Hero Motocorp Annual Report 2012-13

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    2012-13ANNUAL REPORT

    Hero MotoCorp Ltd.

    TECHNOLOGY AND IMAGINATION AREEXTENDING HORIZONS AT

    FUTUREREADY

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    In this Annual Report, we have disclosed forward-looking information to enable investors to comprehend our prospects and takeinvestment decisions. This report and other statements - written and oral that we periodically make contain forward-looking statementsthat set out anticipated results based on the managements plans and assumptions. We have tried wherever possible to identify suchstatements by using words such as anticipate, estimate, expects, projects, intends, plans, believes, and words of similar substancein connection with any discussion of future performance. We cannot guarantee that these forward-looking statements will be realised,although we believe we have been prudent in assumptions. The achievements of results are subject to risks, uncertainties, and eveninaccurate assumptions. Should known or unknown risks or uncertainties materialise, or should underlying assumptions proveinaccurate, actual results could vary materially from those anticipated, estimated, or projected. Readers should keep this in mind. We

    undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events orotherwise.

    Forward-lookingStatement

    Management Discussionand Analysis33

    Directors Report56

    CorporateGovernance Report62

    Contents

    00 Accelerating at Full Throttle

    02 Accelerating at Full Throttle

    06 Performing for the Long Term

    08 Fundamentals Steer FutureStrategies

    10 Chairmans Message

    12 Managing Directors Insight

    16 Technology Leadership

    18 Strategic Global Forays20 Creating a Customer-facing

    Ecosystem

    22 Smart Ideas. Smarter Brands.

    24 Our Winners on Roads

    26 Awards and Recognitions

    27 Making Sense of Green

    28 Decade at a Glance

    29 Economic Value-added (EVA)

    Statement30 Board of Directors

    32 Corporate Information

    Corporate Overview01

    112 Independent Auditors Report

    116 Balance Sheet

    117 Statement of Profit and Loss118 Cash Flow Statement

    120 Notes to the Financial Statements

    Financial Statements112

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    For Hero MotoCorp, technology andimagination are playing a bigger rolethan ever before.

    Imagination to oresee socialmegatrends and customer aspirations.

    Imagination to identi y and invest in

    potential markets across the world.

    And to choose top-tier technologyto turn smart ideas into reality.

    We are ramping up existing capacities,driving new expansion plans, creatinga stronger R&D plat orm, penetratinginto new markets and enhancing brandvisibility.

    Emerging, in turn, as a future-readyglobal enterprise.

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    Accelerating at

    Full ThrottleFor nearly three decades, we have been working tirelessly toprovide innovative mobility solutions to global customers, withspecial emphasis on the evolving aspirations o youth. This isbecause the global youth brigade represents unabated dynamism,

    our core brand philosophy.

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    46% 53.2%MARKET SHARE INTHE DOMESTIC TWO-WHEELER MARKET

    MARKET SHAREIN THE DOMESTICMOTORCYCLE MARKET

    47.77million

    TWO WHEELERS SOLD AS ON DATE

    OUR MISSIONHero MotoCorps mission is to become a global enterprise ul illing itscustomers needs and aspirations or mobility, solidity and sturdiness.

    We aim to set benchmarks in technology, style and quality to convert itscustomers into brand advocates.

    The Company provides an engaging environment for its people toperform to their true potential. It aims to continue its focus on valuecreation and enduring relationships with its partners.

    OUR VISIONThe story o Hero Honda began with a simple vision that o a mobileand empowered India, powered by its bikes.

    The Companys new identity Hero MotoCorp Ltd. reflects itscommitment towards providing sturdy and solid world-class mobilitysolutions with a renewed focus on steadily moving ahead andexpanding the footprint in the global arena.

    FOCUSED STRATEGY Our key strategies ocus on building asteady and robust product port olio across

    categories and explore growth opportunitiesglobally. We also seek to continuouslyimprove upon operational efficiency,aggressively expand our customer reach,invest in brand-building activities and ensurecustomer and shareholder delight.

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    Accelerating at

    Full Throttle

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    PRODUCT BASKETWe offer one o the widest ranges o two-wheelers with over 19 different products across the 100 cc, 125 cc, 150 cc, 225 cc andscooter categories.

    OPERATING LOCATIONSTwo o our manu acturing plants are basedat Gurgaon and Dharuhera in Haryana (India)and one manu acturing plant is located atHaridwar, Uttarakhand (India). The combinedannual installed capacity is approx. 6.90million units.

    ENHANCING REACHWe have one o the most extensive customerreaches with 5,800+ pan-India touch points with deepening presence across 1,00,000+villages.

    We are consistently expanding our ootprintacross Asia, Central & Latin America andA rica.

    BEST-IN-CLASS PRACTICESOur benchmarked processes and operationsare ISO 9001 (Quality Management Systems),

    ISO 14001 (Environmental ManagementSystems) and OHSAS 18001 (OccupationalHealth and Sa ety Management Systems)certi ied.

    FOR SHAREHOLDERSOur shares are listed on the BSE Limited andNational Stock Exchange o India Limited.Our market capitalisation as on March 31,2013 was ` 30,792 crores. Moreover, we

    recommended a dividend of 3000% in 2012-13, i.e. ` 60 per equity shareo the ace value o ` 2 per share.

    HUMAN CAPITALWe have highly motivated and experiencedteam o over 5,800 people.

    EXPANSION AGENDA We are creating capacities to ensuresustainable long-term growth by:

    Setting up a ourth plant at Neemrana inRajasthan with an annual installed capacityo 750,000 units

    Setting up a ifh plant at Halol in Gujarat,with an annual installed capacity o 1.2million in the initial phase, which will growto 1.8 million in the next phase

    Setting up a new state-o -the-art integratedR&D centre at Kukas, Rajasthan

    Consistent expansion across all threeexisting plants

    Setting up a Global Parts Centre (GPC)at Neemrana, Rajasthan

    6.90million units

    THE COMBINED ANNUAL INSTALLED CAPACITYOF OUR PLANTS IS 6.90 MILLION UNITS

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    Performing for the Long Term

    12-13

    11-12

    10-11

    09-10

    08-09

    6,075,583

    6,235,205

    5,402,444

    4,600,130

    3,722,000

    12-13

    11-12

    10-11

    09-10

    08-09

    12-13

    11-12

    10-11

    09-10

    08-09

    12-13

    11-12

    10-11

    09-10

    08-09

    PRODUCTSALESNumber o Units

    EARNINGS PERSHARE`

    PROFIT BEFORETAX` crores

    TOTAL NETINCOME` crores

    18.1%FIVE-YEAR CAGR

    12.7%FIVE-YEAR CAGR

    17.0 %FIVE-YEAR CAGR

    12.4 %FIVE-YEAR CAGR

    24,166

    23,944

    19,688

    16,099

    12,565

    106.1

    119.1

    96.5

    64.2

    111.8

    2,529

    2,865

    2,405

    2,832

    1,781

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    12-13

    11-12

    10-11

    09-10

    08-09

    12-13

    11-12

    10-11

    09-10

    08-09

    12-13

    11-12

    10-11

    09-10

    08-09

    12-13

    11-12

    10-11

    09-10

    08-09

    PROFIT AFTER TAX` crores

    RETURN ON AVERAGECAPITALEMPLOYED%

    ECONOMIC VALUE ADDED` crores

    STABLEDIVIDEND PERSHARE`

    17%FIVE-YEAR CAGR

    DISTRIBUTION OF REVENUE DISTRIBUTION OF REVENUE

    2,378

    2,118

    1,928

    2,232

    1,282

    50.9

    76.4

    62.3

    58.9

    47.8

    1,334

    1,677

    1,376

    1,723

    835

    60

    45

    105

    20

    110

    2012-13 2011-12

    Particulars ( ` crores) (%)MATERIALS 17,397.66 66.76OPERATIONS &OTHER EXPENSES

    2,265.05 8.69

    TAXES AND DUTIES 2 ,302.84 8 .84EMPLOYEES 820.92 3.15INTEREST 11.91 0.05DEPRECIATION 1,141.75 4.38SHAREHOLDERS ANDRESERVES & SURPLUS

    2,118.16 8.13

    TOTAL 26,058.29 100

    Particulars ( ` crores) (%)MATERIALS 17,281.57 67.51OPERATIONS &OTHER EXPENSES

    1,943.16 7.59

    TAXES AND DUTIES 2 ,142.57 8.37EMPLOYEES 735.52 2.87INTEREST 21.30 0.08DEPRECIATION 1,097.34 4.29SHAREHOLDERS ANDRESERVES & SURPLUS

    2,378.13 9.29

    TOTAL 25,599.59 100

    7CORPORATE OVERVIEW STATUTORY REPORTS FINANCIAL STATEMENTS

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    Fundamentals

    Steer Future StrategiesAmid the shifing dynamics o global markets, customerscount on Hero as a reliable manu acturer o products,services and solutions to meet their evolving aspirations.This hard earned trust represents the oundation o our

    business sustainability and uture growth.

    CONSISTENT VALUEWe are setting up a state-o -the-artGlobal Parts Centre (GPC) spreadover 35 acres at Neemrana with aninitial ` 160-crores investment. Thistechnologically advanced GPC willbe a new industry benchmark onceit becomes ully-operational. TheGPC will have an automated storageand retrieval system, automatedpackaging and sorting system,on-line tracking o parts throughwarehouse management system(WMS), lean manu acturing systems,and will ollow the green buildingconcept. Moreover, during 2012-13,we commenced the construction oour ourth manu acturing plant anda new Global Parts Centre (GPC) atNeemrana in Rajasthan.

    HERO WARRANTY We are Indias irst company tooffer a 5-year warranty on all ourtwo-wheelers*. This is also anexpression o our con idence in thequality o our products, backedby strong R&D and excellentmanu acturing capabilities. Thisinitiative has resulted in strongcustomer commitment and trust,which will urther strengthen ourmarket position.

