Institutional Equities

Two-wheeler Sector

27 December 2012

Market Share Erosion Of Established Players Widens View: Negative In YTDFY13, losses in market share of established players in the two-wheeler space widened further as relatively new players gained strong market share on the Gaurant Dadwal back of successful launch of new products and dealer network expansion. From [email protected] the list of established players, Hero MotoCorp is worst-hit followed by TVS Motor +91-22-3926 8145 Company and as they all lost market share in YTDFY13 to relatively new entrants like Honda Motor and Scooters (HMSI), and Suzuki India.

HMSI undoubtedly remains a major threat to other players as it gained maximum market share in motorcycle as well as segments in YTDFY13. – the HMSI factor: Over the past two years, a lot has been spoken about HMSI and its way forward after the exit from Hero Honda (now Hero MotoCorp). There were expectations that HMSI would become more aggressive in the motorcycle segment and quite rightly the company gained market share in this segment in YTDFY13. HMSI is fast emerging as a key player in the motorcycle segment, gaining close to 383bps market share. Launch of entry segment Dream Yuga motorcycle in May 2012 helped the company to gain 4%-5% market share in the entry–level segment, while its premium segment motorcycle Unicorn gained further market share of 494bps in YTDFY13. Scooters - a tale of new launches: In the recent past, two-wheeler companies Hero MotoCorp, Suzuki Motorcycle India,Yamaha India and Piaggio India launched new products in the scooter segment which were well accepted by the market and led to market share gains for all these companies at the cost of TVS Motor Company and Mahindra Two-wheelers who did not launch new products. Yamaha India’s Ray scooter, which was launched in September 2012, has been a big success as the model has

MarketAnalysis Share already gained ~ 4% market share since its launch in September 2012, while Hero MotoCorp, Suzuki Motorcycle India and Piaggio India continued to gain market share on the back of new launches in the past one year. HMSI maintained its dominance in the scooter segment but witnessed pressure on its market share over the past three-four months, primarily due to the launch of new products by Yamaha India and Piaggio India. Nevertheless, it gained 196bps market share in YTDFY13 compared to FY12. HMSI and Suzuki Motorcycle India expanding their dealer network aggressively: One of the main reasons behind the success of HMSI and Suzuki Motorcycle India is the scale at which these companies have increased their dealer network. In the past one year, HMSI and Suzuki Motorcycle India led the percentage increase in dealer network, as they ramped up their respective dealer network by 47% and 25%, respectively, as against an increase of 7% and 8% in case of Hero MotoCorp and Bajaj Auto, respectively. Launch of new products: One of the key reasons behind the success of new players is the launch of new products which have been very well accepted by customers and helped them in gaining strong market share. Apart from launching variants, new players have been relatively aggressive in launching new products in motorcycle as well as scooter segments, thereby helping them to improve their market share. HMSI has been most aggressive with four new launches in CY12, while Suzuki Motorcycle India and Yamaha India made two new launches each. Yamaha India marked its entry into the scooter segment with its Ray scooter, which garnered a 4% market share within a few months of its launch. Established players Bajaj Auto launched two new motorcycles and Hero MotoCorp launched a scooter and a motorcycle in CY12. TVS Motor Company has been a laggard, as it launched only a motorcycle and that too last month, which led to significant market share erosion. Outlook and valuation: We currently have a Sell rating on Hero MotoCorp (target price Rs1,687), Bajaj Auto (target price Rs1,633)and TVS Motor Company (target price Rs38) as we believe the domestic two-wheeler industry faces structural issues, given its higher base and intense competition. Further, we do not expect any meaningful improvement in demand in FY14 and hence maintain our negative view on the sector.

Please refer to the disclaimer towards the end of the document.

