltd

Non Ferrous Castings Munjal Castings

Two-WheelersHero Auto Limited

Financial Services Hero Honda Finlease Ltd

Cycle Components, Auto Components and Machine tools Highway Cycles

Cycle and Auto Components Rockman Cycle Industries

Auto Components Munjal Auto Industries Ltd

International Trading Arm Hero Exports

Mopeds, Scooterette, and Health Care Equipment Majestic Auto

Aluminium Castings Sunbeam Auto Limited

Shock Absorbers Munjal Showa Limited

Cycles, Auto Components, and Cold Rolled Steel Hero Cycles Limited

Motorcycles Hero Honda Motors Limited

4

THE GROUP HAS BUILT AN IMPRESSIVE PORTFOLIO OF BUSINESSESTHE GROUP HAS BUILT AN IMPRESSIVE PORTFOLIO OF BUSINESSES

* For a specific segment

Company Segment Market leader Top 3

Hero position in India by sales*

• Hero Honda Motors • Motor Cycles

• Hero Cycles • Cycles

• Munjal Showa • Shock absorbers

• Highway Cycles • Cycle components

• Rockman Cycles • Cycle components

• Munjal Auto Industries Ltd. • Auto components

• SunBeam Auto • Castings

5

SNAPSHOT OF HERO GROUP’S ACHIEVEMENTS SNAPSHOT OF HERO GROUP’S ACHIEVEMENTS

World’s largest two-wheeler manufacturer Owns world’s biggest selling motorcycle brand – Hero Honda SplendorWorld’s largest bicycle manufacturerHero Honda amongst top 3 Indian companies by Far Eastern Economic Review, 2002Deep market penetration with 5000 outlets22,000 plus employeesOver 55 million bicycles and 7 million motorcycles on Indian roadsRanked No. 1 amongst Indian automobile companies by Businessworld (Jan. ‘03)“Entrepreneur of the Year” award to the Group Chairman by Ernst &Young

Gross Revenues

Hero Group Financials

5101810

1998 2003

Net Profits

25

137

1998 2003

Networth

99315

1998 2003

CAGR = 29%

CAGR = 40%

CAGR = 26%

Figures in USD million

6

THE GROUP HAS WON SIGNIFICANT ACCLAIM AND RECOGNITION WITHIN THE BUSINESS COMMUNITYTHE GROUP HAS WON SIGNIFICANT ACCLAIM AND RECOGNITION WITHIN THE BUSINESS COMMUNITY

“One of top 30 brands in India” “Hero Honda among top 3 Indian companies”

Indian Businessman of the Year award for

Group Chairman

Entrepreneur of the Year award for

Group Chairman from Ernst & Young

Group’s management style acclaimed by • INSEAD, France• London Business School, UK• World Bank

Two of the group companies are the world’s largestmanufacturers Hero Honda – two wheelers and Hero Cycles -Bicycles

Economic Times - Harvard Business School award for Excellent Corporate Performance

7

Over Drive Magazine, May 2002Hero Honda Is World Production Numero Uno!

Boston Consulting Group has ranked Hero Group as one of the top ten Business Houses on Economic Value Added (EVA), in India

The Hero Group is recognized as a long term partner and an ideal employer:

Hero Group's partnership with Honda Motors, Japan is nearly 20 years old

Hero Cycles Limited has not lost a single man-day of production since 1956

HERO GROUP’S TRACK RECORD HAS ALSO BEEN ACCLAIMED BY HERO GROUP’S TRACK RECORD HAS ALSO BEEN ACCLAIMED BY

Hero Honda Is World LeaderNet Profit CAGR of 50% in last five years

8

HERO HONDA MOTORS IS ONE OF INDIA’S MOST SUCCESSFUL COMPANIES HERO HONDA MOTORS IS ONE OF INDIA’S MOST SUCCESSFUL COMPANIES

Revenues

244

1,093

97-98 02-03

CAGR: 35%

Net Profits

16

122

97-98 02-03

CAGR: 50%

Market share

97-98 02-03

Hero Honda

Others

100% = (mn units)

1.4 3.66

“The HHML scrip has found favor with investors as it has given consistently high returns”

– Economic Times

37 45

63 55

USD million

9

HERO HONDA WAS RANKED AT NUMBER 3 AMONGST THE TOP TEN INDIAN COMPANIES BY FAR EASTERN ECONOMIC REVIEW – 2002 REPORTHERO HONDA WAS RANKED AT NUMBER 3 AMONGST THE TOP TEN INDIAN COMPANIES BY FAR EASTERN ECONOMIC REVIEW – 2002 REPORT

10

FACTORS WHICH MADE HONDA, JAPAN PARTNER WITH HERO GROUP*FACTORS WHICH MADE HONDA, JAPAN PARTNER WITH HERO GROUP*

Honda selected the Hero Group for a variety of reasons, which included:

Its engineering capabilityRelevance and salience of HERO brandDistribution networkCommitment to QualityKnow-how and experience in handling large volume production and distributionTight focus on financial and raw material processesLow employee turnoverCordial Industrial Relations