    *(5 years or 70,000 km on motorcycles, whicheveris earlier; and 5 years or 50,000 km on scooters,whichever is earlier)

    LAUNCHED 125CC -HERO IGNITOR

    LAUNCHED 110CC -PASSION XPRO

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    ENDORSING GREENHero Terra Quiz aims to inculcategreen practices, create awarenessand raise environmentalconsciousness in youth. As a parto this initiative, we reached2.5 lakh students across 2000schools, spreading the message o

    green in the orm o green Olympiadexamination, workshops, bannersand displays.

    KEY SPONSORSHIPSHero Sa Re Ga Ma Pa has been oneo the most popular music realityshows. In addition to the corporatebrand Hero, product brands (Ignitor,Splendor, Glamour and Pleasure)were integrated in the show toenhance our association with theshow and also to bene it rom the

    shows popularity.

    ENTERED THE RACING ARENA Hero MotoCorp debuted in theexciting world o internationalmotorcycle racing by participating atthe AMA Pro Racing National GuardSuperbikes Championship in the US.

    EASY FINANCINGWe started our own retail inance arm Hero FinCorp. We have a phase-wise expansion o Hero FinCorpservices.

    Already launched in Delhi, the retailinancing services will shortly beextended to the National CapitalRegion (NCR) and then to the resto the northern market in the nextphase

    The initial plan is to make HeroFinCorp services available at about200 dealerships in various partso the country by March 2014,and extend it to as many as 450dealerships by March 2015

    We also offer easy inancingoptions to customers through ourpartner- inanciers HDFC, IndusInd

    Bank, Shriram City Union FinanceLtd and Fullerton

    During FY 2012-13, wecompleted our processo migration to the new

    Hero brand

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    Chairmans Message

    Dear Shareholders

    Exactly three decades ago, and not very ar rom where I am sittingright now, I penned my irst message to you. It was a messagebased on cautious optimism about an India Story that would un old.Thirty years later, India is a trillion dollar economy and Hero is a` 22,000- crores story.

    Brijmohan Lall MunjalChairman

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    In my previous message, I shared with you the joy that the MD and I experienced afer yourCompany was inally able to ly un etteredand ree. With this sense o independence andstrength, your Company ully completed itsbrand transition or its port olio o products rom Hero Honda to Hero during the year inreview, two years be ore schedule. O course,to continue lying ree, birds need to ul iltheir responsibilities. On occasion, they needto nest, and ind the right partners. At othertimes, they need to mentor their young, sothat growth and li e can begin a new, and withrenewed vigour.

    2012-13 was a year o nesting or HeroMotoCorp. It was a period or rechargeand renewal. We quietly completed thegroundwork or a world-class technologycentre, additional capacity expansion,spare part augmentation and an ambitiousinternational oray. Your Company hasnurtured three alliances. These are beginningto deliver results that have exceeded ourexpectations. Pawan will talk about some othe milestones that have been crossed, as wellas some o the plans to take Hero global. I amcon ident that in the coming months, thesewill emerge as strong sources o strategicadvantage or Hero MotoCorp.

    There is, o course, the interim to deal with.Adverse economic conditions coincided withthe nesting period during FY 2012-13. Thetwo wheeler industry witnessed one o itsworst per ormances in a decade. In 2012-13,two-wheeler customers bravely weatheredhigh in lation, steep petrol prices and interestrates. While these headwinds continued during

    the year under review, a poor crop eroded theearnings and consumption potential o ruralbuyers dependent on the arm sector. Acrosscities, a sluggish service sector resulted inlower increments, widespread job uncertaintyand weakening demand.

    Hero MotoCorp too ound the goingchallenging, especially in the second hal o theyear. This was owing to continuing economichardship and also partially because yourCompanys product pipeline is in transition.Despite this adversity, three o the our

    products that were launched under the new

    brand ound resonance among customers,and Hero MotoCorp enjoyed a record-breakingestive season.

    I I look back, on every setback the two wheelerindustry has suffered over the past decade.I notice that every trough is ollowed by arecovery in demand. There ore, I am positivethat a good monsoon, plus a possible increasein government spending in the run-up tothe 2014 elections, will increase consumerspending in the short term. However, as I havementioned in my earlier communicationsas well, it is the medium-to-long term utureplaying out in the Indian countryside that I amreally excited about.

    We have seen the MNREGA scheme is puttingmore money in the hands o rural people inthe orm o higher wages. The 2011 Censushas re-classi ied 2500 large villages as censustowns. These settlements are mostly non-dependent on agriculture or livelihood andare experiencing rapid growth. Such driverso rural prosperity, coupled with the on-goingdirect bene iciary trans er scheme -- wheresubsidies will be paid directly to millions o

    bank accounts will trans orm those parts oIndia that have underper ormed or decades.

    Against this backdrop, companies, such asyours, which has ew peers when it comesto cost o ownership, distribution, reachand service are poised to bene it rom thistrans ormation the most. Buying a motorcycleor a scooter is not the same as buying a TV or amobile phone. There are recurring costs, whichcan only be effectively met through a strongsales and distribution network.

    Our strengths in these areas are strategicadvantages simply because they are difficultto scale and replicate quickly. In the comingyears, we will do what it takes to maintainthese advantages, so that we can maintain andgrow our leadership position.

    So keep the aith, and stay invested in us.

    With regards,Brijmohan Lall Munjal

    Chairman

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    2012-13 was a signi icantly challenging year orthe economy, or the seemingly recession prootwo wheeler industry, and or Hero MotoCorp.Not surprisingly, Hero MotoCorp remainedanchored in reality. There were a number odisappointments in the orm o lower sales anddecline in pro itability. At the time o writing,with GDP growth having notched its worst in adecade, it seems the irst ew quarters o

    2013-14 may remain disappointing. Yet I remain fundamentally positive.

    Despite the recessionary conditions, weare con ident about acing the uture. It isrelevant to mention in this context that theconstruction o our ourth plant and our globalspare parts centre in Rajasthan is progressingin ull swing. The global parts centre will havean automated storage and retrieval system, anautomated packaging and sorting system, andan on-line tracking o parts through warehousemanagement system.

    Over the next ew months, we are planningseveral new launches that will include newproducts as well as upgrades.

    Afer debuts in Sri Lanka and Nepal, ourproducts are now selling across a number ocountries in Central America and A rica. Ourootprint across both these new regions, aswell as South America, will increase in thecoming months, with the appointment o newdistributors, showrooms and workshops. Tosupport our global oray, we have alreadyset up assembly operations in Sri Lankaand Kenya. A new vertical, with dedicated

    I have always believed that to be persuasive, wemust irst be believable; to be believable, we mustbe credible; to be credible, we must be truth ul.

    Here is the truth.

    Managing Directors Insight

    manpower has also been created to drive theinternational push.

    We have also set up our irst off-shoresubsidiaries in the Netherlands and the US.These arms will not only catapult our globalexpansion, they will also explore overseasinvestments and merger and acquisitionopportunities.

    All our products are now Hero branded.Three o the our new products launchedunder Brand Hero are resounding successes.To sustain this momentum, we are realigningour sales and marketing structure, in India andin other continents, to make it more ocussedand penetrative.

    To emerge as a powerhouse in technology, weare working at different levels with our threetechnology partners: AVL o Austria, EBR o theUS and EE o Italy. O course, our attempt is tobecome sel -sufficient as quickly as possible.

    I am delighted to in orm you that work is onto build what we hope will be Indias largestdesign and development ecosystem. A world-renowned architect has blueprinted a state-o -the-art acility that will come up over 250 acreso land in Kukas near Jaipur. A consortium oglobal experts are helping us develop test-tracks and technologies suited to overcometerrain and traffic conditions, not just in India,but or each o the markets we are entering.

    This centre will have an optimal mix o worldclass hardware and sofware and will be theulcrum rom where our uture products willuncoil and spring.

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    Pawan MunjalManaging Director and CEO

    New product development has moved wellbeyond the design board, and I am delightedwith the work in progress. The heart o themotorcycle is the engine, and I am happy toreport that we have success ully test- ired anew 100 cc engine and a 250 cc engine. As I

    mentioned earlier, several new launches are onthe anvil.

    For a number o years, we, at Hero, wereused to an execution paradigm when itcame to R&D; now, the rules o the gamehave completely changed, and we have nowembarked upon an enormously exciting journey based on creation and discovery.

    O course, no company can sustain itsel , ipro itability doesnt orm the cornerstone oits business philosophy. Operating marginsat Hero MotoCorp have come under severe

    pressure and have slipped to single digits orvarious reasons. Such pressures are unlikelyto abate in the near uture unless we takemeasures on a war ooting.

    I am pleased to announce that, we havelaunched a Margin Trans ormation project,aiming to emerge as Indias top-tier playerin terms o productivity and cost excellence.The project is working extremely well on theground. As I write this, cross- unctional teams,along with third-party experts are hard at workon multiple projects that aim to make ours aleaner and more productive company. I ampersonally committed to this initiative.

    Your Company has also launched two otherprojects that are potentially trans ormational.First, we have set up third-party assessmentcentres to assess employee and leadershippotential the idea is to identi y leaders or theuture, without carrying some o the legacy

    baggage o an in-house review system. Thesecond potentially game-changing initiativeis a unique Hero Ideas portal. This portal actsas a bridge that connects me directly withbright young per ormers and acilitates cross-pollination o ideas to promote and sustain aculture o seamless innovation across all levels.

    Hero had a glorious and chequered past. ButI have always believed that the past is likeusing a rear view mirror while driving. It isgood to glance back and see how ar you havetravelled. But i we stare too long, we will miss

    what is right in ront o us.Looking ahead, I oresee the emergingtailwinds o recovery and opportunitygradually overcoming the headwinds ocompetition and economic hardships.

    With regards,Pawan Munjal Managing Director and CEO

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    AT HERO

    MOTOCORP,FUTURE-READYIS NOT A

    PHILOSOPHICALSTATEMENT.

    ITS ANON-GROUNDREALITY.

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    In a constantly evolving global business landscapecreating the right value proposition for the relevantcustomer is a key challenge. Technology representsan important piece in the entire puzzle.