Institutional Equities

Monthly market share movement does not depict actual picture: In our view, market share comparison for a longer period (six months and more) gives a much clear picture of the performance of a vehicle model/company versus monthly comparison because on a monthly basis there are various one-off factors such as inventory management, new product launches and production cuts which lead to market share gain/losses in the short run and thus can be misleading. In this report, we have focused more on YTDFY13 market share gains/losses of companies to get a clear view of the trend. HMSI gains the most in two-wheeler space: HMSI emerged as the top gainer in market share in the two- wheeler segment backed by strong market share gains in the motorcycle segment (383bps) followed by gains in the scooter segment (162bps). Hero MotoCorp lost maximum market share following a 343bps loss in the motorcycle segment followed by TVS Motor Company which shed market share in scooters as well as motorcycles on lack of new launches. Exhibit 1: Two-wheeler market share movement- yearly Company FY09 FY10 FY11 FY12 YTDFY13 bps change YTDFY13 versus FY12 Bajaj Auto 17.3 19.1 20.5 19.1 18.5 (60) Hero MotoCorp 48.9 48.0 44.8 45.2 42.2 (300) HMSI 13.7 12.7 13.2 14.9 18.8 393 Kinetic Motor Company 0.1 0.0 0.0 0.0 0.0 - Yamaha India 2.2 2.4 2.4 2.6 2.6 (5) Mahindra Two-wheelers 0.0 0.7 1.3 1.0 0.9 (14) Piaggio India 0.0 0.0 0.0 0.0 0.2 24 0.6 0.5 0.5 0.6 0.8 24 Suzuki Motorcycle India 1.7 2.0 2.4 2.5 3.0 53 TVS Motor Company 15.3 14.5 15.0 14.1 13.0 (116) Electrotherm (India) 0.2 0.0 0.0 0.0 0.0 - Source: Society of Indian Automobile Manufacturers (SIAM), Nirmal Bang Institutional Equities Research Exhibit 2: Motorcycle market share movement-yearly Company FY09 FY10 FY11 FY12 YTDFY13 bps change YTDFY13 versus FY12 Bajaj Auto 21.9 24.3 26.8 25.4 25.2 (19) Hero MotoCorp 59.8 58.5 54.7 56.0 52.5 (343) HMSI 6.2 6.2 7.3 7.6 11.5 383 Yamaha India 2.8 3.0 3.1 3.5 3.2 (36) Kinetic Motor Company 0.0 0.0 0.0 0.0 0.0 - Royal Enfield 0.7 0.7 0.6 0.8 1.1 34 Suzuki Motorcycle India 0.8 0.6 0.6 0.5 0.9 41 TVS Motor Company 7.9 6.7 7.0 6.2 5.5 (61) Source: SIAM, Nirmal Bang Institutional Equities Research Exhibit 3: Scooter market share movement - yearly Company FY09 FY10 FY11 FY12 YTDFY13 bps change YTDFY13 versus FY12 Bajaj Auto 0.8 0.3 0.0 0.0 0.0 - Hero MotoCorp 13.3 14.3 16.7 16.3 17.3 94 HMSI 57.0 50.6 43.4 47.8 49.4 162 Kinetic Motor Company 0.5 0.0 0.0 0.0 0.0 - Yamaha India 0.0 0.0 0.0 0.0 1.3 126 Mahindra Two-wheelers 0.0 4.8 7.5 5.2 4.1 (112) Piaggio India 0.0 0.0 0.0 0.0 1.1 114 Suzuki Motorcycle India 7.5 9.6 11.2 11.3 11.3 6 TVS Motor Company 20.9 20.5 21.2 19.4 15.5 (389) Source: SIAM, Nirmal Bang Institutional Equities Research