* Source:London Business School Case study, 2000

11

HERO CYCLES IS THE LARGEST PLAYER IN THE BICYCLE SEGMENTHERO CYCLES IS THE LARGEST PLAYER IN THE BICYCLE SEGMENT

Sales: FY 2002-03*

Source: Prowess

56

94

132

(Cycles Business)

• Sales of Hero Cycles is about 1.4 times its biggest competitor even though Hero was not the first to set up cycles business in India

• Hero Cycles has now maintained its market leadership position over the last 2 decades

USD million

HERO Cycles Limited is a Guinness Book Record holder since 1986 as the world’s largest manufacturer of bicycles.Engineering Exports Promotion Council has awarded HERO Cycles with the Best Exporter Award for the last 28 years in succession.

12

THE HERO CYCLES GROWTH HAS BEEN THROUGH A TIGHT FOCUS ON FOUR KEY FACTORS: THE HERO CYCLES GROWTH HAS BEEN THROUGH A TIGHT FOCUS ON FOUR KEY FACTORS:

Action Action OutcomeOutcomeVisionVision Maintaining Maintaining GrowthGrowth

Aspiration of providing “cheapest” transportation to the poorest of India’s poor

Introduce “Value for Money” product

Sturdier product to meet rural demand

Ancillarisationand backward integration

Continuously improve productivity

Product well accepted

Production expanded from 25 cycles a day (1956) to 19,500 cycles a day (2003)

Competition shrank across India from 100 manufacturers to 4 major players

Expand markets

Rural Focus

Product Innovation

Technical Alliances

Integrated Backwards to remain cost-competitive and thus expand market share

13

HERO’S STRATEGY THAT MADE HERO CYCLES AND HERO HONDA GLOBAL LEADERS, REVOLVED AROUND 5 THEMESHERO’S STRATEGY THAT MADE HERO CYCLES AND HERO HONDA GLOBAL LEADERS, REVOLVED AROUND 5 THEMES

Hero Group NOT only as a “low cost provider” but also as “VALUE FOR MONEY” provider

Build strong alliances and relationships with all stakeholders in the chain

Benchmark against best global practices

Product Innovation keeping in mind the sensitivities of the target market

Strong culture of performance

14

CONSEQUENTLY THE VALUE PROPOSITION BY HERO TO MARKETS WAS BASED ONCONSEQUENTLY THE VALUE PROPOSITION BY HERO TO MARKETS WAS BASED ON

Thorough understanding of fast-changing consumer behaviour, new market segments and product opportunities through customer interaction & feedback

Investments in Technology upgradation

Using Foreign collaboration to assist in new design and production processes

Focus on “Quality”

Productivity and Profitability

15

TODAY HERO GROUP EXPORTS PRODUCTS & SERVICES ACROSS CONTINENTSTODAY HERO GROUP EXPORTS PRODUCTS & SERVICES ACROSS CONTINENTS

Exports bicycles, cycle components, motorcycles, mopeds and castings to more than 70 countries

The “IT initiative” of the Group exports services to US, UK & Australia

The Group encourages Vendors to be part of the Global supply chain

16

TO PROVIDE QUALITY PRODUCTS AND SERVICES, THE GROUP HAS JOINT VENTURES AND BUSINESS ALLIANCES WITH MANY WORLD CLASS COMPANIES

TO PROVIDE QUALITY PRODUCTS AND SERVICES, THE GROUP HAS JOINT VENTURES AND BUSINESS ALLIANCES WITH MANY WORLD CLASS COMPANIES

Honda Motors , Japan

Universal Cycles Plc, UK StyerDaimlerPuch, Austria

FienTools, Switzerland

Showa Mfg. Co., Japan

Siemens Info. Systems , India

“Hero Honda motors is the most successful Honda joint venture worldwide”

– K. Suzuki, Senior Managing Director,

Honda Motor, Japan

National Bicycle, JapanAprilia, Italy

SAP, IndiaNavision (Microsoft),India

EralMetall, Germany

LiveBridge,USA

17

HERO GROUP HAS ALWAYS BELIEVED IN GROWTH THROUGH PARTNERSHIPS AND SHARING THE FRUITS OF GROWTHHERO GROUP HAS ALWAYS BELIEVED IN GROWTH THROUGH PARTNERSHIPS AND SHARING THE FRUITS OF GROWTH

International Partnerships

Hero Honda Motors is the most successful Honda joint venture worldwide, functioning for nearly two decades

The relationship with Showa Mfg. Co., Japan is over 17 years oldand Munjal Showa is the largest manufacturer of shock absorbers in India

Partnership with Other Stakeholders

A large number of the 5,000 dealers have had a successful partnership with the Group for over four decades

The Group has helped develop a large number of vendors who have grown along with the companies and therefore have a strong commitment in the success of the business

The Group enjoys a very healthy respect amongst institutions including Banks, Central and State Governments