    At Hero MotoCorp, we are strengthening strategicalliances and technological tie-ups with globalmajors to create an unmatched value proposition forthe targeted customer.

    STRATEGIC MOVEWe are investing USD 25 million or a totalstake o 49.2% in the share capital o ourUS-based partner Erik Buell Racing (EBR).This equity partnership is a natural extensiono our existing relationship with EBR, whichis going to urther strengthen our strategicalliance. The investment in EBR is being donethrough Hero MotoCorps newly incorporatedwholly owned American subsidiary - HMCL(NA), Inc.

    The equity partnership with EBR re lectsour long-term vision o trans orming HeroMotoCorp to a truly global two-wheeler majorwith ootprints spread across continents,offering a wide range o technologicallyadvanced two-wheelers.

    OTHER MAJOR TIE-UPS Partnership with well known Italiantwo-wheeler design irm EnginesEngineering or next-generation productline-up. Engines Engineering will imparttechnological know-how in terms osuperior design or our uture products.

    Strategic alliances with the US-based ErikBuell Racing (EBR) or high-cc bikes andAustria-based AVL or engine technologies.We have also been scaling up our own in-house R&D capabilities.

    Forged an alliance with AVL, Austria,a global leader in engine design anddevelopment to develop differentcategories o engines.

    10 million units

    TARGETING TO ACHIEVE ANNUAL SALES OF 10MILLION UNITS IN THE NEXT FEW YEARS

    Future Ready is

    TECHNOLOGYLEADERSHIP

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    Hero MotoCorp is already a global brand. Our strategy-next is to widen visibility across high-potential marketswith a single objective: achieve 10% of our totalvolumes from international business in the next four

    to five years.

    ENTRY INTO NEPALWe entered into a partnership withthe reputed business house NGMto oray into Nepal. NGM has beenappointed as the distributor o HeroMotoCorp range o two-wheelers inNepal.

    ENDORSED BY ICONS

    Nepalese cricketer and youth iconBinod Das introduced the 150cchigh per ormance motorcycle -Hero Xtreme

    Miss Nepal 2012 Ms ShristhiShrestha unveiled the scooter Pleasure

    SRI LANKAN FORAY We entered into a partnership with thereputed ABANS Group o Sri Lanka.Under the alliance, ABANS has beenappointed as the sole distributor oHero MotoCorp range o two-wheelersin Sri Lanka.

    PRODUCTS LAUNCHED IN SRI LANKA

    Entry-level segment: HF Deluxe andHF Dawn

    Deluxe segment: Pro, SplendorNXG, Super Splendor, Glamour andPassion Pro

    Premium segment: Karizma ZMR,Hunk, Xtreme and Achiever

    Scooter: Pleasure

    FOOTPRINTS ACROSSCENTRAL AMERICA We launched our range o two-wheelers in Guatemala City, ElSalvador and Honduras, marking theiconic Indian brands irst oray intonew international markets.

    A partnership has been

    orged with Indy Motos Groupo Guatemala to bring itstwo-wheelers to these markets

    Under the alliance, Indy Motos hasbeen appointed as the authoriseddistributor o Hero MotoCorp rangeo two-wheelers in Guatemala,Honduras andEl Salvador

    Products will be distributedthrough a network o outlets

    spread across these countries,with more new outlets to be addedsubsequently

    Launched Hunk, Karizma, Glamour,HF Dawn, Splendor NXG, SuperSplendor and Achiever across thesemarkets

    Future Ready is

    STRATEGICGLOBAL FORAYS

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    At Hero MotoCorp, we are creating an effective ecosystem to ensure

    one o the widest and deepest visibilities across a multi-layeredIndian market. As customer aspirations are ever evolving, noiron-cast strategy works. There ore, we are consistentlystrengthening the entire network o customer touch points (over5,800) to respond to changing realities.

    FRONTLINE SKILL ENHANCEMENTWe have rolled out an array o skill up-gradation programmes or our pan-Indiachannel partners. This is part o a constantendeavour to upgrade the showroom andworkshop experience or customers.

    More than 50 indigenously developedprogrammes were organised, cutting acrosschannel partner unctions

    12 state-o -art technical learning centresimparted best-in-class learning experienceto all service staff members

    The training programmes ocus toenhance knowledge, skills and individualbehavioural competence

    National level competitions are organisedto enhance competitiveness; and to identi yand reward dealers, channel partners andstaff members

    More than 35,000 dealer staff bene itedrom various learning programmes during2012-13

    KEY TRAINING PROGRAMMESvLead Empowering People, EnablingProcesses: vLead has been designedand developed to help dealers deliver acustomer experience that sets a new industrybenchmark. It puts in place a system thatmakes continuous capability building a parto a dealerships culture. It also enablesthe dealership to constantly enhance thecapability o its work orce.

    Technology Wave (iLMS): This is a web-basedapplication that manages the completedatabase o employees working withchannel partners. The application capturesthe learning, development and careerprogression o each employee. We havealready imported complete work orce datao employees working at sales unctions tocreate uni ied sofware.

    Diksha Facilitator DevelopmentProgramme: This initiative aims to equipour acilitators with increased knowledgeand make them uture ready. It is animportant plat orm or cross ertilisation oideas and generates competitive intelligencethrough activity-based sessions.

    Future ready is

    CREATING ACUSTOMER-FACINGECOSYSTEM

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    Smart Ideas. Smarter Brands.

    At Hero MotoCorp, we believe the journey o great brands startsrom smart ideas that enrich li e in more ways than one. There ore,its not just about the immediate convenience or the com ort aparticular brand brings to the customer. Its essentially about howit adds a new perspective to li e.

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    VROOM VROOM CAMPAIGNHero MotoCorp has been known or itsexceptional mileage delivery across itsproduct range over the last 28 years. Who canorget the legendary Fill it, Shut it, Forget itcampaign that captured the imagination oIndia and catalysed the biking revolution.

    Considering the rising uel prices, our mileagepromise becomes ever more relevant rom acustomers perspective. To give wings to ourpromise, an exciting, resh, simple, youth uland un TV campaign titled Vroom Vroom wasaired on television.

    With a peppy soundtrack, youth ul imageryand a catchy re rain to set eet tapping, thecampaign had the nation go Vroom Vroom!

    SPLENDOR LAGE AISA, FAMILYJAISA The Splendor campaign Lage Aisa, FamilyJaisa highlights what customers have knownall along in their hearts. Set to a pulsatingtone, the advertisement depicts snippetsin the li e o Splendor customers, and howondly they relate to Splendor.

    GLAMOUR NAIN MATAKA LAGA REThe attraction ormula o Glamour waslaunched through a new campaign with anextremely catchy song Nain Mataka Laga Re.The song depicts how girls want to be on theback seat o Glamour the moment they seethe bike. The lyrics o the song cleverly weavesome o the product eatures into it as well.

    PLEASURE WHY SHOULD BOYSHAVE ALL THE FUN?Hero Pleasure has delivered strong socialmessages about women in a un ormat. HeroPleasure takes up this cause as Priyanka andher riends decide to have un in the night,and deliver a stinging message to the boy

    next door - Raat Mein Fun Pe Brake Kyun?(Why should the un stop at night?)

    XTREME LIVE OFF THE EDGEXtreme has stood or the daredevils whowant adventure, action and thrills in theirli e. Staying true to the brands character, theXtreme campaign brings alive the promise oLiving Off the Edge. The campaign is basedon the insight that we all have an extremeside to us, executed through a ormat ointeresting contradictions. The campaigneatures our dynamic brand ambassador,Ranbir Kapoor.

    MAESTRO SUCH A BOY THINGThe Maestro campaign squarely positionedthe product as the scooter or the cool boys.It upended the traditional perceptions oscooters not being cool enough or boys, whopre er to drive a motorcycle over scooters.

    IGNITOR JEET KI CHINGARIThe new Ignitor campaign launched the bestlooking 125cc bike in the market, with greatper ormance to match. The bike is positionedor the impatient youth o today, or whomsuccess in pro essional li e is extremelyimportant. It acknowledges their smartthinking and their unique take on buying abike as an investment in their pro essionalcareer.

    PREMIUM SEGMENT CAMPAIGNHero MotoCorp has an exciting range opremium bikes that were showcased ina thrilling Hollywood style blockbusteradvertisement eaturing Ranbir Kapoor. Heplays an action hero in the ilm using Xtreme,Impulse, Hunk and ZMR bikes. Set in theexotic locales o Hungary, the campaigndemonstrates the versatility o the HeroMotoCorp premium bikes in an edge-o -the-seat action adventure ormat.