2 Two-wheeler Sector

Institutional Equities

Motorcycle segment The HMSI factor: Over the past two years, a lot has been spoken about HMSI and its way forward after the exit from Hero Honda (now Hero MotoCorp). There were expectations that the company would become more aggressive in the motorcycle segment and quite rightly its market share gains in YTDFY13 say it all. HMSI is fast emerging as a key player in the motorcycle segment and has gained maximum market share (383bps in YTDFY13) from established players like Hero MotoCorp, TVS Motor Company and Bajaj Auto. Launch of entry segment motorcycle Dream Yuga in May 2012 helped the company gain 4%-5% market share in the entry-level motorcycle segment, while its premium segment motorcycle Unicorn gained further market share in YTDFY13. On the losing side, Hero MotoCorp (CBZ, Splendor), TVS Motor Company (Star), Yamaha India (SZ) and Bajaj Auto (Pulsar, Discover 150) witnessed major market share erosion. Exhibit 4: Market share of various players in motorcycle space - monthly Motorcycle maker FY12 Apr-12 May-12 Jun-12 Jul-12 Aug-12 Sep-12 Oct-12 Nov-12 YTDFY13 bps change YTDFY13 v/s FY12 Bajaj Auto 25.4 23.2 23.3 24.0 24.4 25.5 27.4 28.0 26.2 25.2 (18) Hero MotoCorp 56.0 57.4 56.6 55.6 53.2 50.8 45.7 49.1 51.1 52.4 (352) HMSI 7.7 9.0 10.0 10.8 12.4 12.6 14.3 11.9 11.4 11.5 389 Yamaha India 3.5 3.1 3.0 2.8 3.4 3.6 3.6 2.9 3.1 3.2 (35) Royal Enfield 0.8 1.0 1.0 1.0 1.2 1.3 1.3 1.1 1.2 1.1 35 Suzuki Motorcycle India 0.5 0.3 0.9 0.6 1.0 1.1 1.3 0.9 1.2 0.9 42 TVS Motor Company 6.2 5.9 5.3 5.0 4.4 5.1 6.5 6.2 5.8 5.5 (61) Source: SIAM, Nirmal Bang Institutional Equities Research Hero MotoCorp, Bajaj Auto and TVS Motor Company lose market share in key segments: Segment-wise market share analysis indicates Hero MotoCorp , Bajaj Auto and TVS Motor Company lost market share in those segments which are their key segments. In YTDFY13 Hero MotoCorp lost 614bps market share in the executive category, primarily due to sharp market share erosion in Splendor motorcycle. In case of Bajaj Auto and TVS Motor Company, they lost market share in the entry-level segment as well as premium segment. In case of Bajaj Auto, the loss of market share in the premium segment comes despite the launch of Pulsar 200 NS motorcycle. Exhibit 5: Economy segment vehicle market share movement-monthly Company FY12 Apr-12 May-12 Jun-12 Jul-12 Aug-12 Sep-12 Oct-12 Nov-12 YTDFY13 bps change YTDFY13 versus FY12 Bajaj Auto 28.5 29.9 27.3 29.2 27.6 25.8 22.9 26.8 25.0 26.8 (172) Hero MotoCorp 44.8 46.2 50.1 49.9 53.7 53.0 52.4 48.6 50.1 50.5 571 TVS Motor Company 25.1 21.8 20.7 19.2 16.9 19.3 23.1 23.3 23.1 20.9 (417) Yamaha India 1.5 2.0 1.8 1.7 1.8 1.9 1.5 1.3 1.8 1.7 19 Source: Crisil, Nirmal Bang Institutional Equities Research Exhibit 6: Executive segment vehicle market share movement-monthly Company FY12 Apr-12 May-12 Jun-12 Jul-12 Aug-12 Sep-12 Oct-12 Nov-12 YTDFY13 bps change YTDFY13 versus FY12 Bajaj Auto 20.1 16.4 17.3 19.0 19.9 21.5 24.6 24.4 23.5 20.8 75 Hero MotoCorp 68.7 71.4 68.8 66.6 62.8 60.6 53.7 57.8 59.2 62.6 (614) HMSI 9.4 11.1 12.0 12.9 15.1 15.6 18.9 15.8 14.2 14.5 509 Yamaha India 1.0 0.4 0.6 0.6 0.7 0.7 0.8 0.5 0.6 0.6 (41) TVS Motor Company 0.2 0.4 0.0 0.0 0.0 0.0 0.0 0.0 0.8 0.2 (1) Suzuki Motorcycle 0.6 0.0 1.2 0.9 1.5 1.7 2.0 1.4 1.7 1.3 69 Mahindra Two- wheelers 0.0 0.3 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 3 Source: Crisil, Nirmal Bang Institutional Equities Research