18

HERO GROUP’S SUCCESS HAS ALSO BEEN THROUGH ITS SIGNIFICANT INVESTMENT IN HUMAN CAPITALHERO GROUP’S SUCCESS HAS ALSO BEEN THROUGH ITS SIGNIFICANT INVESTMENT IN HUMAN CAPITAL

People Productivity

• Enhancing people performance and productivity by

- Training

- Retraining

- Incentivisation

Multiskilling

• To aid in employability

• Ensures horizontal mobility across trades

Group’s Values

• Human capital is the key “asset”

• Continuously invest in this asset

19

RECOGNISING SOCIAL RESPONSIBILITY, THE GROUP CONTRIBUTES ACTIVELY TOWARDS WELFARE OF THE SOCIETY THROUGH ITS NUMEROUS SOCIAL INITIATIVES

RECOGNISING SOCIAL RESPONSIBILITY, THE GROUP CONTRIBUTES ACTIVELY TOWARDS WELFARE OF THE SOCIETY THROUGH ITS NUMEROUS SOCIAL INITIATIVES

The Group has set up and is involved with:

• Schools

• Colleges

• Hospitals

• Vocational Training Centres

• Promotion of Sports and Sports persons

• Various community development activities and in improving rural and urban infrastructure

20

THE GROUP HAS DIVERSIFIED INTO THE SERVICES BUSINESS FOR GLOBAL CUSTOMERS AND ASPIRES TO BE A SIGNIFICANT PLAYER OVER TIME

THE GROUP HAS DIVERSIFIED INTO THE SERVICES BUSINESS FOR GLOBAL CUSTOMERS AND ASPIRES TO BE A SIGNIFICANT PLAYER OVER TIME

• Hero’s distinctive edge in all its businesses has been – World-class

project management

– Superior service orientation

• After attaining market leadership in motorcycles, Hero decided to enter into customer interaction services and software services because it can best leverage its distinctive skills/capabilities in these sectors

Hero Global Design

BPO/ Call centre services

Division ActivityCompany

Hero CorporateService

Training and Education

IT Services

Product Design & Engineering

21

RATIONALE FOR DIVERSIFICATION INTO SERVICES BUSINESS FOR GLOBAL CUSTOMERSRATIONALE FOR DIVERSIFICATION INTO SERVICES BUSINESS FOR GLOBAL CUSTOMERS

Hero Group’s Ability to Compete• The Group has a proven track record of managing long term relationships with its domestic as well as global partners

• The Group has demonstrated capabilities to manage a large pool of people (22,000 employees) which is a pre-requisite for success in this business

• The Group has consistently exceeded customer expectations by understanding their needs both expressed and implied

• The Group’ s value proposition is based on providing value for money by managing cost (without compromising on quality) and efficient use of resources

• The Group has attained leadership position through its service orientation

Given the India advantage and the Hero Group’s attributes, BPO Services business is a compelling case for diversification with a fairly high likelihood of success

22

HERO GROUP FINANCIALS – Over the years

HERO GROUP FINANCIALS – Over the years

23

HERO GROUP: GROWTH IN REVENUESHERO GROUP: GROWTH IN REVENUES

1810

1455

1110

829

618510

0

200

400

600

800

1000

1200

1400

1600

1800

2000

1997-98 1998-99 1999-00 2000-01 2001-02 2002-03

US$

Mn.

CAGR = 29% over the last

5 years

24

HERO GROUP: GROWTH IN NET PROFITSHERO GROUP: GROWTH IN NET PROFITS

2539

5570

120137

0

20

40

60

80

100

120

140

160

1997-98 1998-99 1999-00 2000-01 2001-02 2002-03

US$

Mn.

CAGR = 40% over the last

5 years

25

HERO GROUP: MOVEMENT OF RETURN ON EQUITYHERO GROUP: MOVEMENT OF RETURN ON EQUITY

34.2%

32.3%

29.3%

33.50%

45.80%

45.90%

0%5%

10%15%20%25%30%35%40%45%50%

1997-98 1998-99 1999-00 2000-01 2001-2002 2002-03Year

26

SUMMARISING SUMMARISING

27

HERO GROUP HAS BUILT LEADERSHIP POSITIONS PRIMARILY DUE TO ITS BELIEF IN THE FOLLOWING PRINCIPLESHERO GROUP HAS BUILT LEADERSHIP POSITIONS PRIMARILY DUE TO ITS BELIEF IN THE FOLLOWING PRINCIPLES

Understanding stakeholder (incl. international partners and customers) expectations and delivering value for money

Managing relationships

Creating a Performance culture

“Partnership Approach” with ancillaries

Efficient Current Asset Management

Accepting and using ever changing technology as a facilitator

Strong quality and process orientation

28

RESULTS OF GROUP INITIATIVESRESULTS OF GROUP INITIATIVES

The Group’s philosophy of empowering and training human capital, use of appropriate technologies, constantly being close to the customer and maintaining a healthy work environment with the highest standards of ethics and corporate governance has resulted in the Group companies excelling in their chosen field through a service attitude year after year, leading to impressive financials and healthy returns to all stakeholders

29

THANK YOUTHANK YOU