    18 million Vroom Vroom

    SPLENDOR IS AN 18-YEAR-OLD BRAND WITH

    MORE THAN 18 MILLION HAPPY CUSTOMERS ACROSS INDIA

    VROOM VROOM CAMPAIGN WON THE NDTVCAR AND BIKE BEST COMMUNICATION AWARD

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    100 cc

    150 cc

    Our Winners on Roads

    SPLENDOR PLUS

    PASSION PRO

    ACHIEVER

    SPLENDOR PRO

    SPLENDOR NXG

    KARIZMA

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    110 cc

    225 cc

    MAESTRO PASSION XPRO

    125 cc

    SUPER SPLENDOR

    IGNITORGLAMOUR

    KARIZMA ZMRFor complete range please re er to thewebsite www.heromotocorp.com

    25CORPORATE OVERVIEW STATUTORY REPORTS FINANCIAL STATEMENTS

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    Awards and Recognitions

    Awarded the Business Leader inAutomobiles (two-wheelers) at the NDTVPro it Business Leadership Awards 2012

    Con erred with the Best Value or MoneyBike Maker and Best Advertising in Two-Wheelers Category at the Auto India BestBrand Awards 2012

    Received the Digital Advertiser o the Yearat the Indian Digital Media Awards (IDMA)2012

    Won three awards (Launch Event o the Year, Rural Engagement Progamme andLive Patron Award or Marketing Excellence)at the WOW Awards organised by EventFAQs

    Con erred with the Advertiser o the Year2012 by Indian Digital Media Awards 2012

    Awarded the Innovation in LoyaltyMarketing Award (Initiative: Hero GoodLi eUtsav) by Colloquy Loyalty Awards

    Bestowed with the TPM Excellence Award2012 by JIPM (Japan Institute o PlantMaintenance)

    HUMAN RESOURCE AWARDSAwarded at the World HRD Congress in the

    ollowing categories:

    Best Learning & Development Award

    Asias Third Best Employer Brand Award ET Now Talent & HR Leadership Award

    8th Recruiting and Staffing Best-in-ClassAward

    Global HR Excellence Award

    India Human Capital Award by HumanCapital

    Best Garden in Industrial Area andBest Award in the Individual Category(Horticultural Competition) by HUDA

    INFORMATION TECHNOLOGY AWARDS

    Business Technology ExcellenceAwards 2012

    Business Technology InnovationAwards 2012

    AWARDS 2012 BY DATAQUEST Top Green IT Enterprise Award by APCSchneider

    Quality Circle Excellence Award by NationalConvention QC 2012

    BUSINESS LEADER IN AUTOMOBILES (TWO-WHEELERS) AT THE NDTV PROFIT BUSINESS LEADERSHIP AWARDS 2012

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    Making Sense of Green

    Environmental sustainability lies at the core oour manu acturing practices and we have beencontinuously introducing new steps in this regards.

    We have proactively restricted the use omercury and cadmium in painting and rubbercompounding processes. All plastic parts atour acilities come in a moulded orm, whichacilitates easy recyclability at the end o avehicles li e cycle.

    We have also installed a waste heat recoverysystem to utilise waste heat rom its gasgenerator. This enabled us to save 4,000Standard Cubic Metre (SCM) o natural gasand thereby, prevent 2,600 tonnes o CO 2 emissions.

    We also installed a vapour absorptionmachine, which enabled us to reduce 400TR (340 KW) o electrical energy, therebysaving 524 tonnes o CO2 emissions annually.We also recycled paint sludge rom itspaint processes, which is 5-10% o the totalvolumes o paint sludge generated.

    Our products once used to rely on asbestos-based parts. However, they have now beenreplaced with non-asbestos based parts,

    which include brake liners, gaskets and otherassembly parts. Similarly, lead was replacedby lead- ree materials. Hazardous chemicalslike hexavalent chromium were substituted inthe plating process.

    CONCEPT HYBRID SCOOTEROur concept Hybrid Scooter Leap wasunveiled in the 2012 Auto Expo in Delhi. Theconcept o Series Hybrid is uel productiveand eco- riendly. Leap runs primarily onbattery in urban conditions and will use rangeextender gasoline engine or long runs. Theproduct is at the pre-launch stage and will belaunched in the near uture.

    GREEN VENDOR DEVELOPMENTPROGRAMMEThe Green Vendor Development Programmeis a landmark initiative that disseminates andembeds green practices among suppliers. We jointly embarked on this with our suppliers topropagate an environment- riendly approachor its supply chain.

    130suppliers

    130 SUPPLIERS ARE PART OF THE GREEN VENDOR DEVELOPMENT PROGRAMME

    31.8million units

    6,571 KILOLITRES OF WATER AND 31.8 MILLION

    UNITS OF ELECTRICITY SAVED THROUGH THEGREEN VENDOR DEVELOPMENT PROGRAMMESINCE ITS INCEPTION

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    Decade at a Glance2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13

    SALES

    TOTALINCOME

    NET SALES

    PROFITBEFORE TAX

    PROFIT AFTER TAX

    OPERATINGMARGIN

    OPBDITMARGIN

    EARNINGSPER SHARE

    DIVIDENDPER SHARE

    DIVIDEND

    (NOS.) 20,70,147 26,21,400 30,00,751 33,36,756 33,37,142 37,22,000 46,00,130 54,02,444 62,35,205 60,75,583

    GROWTH (%) 23.4 26.6 14.5 11.2 0.01 11.5 23.6 17.4 15.4 -2.6

    FIVE-YEAR CAGR (%) 18.5 14.7 12.4 11.9 12.5 13.3 12.7

    (` CRORES) 5,997 7,559 8,870 10,090 10,517 12,565 16,099 19,688 23,944 24,166

    GROWTH (%) 15.5 26 17.4 13.7 4.2 19.5 28.1 22.3 21.6 0.9

    FIVE-YEAR CAGR (%) 17.3 15.1 15.9 16.3 17.3 18.9 18.1

    (` CRORES) 5,832 7,422 8,714 9,900 10,332 12,319 15,758 19,245 23,368 23,583

    GROWTH (%) 14.3 27.2 17.4 13.6 4.4 19.2 27.9 22.1 21.4 0.9

    FIVE-YEAR CAGR (%) 17.3 15.2 16.1 16.3 17.2 18.7 17.9

    (` CRORES) 1,072 1,217 1,412 1,246 1,410 1,781 2,832 2,405 2,865 2,529

    GROWTH (%) 21.2 13.5 16 -11.8 13.2 26.3 59 -15.1 19.1 -11.7

    FIVE-YEAR CAGR (%) 12.4 9.8 10.7 18.4 11.2 18.1 12.4

    (` CRORES) 728 810 971 858 968 1,282 2,232 1,928 2,378 2,118

    GROWTH (%) 25.4 11.3 19.8 -11.7 12.8 32.4 74.1 -13.6 23.4 -10.9

    FIVE-YEAR CAGR (%) 13.1 10.8 12 22.5 14.7 22.6 17

    (%) 15.6 14.6 14.6 10.8 11.8 12.7 16.2 11.4 10.7 9.0

    (%) 16.8 15.7 16.0 12.2 13.3 14.1 17.4 13.5 15.3 13.8

    (` ) 36.5 40.6 48.6 43.0 48.5 64.2 111.8 96.5 119.1 106.1

    (` ) 20 20 20 17 19 20 110 105 45 60

    (% ) 1,000 1,000 1,000 850 950 1,000 5,500 5,250 2,250 3,000

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    Economic Value-added

    (EVA) Statement` crores

    2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13

    Average capital employed 2,415 2,877 3,499 3,705 3,989 4,866 5,286

    Average debt/ Average capital (%) 1.1 1.1 0.6 0.2 2.2 3.4 1.8

    Average equity/ Average

    capital (%)

    98.9 98.9 99.4 99.8 97.8 96.7 98.3

    Cost o debt (% post-tax ) 0.6 0.9 1.6 1.9 1.4 1.2 1.2

    COST OF EQUITY

    Beta 0.75 0.59 0.59 0.63 0.64 0.66 0.73

    Cost o risk- ree debt (%) 8.15 7.94 6.99 7.50 7.99 8.53 7.96

    Market premium (%) 10 10 10 10 10 10 10

    Cost o equity (%) 15.65 13.83 12.85 13.80 14.39 15.16 15.22

    ECONOMIC VALUE ADDED (EVA)

    Pro it afer tax 857.89 967.88 1,281.76 2,231.83 1,927.90 2,378.13 2,118.16Add: Interest*(1-tax rate) 1.02 1.32 1.67 1.39 10.55 14.39 7.86

    NOPAT=PAT + interest*(1-t) 859 969 1283 2233 1938 2393 2126

    Cost o capital 374 394 448 510 563 715 792

    EVA 485 575 835 1723 1376 1677 1334

    Return on capital employed (%) 35.6 33.7 36.7 60.3 48.6 49.2 40.2

    Weighted average cost ocapital (%)

    15.5 13.7 12.8 13.8 14.1 14.7 15

    EVA/Capital employed (%) 20.1 20.0 23.9 46.5 34.5 34.5 25.2

    ENTERPRISE VALUE

    Market capitalisation 13753 13869 21390 38827 31739 41041 30792

    Add: Debt 165 132 78 66 1491 995 281

    Less: Financial assets 2010 2698 3,588 5,833 5,200 4,041 3,805

    Enterprise value (EV) 11909 11303 17880 33060 28030 37995 27268

    EV/YEAR END CAPITALEMPLOYED (TIMES)

    4.5 3.6 4.6 9.4 6.3 7.2 5.2

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    Mr. Pradeep Dinodia Non-Executive and IndependentDirector

    Board of Directors

    Mr. Brijmohan Lall MunjalChairman

    Mr. Suman Kant MunjalNon-Executive Director

    Mr. Paul EdgerleyNon-Executive Director

    Gen. (Retd.) V. P. MalikNon-Executive and IndependentDirector

    Dr. Anand C. Burman Non-Executive and Independent

    Director

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    Mr. Sunil Kant MunjalJoint Managing Director

    AUDIT COMMITTEEMr. Pradeep DinodiaChairman

    Gen. (Retd.) V. P. MalikMember

    Dr. Pritam SinghMember

    Mr. M. DamodaranMember

    SHAREHOLDERSGRIEVANCE COMMITTEEDr. Pritam SinghChairman

    Mr. Pradeep DinodiaMember

    Mr. M. DamodaranMember

    REMUNERATION ANDCOMPENSATION COMMITTEEGen. (Retd.) V. P. MalikChairman

    Mr. Pradeep DinodiaMember

    Mr. Ravi Nath

    Member

    SENIOR MANAGEMENT TEAMMr. Ravi SudSr. Vice President and CFO

    Mr. Anil DuaSr. Vice President - Sales & Marketing

    Mr. Vikram S. KasbekarHead-Operations and Supply Chain

    Mr. Neeraj Mathur Vice President - Strategic Sourcing

    and Supply ChainDr. Anadi S. Pande Vice President - HRM, CorporatePlanning & Strategy

    Mr. Vijay SethiCIO & Vice President - In ormationSystems

    Mr. Harjeet Singh Vice President - R&D

    COMPLIANCE OFFICER

    Ilam C. KambojA.V.P. - Legal and Company Secretary

    Mr. Pawan MunjalManaging Director and CEO

    Mr. M. DamodaranNon-Executive and IndependentDirector

    Dr. Pritam Singh Non-Executive and IndependentDirector

    Mr. Ravi NathNon-Executive and IndependentDirector

    31CORPORATE OVERVIEW STATUTORY REPORTS FINANCIAL STATEMENTS

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    Corporate Information

    STATUTORY AUDITORSDeloitte Haskins & SellsChartered Accountants,7th Floor, Building No. 10, Tower B,DLF Cyber City Complex,

    DLF City Phase- II,Gurgaon 122 002, HaryanaTel: 0124-679 2000 Fax: 0124-679 2012Web: www.deloittee.com/in

    PRINCIPAL BANKERSThe Royal Bank o Scotland N.V.