3 Two-wheeler Sector

Institutional Equities

Exhibit 7: Premium segment market share movement-monthly Company FY12 Apr-12 May-12 Jun-12 Jul-12 Aug-12 Sep-12 Oct-12 Nov-12 YTDFY13 bps change YTDFY13 versus FY12 Bajaj Auto 41.9 40.4 44.3 39.7 39.9 41.5 43.0 42.2 39.0 41.3 (70) Hero MotoCorp 19.5 19.2 13.8 14.4 10.6 7.3 8.9 17.7 18.0 13.7 (573) HMSI 9.7 12.5 13.6 15.8 16.5 16.9 16.3 12.3 13.3 14.6 498 Royal Enfield 4.6 6.1 6.4 6.9 7.8 8.2 7.5 6.4 7.4 7.1 248 Yamaha India 15.3 13.4 12.2 13.9 17.1 17.6 16.1 13.6 15.4 14.9 (34) TVS Motor Company 8.5 7.7 9.3 9.0 7.7 8.2 7.8 7.4 6.8 8.0 (46) Suzuki Motorcycle India. 0.6 0.6 0.3 0.3 0.4 0.4 0.4 0.3 0.3 0.4 (23) Source: Crisil, Nirmal Bang Institutional Equities Research Exhibit 8: Motorcycle – Model-wise market share of various players Player Segment Model FY12 Apr-12 May-12 Jun-12 Jul-12 Aug-12 Sep-12 Oct-12 Nov-12 YTDFY13 bps change YTD FY13 versus FY12 Hero MotoCorp Premium CBZ X-TREME 12.3 11.8 7.7 6.7 4.6 0.6 0.5 6.8 8.4 5.9 (643) Hero MotoCorp Executive Splendor 42.2 44.7 42.6 40.9 35.6 35.1 25.6 30.1 35.1 36.2 (600) TVS Motor Company Economy Star 24.3 21.4 20.4 18.9 16.6 19.0 22.7 23.0 22.8 20.6 (367) Yamaha India Premium SZ 5.2 3.2 3.3 2.8 3.8 3.9 3.7 2.5 3.1 3.3 (186) Bajaj Auto Executive Discover 150 2.4 1.3 1.1 1.0 0.8 0.7 0.6 0.6 0.4 0.8 (161) Bajaj Auto Premium Pulsar 40.1 38.0 41.9 37.2 37.5 39.0 40.6 40.0 36.6 38.8 (124) Hero MotoCorp Premium Hunk 3.7 2.9 2.8 3.0 2.3 1.3 2.5 3.0 1.9 2.5 (121) HMSI Executive CB Twister 2.2 1.4 1.5 1.5 1.1 0.9 0.8 0.8 0.6 1.1 (111) Bajaj Auto Economy Platina 27.8 29.9 27.3 29.2 27.6 25.8 22.9 26.8 25.0 26.8 (98) Hero MotoCorp Executive Passion 22.0 21.2 21.5 21.1 21.9 20.5 21.3 21.8 19.3 21.1 (95) Bajaj Auto Economy Platina 125 0.7 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 (74) HMSI Premium CBR 250 1.0 0.5 0.3 0.3 0.2 0.2 0.5 0.6 0.3 0.4 (63) Suzuki Motorcycle India Executive Sling Shot 0.6 0.0 0.2 0.1 0.1 0.1 0.1 0.1 0.1 0.1 (52) TVS Motor Company Economy MAX 4R 0.8 0.4 0.3 0.3 0.3 0.3 0.4 0.3 0.3 0.3 (51) TVS Motor Company Premium Apache5 8.5 7.7 9.3 9.0 7.7 8.2 7.8 7.4 6.8 8.0 (47) Yamaha India Premium Fazer 2.7 2.1 2.2 2.0 2.5 2.6 2.5 2.1 1.9 2.2 (43) Hero MotoCorp Premium Karizma 2.8 2.9 2.5 2.8 1.8 2.5 2.6 2.5 2.3 2.5 (31) Hero MotoCorp Premium Impulse 0.7 1.5 0.8 0.5 0.2 0.2 0.0 0.0 0.0 0.4 (29) Yamaha India Executive YBR 110 0.5 0.0 0.3 0.3 0.4 0.3 0.4 0.3 0.3 0.3 (25) Suzuki Motorcycle India Premium GS 150 0.6 0.6 0.3 0.3 0.4 0.4 0.4 0.3 0.3 0.4 (23) Yamaha India Executive Gladiator 0.5 0.4 0.3 0.3 0.3 0.3 0.4 0.2 0.3 0.3 (17) Hero MotoCorp Economy CD Dawn 2.8 2.7 2.9 2.9 3.0 3.0 2.9 2.4 1.6 2.7 (11) CB Unicorn HMSI Premium 0.2 0.4 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.1 (11) Dazzler Yamaha India Premium YZF R15 1.9 2.5 0.0 1.9 2.4 2.5 2.2 1.8 1.9 1.9 0 HMSI Executive CBF Stunner 0.4 0.5 0.5 0.5 0.6 0.3 0.4 0.3 0.2 0.4 2 Mahindra Two- wheeler Executive Stallio 0.0 0.3 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 3 TVS Motor Company Executive Phoenix 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.8 0.1 10 Bajaj Auto Premium Avenger 1.7 1.6 1.9 2.0 1.9 1.8 1.8 1.8 2.0 1.8 15 Yamaha India Economy R 1.5 2.0 1.8 1.7 1.8 1.9 1.5 1.3 1.8 1.7 19 Bajaj Auto Premium KTM 200 0.1 0.8 0.5 0.5 0.5 0.6 0.5 0.4 0.4 0.5 40 HMSI Premium CBR 150 0.0 0.6 0.7 1.1 1.1 1.0 0.9 0.4 0.63 0.8 77 Hero MotoCorp Executive Glamour-125 4.5 5.5 4.7 4.5 5.2 5.1 6.8 5.9 4.8 5.3 81 Bajaj Auto Executive Discover 125 7.9 8.5 9.8 6.1 7.2 9.3 11.0 11.0 9.7 9.1 119 Suzuki Motorcycle India Executive Hyate 0.0 0.0 1.0 0.8 1.4 1.6 1.9 1.4 1.6 1.4 138 Bajaj Auto Executive Discover M 9.2 6.5 6.4 11.9 11.8 11.5 13.0 12.8 13.4 10.9 168 Yamaha India+ Premium FZ16 5.5 5.7 6.7 7.1 8.4 8.6 7.8 7.2 8.5 7.5 195 Royal Enfield Motors Premium Bullet 4.6 6.1 6.4 6.9 7.8 8.2 7.5 6.4 7.4 7.1 248 HMSI Executive Shine 6.8 9.3 9.2 9.1 8.7 8.9 10.9 9.7 8.7 9.3 249 Hero MotoCorp Premium Ignitor 0.0 0.0 0.1 1.5 1.7 2.6 3.3 5.5 5.4 2.5 251 HMSI Executive Dream Yuga 0.0 0.0 0.7 1.9 4.7 5.5 6.8 5.0 4.7 3.7 368 HMSI Premium Unicorn 8.5 11.0 12.6 14.4 15.2 15.7 14.9 11.2 12.3 13.4 494 Hero MotoCorp Economy CD Dawn Dlx 42.0 43.5 47.2 47.0 50.7 50.0 49.6 46.2 48.5 47.8 582 Source: Crisil, Nirmal Bang Institutional Equities Research