    Bank o America N.A.

    Citibank N.A.

    HDFC Bank Ltd.

    Hong Kong and Shanghai Banking Corporation Ltd.ICICI Bank Ltd.

    Punjab National Bank

    Standard Chartered Bank

    The Bank o Tokyo-Mitsubishi UFJ, Ltd.

    Kotak Mahindra Bank Limited

    Yes Bank Limited

    COST AUDITORSRamanath Iyer & Co.Cost Accountants,#808, Pearls Business Park,Netaji Subash Place,Delhi 100 034, IndiaTel: 011-4565 5448,Email: in [email protected]: www.ramanathiyer.com

    REGISTERED ANDCORPORATE OFFICE34, Community Centre,Basant Lok, Vasant Vihar,New Delhi110 057, India

    Tel.: 011-4604 4100, 2614 2451Fax: 011-2614 3321, 2614 3198www.heromotocorp.com

    REGISTRAR AND SHARETRANSFER AGENTKarvy Computershare Pvt. Ltd.Plot No. 17-24, Vittal Rao Nagar,Madhapur, Hyderabad 500 081Tel No. : 040 4465 5000Fax: 040-2342 0814 / 2342 0859Email: [email protected]

    www.karvycomputershare.comToll Free No.: 1-800-3454001

    PLANT LOCATIONSGurgaon Plant

    37 K.M. Stone, Delhi-Jaipur Highway,Sector 33, Gurgaon-122 001Haryana, India.Tel: 0124-289 4200, 237 2123Fax: 0124 237 314142

    Dharuhera Plant

    69 K.M. Stone, Delhi-Jaipur Highway,Dharuhera, Distt. Rewari-122 100Haryana, IndiaTel: 01274 264 000Fax: 01274 267 018

    Haridwar Plant

    Plot No. 3, Sector 10,I.I.E., SID CUL, Roshanabad,Haridwar-249 403, Uttarakhand, IndiaTel: 01334 238 500, 239 514-16Fax: 01334 239 512-13

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    Management Discussion

    and Analysis34 Insight into Global and Indian Economy

    36 Industry at a Glance

    38 Momentum o a Frontrunner

    40 Analysing Our Numbers

    42 Customer at the Core

    46 Seamless Supply Chain

    48 Advanced Research and Development

    50 Cutting-edge IT Architecture

    52 Empowered Human Assets

    54 Evolving a Risk- ocused Strategy

    55 Favourite or All Festivals

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    Insight into Global and

    Indian Economy

    GLOBAL ECONOMY During FY 2012-13, the global economy hadew reasons to cheer as Europe lurchedrom one crisis to another and emergingeconomies grappled with unpredictableroadblocks to their hitherto smooth economicgrowth. BRICS economies also ran intoturbulent weather, with each member nation,including China making a desperate attemptto arrest sliding growth. China registered 7.7%growth in the irst quarter o 2013, as against7.9% in the corresponding quarter o 2012.

    Although China remained the astest growingmajor economy in the world, India inishedthe year a close second with 5% GDP growthand Russia (3.4%), South A rica (2.5%) andBrazil (0.9%) trailing behind. However, theover 15 trillion dollar US economy continuedto per orm better on all macro-economicundamentals, keeping alive moderateoptimism or a growth-hungry developedworld. With debt de ault concern loomingover the Eurozone, the con idence oinvestors in the US economy and dollar is

    rising considerably.

    Easy growth is not on the horizon oreconomies and businesses around theworld. There ore, global corporations areincreasingly investing in technology andinnovations to improve their competitivenessand oray into pristine markets. New marketsare emerging in South Asia, A rica and Latinand Central America, with enhanced ocusby governments on improving in rastructure,educational standards, healthcare and theoverall quality o li e.

    INDIAN ECONOMY

    The Indian economy went through upheavalsowing to global distress and persistentdomestic turbulence; challenges comprisedirm in lation, high iscal de icit, lack oliquidity in the economy, policy uncertaintyand currency volatility, leading to a bleakinvestment scenario. Indias Gross DomesticProduct (GDP) growth rate moderated in2012-13, owing to the underper ormance byalmost all sectors o the economy. In addition,the Rupees historic plunge against the USdollar has made the markets jittery and the

    government worried.

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    RECOVERY INITIATIVESThe Reserve Bank o India injected liquidityinto the market during the year under reviewby lowering interest rates in phases in orderto spur investment and catalyse economicgrowth. The governments iscal consolidationmeasures seem to have yielded some results.Fiscal de icit declined to 4.89% in 2012-13,as compared to 5.76% in 2011-12, whilewholesale monthly in lation also camedown to 4.7% in May, 2013 rom 8% in2012-13. Indias current account de icit

    moderated to 3.6% o GDP in January-March2013 rom a record high o 6.7% in October-December 2012.

    OUTLOOK

    Going orward, the Reserve Bank o Indiamay continue to ease interest rates in aphased manner to support growth, providedthe depreciating rupee doesnt put unduepressure on in lation.

    The IMF expects Indias growth rates to pickup pace slowly but steadily, starting rom

    6.5 % in 2013-14 to 6.7% in 2014-15.

    (Source: Ministry of Statistics and Programme implementation, RBI)

    ANNUAL TRENDS IN GDP AT FACTOR COST (%)2008-09 2009-10 2010-11 2011-12 2012-13

    Agriculture andallied activities

    0.1 0.8 7.9 3.6 1.9

    Industry 4.4 9.2 9.2 3.5 2.1Services 10 10.5 9.8 8.2 7.1

    ANNUAL TRENDS IN GDP AT FACTOR COST (%)

    (Source: Ministry of Statistics and Programme Implementation)

    2

    6

    4

    0

    8

    10

    12

    5

    GDP fc

    00-01 01-02 02-03 03-04 04-05 08-0905-06 09-1006-07 12-1311-1210-1107-08

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    TWO-WHEELER INDUSTRY

    During 2012-13, the two-wheeler industry lostthe growth momentum it created over thelast ew years. Sales grew marginally by 2.3%,with 15.8 million units o sales in 2012 - 13,compared to 15.4 million units in 2011-12.Motorcycle volumeswhich make up thebulk o the industry grew by just 0.1%

    rom 11.91 million units in 2011-12 to 11.95million units in 2012 -13. Similarly, sales omopeds grew by 0.8%, rom 0.78 million unitsin 2011-12 to 0.79 million units in 2012-13.The scooter category was the industrys onlybright spot, with 12.4% growth in sales, rom2.73 million units in 2011-12 to 3.07 millionunits in 2012-13.

    EXPORTS

    For the two-wheeler industry as a whole,export sales declined by 0.3% to 1.8 millionunitsan indication o the difficult economicconditions around the world.

    Industry at a Glance

    TWO-WHEELER MARKET IN 2012-13

    2,000,000

    0Two Wheelers Motorcycle Scooter Moped

    10,000,000

    6,000,000

    14,000,000

    4,000,000

    12,000,000

    8,000,000

    16,000,000

    2011-12

    2012-13

    1 5 4 7 0 9 7 7

    1 5 8 2 4 2 2 6

    1 1 9 4 5 3 4 4

    1 1 9 5 3 3 8 9

    2 7 3 9 6 9 2

    3 0 7 8 7 6 8

    7 8 5 9 4 1

    7 9 2 0 6 9

    2.3%

    0.1%12.4%

    0.8%

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    TWO-WHEELER MARKET (SEGMENT-WISEPERFORMANCE) IN 2012-13 (%)

    TWO-WHEELER: SEGMENTAL REVIEW

    Indias two-wheeler industry has threedistinct segments, based on income andli estyle classi ications. During 2012-13, theentry segment accounted or 19.3% o sales;the deluxe segment made up 64.9% and thepremium category comprised 15.8% o sales.

    The entry segment accounted or 1.9 millionunits, growing at 4.3%. Hero MotoCorpssales grew by 24.2% in entry segment to 1.03million units, resulting in a segment share omore than 53%.

    The deluxe segment grew by 2% with volumes

    o 6.5 million units. Hero MotoCorp continuedto straddle this segment with sales o4.1 million units and a segment share o over63.38%. The Companys nearest competitorin this segment managed a segment shareo less than 20%. Sales in the industryspremium segment declined by 10.8% to 1.59million units. Hero MotoCorp did not per ormwell in this segment, and slipped to thenumber our. Despite growth challenges inthe premium segment, three Hero MotoCorpbrands Splendor, Passion and HF Deluxe continued to eature among the top sixmotorcycle brands sold in India.

    The domestic scooter industry remainedone o the last bastions o growth during the

    year under review. Our sales grew by 13.6%and accounted or 21.4% o the two-wheelermarket. Volume growth progressed rom 2.6million units to 2.9 million units. With its twotop-selling brands (Pleasure and Maestro),Hero MotoCorp continued to per orm stronglyin the scooter market.

    PREMIUM 15.8 10.8q

    ENTRY 19.3 4.3

    DELUXE 64.9 2.0

    * Growth decline q in 2012-13 over 2011-12

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    Momentum of a Frontrunner

    Headquartered in India, Hero MotoCorp is theworlds largest manu acturer o two-wheelers. In2001, the Company achieved the coveted positiono being the largest two-wheeler manu acturingcompany in India and globally. It maintains globalindustry leadership till date.

    OPERATIONAL PERFORMANCE

    In 2012-13, Hero MotoCorp sold 6.07 millionunits compared to 6.23 million units in theprevious year. This was on account o poorrains, irm interest rates, high uel prices andheightened caution on the part o customersacross the two-wheeler industry.

    In the dominant motorcycle segment, HeroMotoCorp with sales o 5.5 million units,continued to lead the domestic marketwith 46% market share. This, however, wasmarginally lower than the 48.4% market share

    in 2011-12.Sales in the domestic motorcycle marketremained lat at 10.08 million units, comparedto 10.07 million units in the previous year. Inthe Indian market, Hero MotoCorp captured53.2% market share, with sales o 5.3 millionunits. Despite the slowdown, the Companysold more than the second, third and ourthplaced motorcycle manu acturers in Indiataken together during the year.

    EXPORTS

    Hero MotoCorp, with sales o over 1,36,000units, accounted or 7.3% o motorcycleexports rom India.

    HERO MOTOCORPS INTERNATIONALFOCUS

    During 2012-13, the Company exported1,61,043 units as compared to 1,65,925units the previous year resulting in a declineo 2.94%. Moreover, the Company exportedspare parts worth ` 38.38 crores depictinga growth o 16% over the previous year.The growth came as a result o distributorrealignments in existing markets, launchesacross Sri Lanka and Nepal, increasedpromotional activities in Bangladesh and astronger ocus on the Columbian market.

    In 2012-13, the Company prepared thetemplate or an ambitious internationaloray covering the countries o A rica, LatinAmerica and Central America. At the timeo writing the Report, Hero MotoCorps irstconsignments to new international marketsacross these geographies had been wellreceived.

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    SPLENDOR CONTINUES TO BE THE LARGEST SELLINGBRAND IN 2012-13 WITH A 23.2% MARKET SHARE

    SUCCESSFULLY LAUNCHED TWO NEW MODELSIGNITOR IN 125 CC CATEGORY AND PASSION XPROIN 110 CC CATEGORY, INCLUDING VARIANTS OF VARIOUS MODELS UNDER BRAND TRANSITION

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    Return On Average Capital Employed

    Return On Average Equity

    Analysing Our Numbers

    RATIOS 2012-13 2011-12Inventory Period (in days) 11.2 10.5Inventory and Receivable Conversion Period (in days) 17.8 13.4Cash Cycle -25.4 -32.2Current Ratio 0.73 0.45Acid Test Ratio 0.50 0.25Notes on Working CapitalThe average of inventory, receivables and payables has been taken for calculation of inventory period, operating and cash cycle.

    2012-13 2011-12

    Pro it afer Tax /Income rom Operations

    Pro it be ore Tax /Income rom Operations

    Pro it be ore Interest and Tax /Income rom Operations

    Operating Pro it be ore Tax /Income rom Operations

    Operating Pro it be ore Depreciation,Interest and Tax / Income rom Operations

    58.9

    65.6

    10.1

    12.1

    12.2

    10.7

    15.3

    (%)KEY PROFITABILITY METRICS

    47.8

    45.6

    8.9

    10.6

    10.7

    9.0

    13.8

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    SALES

    The Company registered total sales o 6.07million units during 2012-13, recording a

    2.6% decline. In value terms total sales (neto excise duty) increased by 0.9% to ` 23,583crores rom ` 23,368 crores recorded in theprevious iscal year.

    PROFITABILITY

    The Companys earnings be ore interest,depreciation and taxes (EBITDA) marginsdecreased rom 15.35% in 2011-12 to 13.82%in 2012-13. Operating margins ell rom10.69% to 9.02% on account o higher inputcosts and amortisation. Operating pro it (PBTbe ore other income) decreased rom ` 2,521crores in 2011-12 to ` 2,143 crores in 2012-13.Decline in sales caused the margins to all.

    OTHER INCOME (INCLUDING OTHEROPERATING REVENUE)

    Other income increased by 1.42% rom` 576 crores in 2011-12 to ` 584 croresin 2012-13.

    CASH FLOWS

    During the year, the ree cash low romoperations stood at ` 1,890 crores (previousyear ` 2,360 crores). These cash lows weredeployed in capital assets, investments andalso paid out as dividend during the year.

    RAW MATERIAL COSTS

    During the year, metal prices were volatile,particularly or steel, copper, aluminiumand nickel. However, raw material costs asa proportion o sales declined rom 73.95%to 73.77%.

    CURRENT ASSET TURNOVER

    The Companys current asset turnover,indicating sales as a proportion o average

    current assets (excluding investments),decreased rom 18.3% to 13.5%. This wasprimarily due to higher average inventory,trade receivables and loans & advances.

    DEBT STRUCTURE

    Hero MotoCorp is debt- ree or the past 12years and incurs no borrowing costs. Financecost includes interest on account o advancesrom dealers and other transactional costs.

    DIVIDEND POLICY

    Over the years, the Company has consistentlyollowed a policy o paying high dividends,keeping in mind the cash-generatingcapacities, the expected capital needso business and strategic considerations.For 2012-13, the Board recommended adividend o 3000% compared to 2250%declared in previous year and has maintaineda payout ratio o 66.2% vis-a-vis 43.9% in theprevious year.

    WORKING CAPITAL MANAGEMENT

    The Company has always sought to efficientlyuse the various components o workingcapital cycle. It has also effectively controlledthe receivables and inventories, enabling it tooperate on a negative working capital.

    3000%Dividend

    FOR 2012-13, THE BOARD HAS RECOMMENDED A DIVIDEND OF 3000% COMPARED TO 2250%DECLARED IN THE PREVIOUS YEAR AND HASMAINTAINED A PAYOUT RATIO OF 66.2% VIS-A-VIS 43.9% IN THE PREVIOUS YEAR

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    Customer at the Core

    Customer satis action is at the heart o HeroMotoCorps business strategy. SAP data shows asecular decline in the number o customer complaintsover the last three years, but the journey to enchantthe customer through better products and servicescontinues.

    The voice o the customer is captured andampli ied constantly through a 360 degreeeedback mechanism that includes customersatis action surveys, online customereedback, response rom visiting ieldexecutives and market quality surveys.

    The Companys approach to customersis based on the principles o increasingaccessibility, acilitating productupgradability, guaranteeing low cost oownership and ensuring continuous customerengagement.

    SERVICE HAR JAGAH (INCREASING ACCESSIBILITY)

    In 2009, the Company kick-started a project toincrease and improve Hero MotoCorps reachacross unrepresented geographies through aunique programme called Service Har Jagah.Today, on an average, around 8,500 servicecamps are being conducted on a monthlybasis covering more than 7,500 villages. TheCompany was partnering 560 dealers to pushthis initiative into the hinterlands and 84

    new dealers were added under this initiativeduring the year under review.

    SURE (FACILITATING PRODUCTUPGRADABILITY)

    Hero MotoCorp has succeeded as a Companybecause it is able to meet the aspirationso different socio-economic groups. Tostrengthen its appeal among two-wheeleraspirants both new and old, Hero MotoCorphas started a re urbishment and exchangebusiness called Sure.

    The programme aced some teethingchallenges in multiple states, as there werecertain state taxation issues relating to

    second-hand sales. These are now graduallygetting resolved, and during the year underreview, the Sure business was re-launched inKerala, Gujarat, Jharkhand and Tamil Nadu.More than 100 dealers across these states areoffering re-sale and re urbishment acilities attheir showrooms and workshops.

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    HERO ADVANTAGE (LOW COST OFOWNERSHIP)

    During the year under review, the Companyrolled out its ambitious warranty programmeHero Advantage.

    This unique programme which can be

    registered online -- is the most competitivelypriced in the two-wheeler industry. It coversthe longest distance (70,000 km), providesthe longest warranty (up to ive years)and encompasses the largest number ocomponents.

    The programme is tailored to help Dealers /SSPs retain customers, and in the process,help them improve revenue rom the sale ospares and services.

    Hero Advantage was launched in 2009, andwent national during 2012-13. Over 9.5 millionpolicies have been sold, with over 45% retailconversions.

    GOODLIFE (CUSTOMER ENGAGEMENT)

    The Hero GoodLi e Programme (CustomerRelationship Programme) was conceived toenhance customer satis action and initiatehigher levels o member engagement, bymaking them brand ambassadors to generatere erral sales and boost service visits.

    The programme also had as its objectives,

    increased revenue opportunities or dealersand an increase in customer volumes aswell as volume o transactions. There aremultiple levels o engagement, includingtransaction-based rewards, exclusive eventinvites, personal accidental insurance,service continuity bonus, transactionbene its on special occasions like birthdays,anniversaries, quarterly newsletters andinteraction through a programme website.

    Online member pro iling and real-timecustomer eedback module (via select

    questionnaires), programme dashboardare some o the other salient eatures o theplat orm. The plat orm is scalable to theneeds o programme requirements, coalitionpartners and comes at no extra cost to HeroMotoCorp.

    GoodLi e has not only managed tosuccess ully build a consolidated base o1.5 crore plus loyal customers, but has alsoseen an emergence o a new distributionplat orm or the Company.

    During the year under review, more than10 million transactions were processed underthe Good Li e programme and 13% o thevehicle sales in 2012-13 were contributedthrough member re errals.

    GoodLi e has won many accolades andawards on national and internationalplat orms. The programme won an Ordero Merit at the PMAA awards 2011 and2012 under different categories. It was alsothe winner o the Colloquy Award in theLoyalty Marketing (international) category,and quali ied as an ECHO Finalist duringthe 2011 DMA International ECHO Awardscompetition.

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    Seamless Supply Chain

    Sharp luctuations in production plans made it difficultto oresee and manage inventory. Despite challenges,the Company managed a double-digit improvement ininventory turnover over the previous year.

    In addition, over the course o the year, brandmigration on vehicles was completed without anydisruptions in production. Material cost per ormancewas achieved within plan limits, despite heavyluctuation in consumer demand, rupee movementand supply o all major inputs.

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    During the year, it was also possible toexecute a sharp ramp-up o Maestro partscapacity at the suppliers end to cater toincreased demand or this particular scooterbrand. Supplier capabilities were also quicklyupgraded to cater to the production o newly

    launched models - Ignitor and Passion Xpro.Hero MotoCorp initiated over 50 qualityimprovement projects with the supply chainpartners to ensure better quality products.To tackle the increasing cost pressure onHero MotoCorp as well as on suppliers, a newdepartment called Achieving Cost Excellence(ACE) has been set up to optimise costper ormance.

    To ensure business growth and continuity byacilitating people process development atassociate organisations o Hero MotoCorp,a Supply Chain HR IR initiative, under theconsultation o AON Hewitt & Ernst & Young

    was success ully implemented last year.The project is now close to completion, andis expected to result in signi icant bene its, interms o de-risking these organisations romIR issues.

    During the year, the sixth batch o participants

    were enrolled into Hero MotoCorps Green Vendor Development Programme. Theprogramme has enrolled 130 vendors till date.

    Over the coming months and years, HeroMotoCorps supply chain will have to bealigned to keep pace with new productsrolling out rom actory premises. As theseproducts will be technologically superior,suppliers will be required to raise the bar ocompetence as well. The Company is alsogearing to play a more signi icant role indeveloping new and existing suppliers.

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    Advanced Research and

    Development

    R&D has always been one o the key businessdrivers at Hero MotoCorp. The CompanysR&D team has been working to enhance itstechnology, design, prototyping and testingand people capabilities. The Company has

    also entered into a number o strategictechnical alliances to strengthen its keybusiness drivers.

    During 2012-13, we undertook the ollowinginitiatives:

    Taking international alliances a notch higher,the Company tied up with the Italian designirm Engines Engineering. The Bologna-basedirm has been developing and designingscooters and motorcycles or variousmanu acturers over the years and is nowsharing its expertise with Hero MotoCorp tohelp develop next generation two-wheelers.

    R&D tied up with AVL o Austria or developingnew engines. It also tied up with EBR o theUS to launch high-per ormance plat ormbikes or meeting domestic and internationalneeds.

    Training R&D members is an intrinsic parto Hero MotoCorps contractual relationshipwith alliance partners. The Company plansto train the largest portion o the Companystalent pool and equip them with the best

    possible domain knowledge in the shortestpossible time.

    Hero MotoCorp took various initiatives inthe ield o knowledge management. Apatent system or preventing in ringementso technical know-how was developed andthe Company iled 13 patents and 10 designregistrations in India and overseas countries,covered under the Patent Co-operationTreaty (PCT). The Company has already beengranted design registration or seven o theitems.

    Hero MotoCorps PLM (Product Li e CycleManagement) is already in place and is

    being used extensively. The TDM (TestData Management) and Schedule Managerprojects went live during the year. Theseknowledge processes are expected to reducethe number o iterative processes and, in

    turn, help increase the efficiency o productdevelopment, and improve time to market.

    The Company is also aggressively ramping upthe areas o Hard Core Designing and Testing,and has acquired various Design simulationsand CAE Sofware as a part o this effort.

    Prototype acilities are already in place todevelop mock-ups and test-worthy models.In act, this in rastructure was used in partto introduce the newly launched Ignitor andPassion Xpro.

    R&D OUTLOOK

    R&Ds ocus in the coming months will reston our key planks: on re urnishing existingplat orms, on developing products withalternate uel options, on compliance withstringent sa ety and environment norms andinally, on achieving cost competitivenessthrough VA/VE and innovative cost reductionideas.

    Meanwhile, work on designing a world-classTechnology & Integrated R&D Centre at Kukas,Jaipur has been completed. It will be Indiaslargest integrated Two Wheeler Technologycentre. It will have innovation labs orcomponent design, engine and vehicletesting. These will use the latest sofware orcollaborative design and vehicle simulation.Besides high-tech equipment, the Centre willalso have an entire range o test tracks toenable R&D or sel sufficiency.

    This Technology Centre will be the ulcrumrom where our uture products will uncoiland spring.

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    Cutting-edge IT Architecture

    Over the years, Hero MotoCorp has been leveragingIT capabilities to enhance its internal efficiencies andthose o its business partners.

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    In 2012-13, to support the growth o theResearch & Development unction, many newsystems were deployed and existing systemsupgraded to meet the organisations needs.Product Li ecycle Management system (PLM)was also integrated with ERP system or Bill o

    Materials making Hero MotoCorp one o thevery ew companies in India to do so. Some othe modules o PLM that were deployed arethe irst deployments o those in the country.

    To support the Companys expansion intointernational markets, new systems wereintroduced to enable global operations.

    Hero Connect, the Companys DealerManagement System, which ocuses onenhancing operational efficiency in theorganisation and at the dealerships, was

    rolled out to cover all Company dealers.As planned in the previous iscal year, thesystem was also expanded to the next tier oour customer touch points and more than 750additional touch points were covered duringthe year. Many enhancements were doneto improve unctionality, including creatingservice job cards online.

    To reduce the use o paper, the Companyimplemented a number o work lows.

    The year saw a major ocus on social media.The Company started sentiment analysisand social analytics to capture and analysecustomer eedback, besides increasingpresence signi icantly and running manycampaigns on social media plat orms.

    Continuing its journey in the mobility space,Hero MotoCorp added mobile inter aces or anumber o applications to help users accessapplications and data on the go. A WAP siteor the Companys lagship loyalty programme(Goodli e) was also introduced.

    An enhanced compensation managementsystem and travel management systemwas implemented. To strengthen riskmanagement and in ormation security, theCompany deployed contemporary systems

    like Data Leakage Prevention and SingleSign On.

    During the year, the Company got recerti iedwith Global In ormation Security Standard- ISO 27001 and SAP Customer Center oExpertise (CCoE). Hero MotoCorp alsoreceived multiple accolades and recognitionsor excellence in IT management. The keyrecognitions included Business TechnologyExcellence Awards 2012 Dataquest, BusinessTechnology Innovation Awards 2012 Dataquest and Top Green IT Enterprise Award

    - APC Schneider.

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    Empowered

    Human AssetsThe Company is empowering the teamto make Hero MotoCorp more people-centric and people-driven.

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    During the year, employee variable pay wasaligned to match the Companys objectivesand per ormance. The National PensionScheme was introduced to give employees

    a larger stake in planning their retirement.A code o conduct was introduced tomaintain standardised behaviour across theorganisation.

    SKILLS AND WORK CULTURE

    As Hero MotoCorp grows and expands acrossnew geographies globally, a cross-culturalIntelligence Programme was conductedto help create a multi-cultural workenvironment.

    An Employee Induction Centre wasconceptualised, designed & constructed, andoperations commenced to impart compulsoryinduction and product training to all newrecruits. A number o innovative trainingmethodologies and tools are being used inthe centre.

    Training programmes have been streamlined.The 100-day PGET programme ocuses oncreating and increasing effectiveness o thevalue chain. The DET induction programmehas also been developed on the basis o jobknowledge and skills. The GET programmesaw historically high numbers, with a 5-monthlong comprehensive induction programme.

    EMPLOYEE ENGAGEMENT AND SUPPORT

    During the year, a specially designedprogramme called Work Li e Compass wasintroduced to enable women employeesmanage work and home more efficiently.Employee engagement activities were alsoorganised at the Diwali Function. Just 4 Her,an e-magazine or women employees waslaunched on the International Womens Day.Udaan, a developmental programme or

    Employees kids, was organised in the plant.Specially-abled employees took part in thenational athletic championship, T-20 cricketchampionship, cultural extravaganza,

    and so on.

    INDUSTRIAL ENVIRONMENT

    The Companys employee relations remainedpositive throughout the year. Regulardialogue with Workers Union also helped inmaintaining a harmonious work environment.At the time o writing the Report, the wagesettlement with the Gurgaon Union had beencompleted. The Dharuhera plant remainedpeace ul and harmonious. During the year,capacity at the Haridwar plant was ramped

    up signi icantly and the work orce thereremains harmonious and productive.

    EMPLOYEE SURVEY

    The attrition rate or Hero MotoCorp(management and staff levels) was at 5.1%(reduced rom last years 6.8%). The attritionrate continues to be much lower than otherautomotive companies in India. A recentreport by The Economic Times estimatesthe average attrition rate o 13-15% orautomotive and component manu acturers in

    India or 2012-13.Hero MotoCorp had commissioned AonHewitt, a leading HR consulting irm, toconduct a pan-organisational EmployeeEngagement Survey (excluding workmen)during the year. With a response rate oaround 90%, which is among the highestresponse levels observed in similar surveysconducted by Aon Hewitt, the surveyprovided important inputs on how to enhanceeffectiveness and help Hero MotoCorpbecome an Employer o Choice.

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    Evolving a Risk-focused Strategy

    At Hero MotoCorp, a risk ocused strategy is the resulto identi ying, assessing and evaluating risks and takingproactive measures to address those risks.

    CURRENCY DEPRECIATION

    A light o sa ety to the US dollar and Indiasballooning current account de icit resultedin the Indian rupee depreciating signi icantlyo its value in a year. I the rupee urthercontinues its down all, costs o importedspares, technology royalties, raw materialsand capital goods can signi icantly shoot up,impacting the Companys bottom line.

    INFLATION

    In lation is inally moderating afer a two-year hiatus, but the plunging Indian rupeeand uncertainty in crude oil prices have thecapability to dampen sentiments. An uptickin in lation during 2013-14 can stall or pausethe process o monetary easing, therebyimpacting consumer sentiment.

    INTEREST RATES

    The Company has not been signi icantlyaffected by the higher interest rate scenarioowing to a strong balance sheet andhealthy cash lows. However, in the evento signi icant expansions being plannedby the Company, rising interest rates canincrease the cost o capital and also impactthe operations o crucial vendors. To counterthis challenge, the Company is pursuing anaggressive policy o multiple sourcing.

    GLOBAL UNCERTAINTY

    With the Company having irm plans toincrease its ootprint in Latin America andA rica, it will become more susceptible to

    country-speci ic as well as region-speci ic

    geo-political events. Considering this, theCompany is chalking out an overseas entrystrategy, post care ul consideration o localdynamics.

    COMPETITION

    The Company has completed its irst ullyear o operations, post its new brandidentity. However, the level and intensity ocompetition rom Hero MotoCorps erstwhilepartner is expected to shoot up by manynotches. Product launches pitted againstHero MotoCorps strongest brands can exertsome pressure on market share, but theCompany is adequately prepared to de endand consolidate its strong tur .

    R&D

    To enable the Company to succeed in analtered landscape, the R&D unction isbeing set up a resh with a strong ocuson technology sourcing and new product

    development. New alliances and technologytie-ups were inalised during the year underreview, but it will take a while be ore theCompany is ready with a solid port olio o itsown products.

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    Favourite for All Festivals

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    Directors Report

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    57CORPORATE OVERVIEW STATUTORY REPORTS FINANCIAL STATEMENTS

    DEAR MEMBERS,

    The Directors o Hero MotoCorp Ltd., with immense pleasure present the 30th

    Annual Report orthe inancial year 2012-13. The Report is being presented along with the Audited Statement oAccounts or the inancial year ended March 31, 2013.

    FINANCIAL RESULTS

    ` crores

    ParticularsFor the year ended

    March 31, 2013 March 31, 2012

    Gross Sales o Products 25,474.54 25,024.04

    Total Revenue 24,166.49 23,943.60

    Pro it be ore Finance Costs & Depreciation 3,682.86 3,983.35

    Less: Finance Costs 11.91 21.30Depreciation 1,141.75 1,097.34

    Pro it be ore tax (PBT) 2,529.20 2,864.71

    Less: Provision or tax

    - Current 502.61 569.76

    - Minimum Alternate Tax (15.72) (44.67)

    - De erred (75.85) (38.51)

    Pro it afer tax (PAT) 2,118.16 2,378.13

    Add: Balance o pro it brought orward 2,538.57 1,444.80

    Balance available for appropriation 4,656.73 3,822.93

    AppropriationsDividend

    Proposed Final 1,198.13 898.59

    Corporate Dividend Tax 203.62 145.77

    Trans er to General Reserve 215.00 240.00

    Balance carried to Balance Sheet 3,039.98 2,538.57

    Dividend (%) 3000 2250

    Basic and Diluted Earnings Per Equity Share(EPS)( )

    - be ore exceptional items 106.07 119.09

    - afer exceptional items 106.07 119.09

    BUSINESS PERFORMANCE

    The sales or the inancial year under review were 6,075,583 units as compared to 6,235,205 unitsor the previous inancial year, lower by 2.6% in line with the downtrend across the entire industry.However in value terms total sales o products (net o excise duty) increased by 0.90% to ` 23,583crores in the inancial year under review rom ` 23,368 crores in previous inancial year.

    The market share declined rom 40.3% in the previous inancial year to 38.4% in the year underreview. The Company retained its position as the Worlds largest two-wheeler manu acturercompany. Net revenue rom operations o the Company grew by 0.80%, rom ` 23,579 crores in2011-12 to ` 23,768 crores in 2012-13. Pro it Be ore Tax (PBT) has shown a decline o 11.72% rom` 2,865 crores in 2011-12 to ` 2,529 crores in 2012-13. The Companys Pro it afer Tax (PAT) decreased

    by 10.9% rom ` 2,378 crores in 2011-12 to ` 2,118 crores in 2012-13. Earnings be ore Interest,

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    58Hero MotoCorp Ltd. ANNUAL REPORT 2012-13

    Depreciation and Taxes (EBIDTA) marginsstand at 13.82% in 2012-13 as compared to15.35% in 2011-12. The Operating marginsstood at 9.02% in 2012-13 as compared to10.7% in 2011-12.

    The Company success ully launched 2 (two)new models o two wheelers i.e. Ignitor in125cc category, and PassionXPro in 110 cccategory including variants o various modelsunder brand transition during the year underreview. Splendor continues to be the largestselling product in 2012-13 as well with 23.2%market share.

    A detailed discussion on the businessper ormance and uture outlook has beengiven in the chapter on ManagementDiscussion and Analysis (MDA).

    DIVIDEND

    Continuing with its liberal payout policies,your Directors are pleased to recommend oryour approval a higher dividend o 3000% i.e.` 60 (2250% i.e. ` 45 in 2011-12) per equityshare o the ace value o ` 2, aggregating to` 1,198.13 crores (exclusive o tax onDividend), or the inancial year ended March31, 2013. The dividend, i approved, will bepaid to the eligible members well within thestipulated time.

    TRANSFER TO GENERAL RESERVE

    In view o the robust inancial strength o theCompany, a sum o ` 215 crores being 10.15%o the Pro it Afer Tax o the year under reviewhas been trans erred to the General Reserve othe Company.

    TRANSFER TO INVESTOR EDUCATION AND

    PROTECTION FUND (IEPF)During the year under review, the Companytrans erred unpaid / unclaimed dividend orthe inancial year 2004-05 ( inal) amountingto ` 2.32 crores to IEPF.

    MATERIAL CHANGES AND COMMITMENTS

    No material changes and commitmentsaffecting the inancial position o theCompany have occurred between April 1, 2013and the date o signing o this Report.

    EMPLOYEE STOCK OPTION PLAN (ESOP)During the year under review, your Company

    approved the ESOP by passing a specialresolution through Postal Ballot. Theaggregate number o Options to be grantedunder the said ESOP Scheme shall not bemore than 2,000,000 (Twenty lakhs). Thenecessary disclosure as required under theESOP guidelines shall be made as and whenthe Options are granted.

    AMALGAMATION

    During the year under review, your Companyhad started the process o amalgamation oHero Investments Pvt. Ltd. (HIPL), a promotercompany holding, 43.33% o the equity sharecapital, subject to the necessary approvals. Inthe month o May, 2013 the Company receivedthe inal approval rom the Honble High Courto Delhi and accordingly HIPL was amalgamatedon May 16, 2013. However the process ocompleting the allotment o shares to theshareholders o HIPL is being complied with.

    CAPACITY EXPANSION, NEW PROJECTS & ALLIANCES

    During the year under review, your Companyhas augmented capacity at its existing plants toapprox. 7 million units. The construction o theourth manu acturing plant and a new state-o -the-art Global Parts Centre (GPC) at Neemrana,Rajasthan was started. These two acilitieswould have a total investment o approx. ` 550crores and expected to be operational towardsthe end o the inancial year 2013-14. Both theacilities are coming up over an area o 82 acresand will provide direct employment to over1,400 people. The ourth plant will have aninstalled capacity o 750,000 units per annum.As part o your Companys philosophy to growsustainably, these acilities will be set up onGreen Building Concept.

    The Company success ullylaunched 2 (two) new models otwo wheelers i.e. Ignitor in 125cccategory, and PassionXPro in110 cc category including variantso various models under brandtransition during the year underreview.

    Directors Report

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    59CORPORATE OVERVIEW STATUTORY REPORTS FINANCIAL STATEMENTS

    The Company will also soon set up anintegrated state-o -the-art Technology/R&Dcentre spread over an area o 250 acres atKukas, Jaipur in Rajasthan. This will be thelargest two-wheeler R&D centre in the country.

    Your Directors are happy to announce aGlobal alliance with Engines Engineering (EE)to augment technology & design capabilitiesand bring a next generation product line-up.Set up in 1979, Bologna based EE has becomeEuropes No.1 end-to-end motorcycle designeri.e. rom conception and design right down tostyling, online assembly, industrialisation andmarketing.

    The Company has also launched its own retailinance arm, Hero FinCorp Ltd. This arm willexpand in a phased manner. The initial planis to make the services available at about 200dealerships in various parts o the Country byMarch 2014. Further by March 2015, the planis to bring around 450 dealerships under theinancing ambit o Hero FinCorp Ltd.

    FOREIGN FOOTPRINTDuring the current inancial year, the irstoff-shore 100% investment subsidiary wasset up in Netherlands to expedite & catapultits global expansion including overseasinvestments and merger and acquisitionopportunities. This will stand out to be a majorgrowth driver in the uture. Another subsidiarywas incorporated in US to strengthen HeroMotoCorps international presence.

    BOARD OF DIRECTORSIn terms o the provisions o the CompaniesAct, 1956 & the Articles o Association o theCompany, Dr. Pritam Singh, Mr. M. Damodaranand Mr. Paul Edgerley, Directors o theCompany retire by rotation and being eligible,offer themselves or re-appointment.

    Brie resume/details o the Directors, whoare to be re-appointed as mentioned herein above has been urnished along with theExplanatory Statement to the Notice o theensuing Annual General Meeting.

    The Board recommends their re-appointmentat the ensuing Annual General Meeting.

    DIRECTORS RESPONSIBILITY STATEMENT Your Directors make the ollowing statementin terms o Section 217(2AA) o the CompaniesAct, 1956, which is to the best o theirknowledge and belie and according to thein ormation and explanations obtained bythem:

    1. that in the preparation o the annualaccounts or the year ended March31, 2013, the applicable accountingstandards have been ollowed;

    2. that appropriate accounting policies havebeen selected and applied consistentlyand judgments and estimates that arereasonable and prudent have beenmade so as to give a true and air view othe State o Affairs as at March 31, 2013and o the Pro it o the Company or theinancial year ended March 31, 2013;

    3. that proper and sufficient care has beentaken or the maintenance o adequateaccounting records in accordance withthe provisions o the Companies Act,1956 or sa eguarding the assets othe Company and or preventing anddetecting raud and other irregularities;and

    4. that the annual accounts or the yearended March 31, 2013 have beenprepared on a going concern basis.

    MANAGEMENT DISCUSSION AND ANALYSISREPORTA detailed chapter on ManagementDiscussion and Analysis (MDA), pursuant toClause 49 o the Listing Agreement is annexedand orms part o this Annual Report.

    CO