4 Two-wheeler Sector

Institutional Equities

Scooter - A tale of new product launches: In the recent past, two-wheeler companies Hero MotoCorp, Suzuki Motorcycle India, Yamaha India and Piaggio India launched new products in the scooter segment which were well accepted by the market and led to market share gains for all these companies at the cost of TVS Motor Company and Mahindra Two-wheelers who did not launch new products. Yamaha India’s Ray scooter, which was launched in September 2012, has been a big success as the model gained ~4% market share since its launch in September 2012, while Hero MotoCorp, Suzuki Motorcycle India and Piaggio India continued to gain market share on the back of new launches in the past one year. HMSI maintained its dominance in the scooter segment but witnessed pressure on its market share over the past three-four months, primarily due to the launch of new products by Yamaha India and Piaggio India. Nevertheless, it gained 196bps market share in YTDFY13 compared to FY12. The market’s acceptance of new products launched recently clearly indicates that there is room for companies to grow in this segment. Exhibit 9: Market share of various players in scooter space Company FY12 Apr-12 May-12 Jun-12 Jul-12 Aug-12 Sep-12 Oct-12 Nov-12 YTDFY13 bps change YTDFY13 v/s FY12 Hero MotoCorp 16.3 17.7 15.4 14.4 14.6 18.4 19.4 20.1 18.1 17.3 93 HMSI 47.4 50.8 52.8 53.9 50.9 48.2 48.8 44.7 45.2 49.4 196 Yamaha India 0.0 0.0 0.0 0.0 0.0 0.0 1.4 4.4 4.2 1.3 126 Mahindra Two-wheelers 5.3 4.5 3.9 5.0 4.1 4.3 3.2 4.0 4.1 4.1 (121) Piaggio India 0.0 0.4 0.7 1.1 1.4 1.2 0.7 1.7 2.0 1.1 114 Suzuki Motorcycle India 11.3 12.3 12.4 8.7 12.6 12.0 11.2 9.8 11.7 11.3 2 TVS Motor Company 19.6 14.4 14.9 16.8 16.5 16.1 15.4 15.4 14.7 15.5 (409) Source: SIAM, Nirmal Bang Institutional Equities Research Exhibit 10: Model-wise market share of various players in motorcycle space Company Model Apr-12 May-12 Jun-12 Jul-12 Aug-12 Sep-12 Oct-12 Nov-12 TVS Motor Company Teenz, Pep 0.0 0.1 0.0 0.0 0.0 0.0 0.0 0.0 TVS Motor Company Pep + Streak 8.8 9.2 10.5 10.2 9.8 8.7 8.4 7.8 TVS Motor Company Wego 5.6 5.5 6.3 6.3 6.3 6.7 7.0 6.8 Hero MotoCorp Pleasure, Maestro 17.7 15.4 14.4 14.6 18.4 19.4 20.1 18.1 HMSI Activa, Dio, Aviator 50.8 52.8 53.9 50.9 48.2 48.8 44.7 45.2 Yamaha India Ray 0.0 0.0 0.0 0.0 0.0 1.4 4.4 4.2 Suzuki Motorcycle India Access, Swish 12.3 12.4 8.7 12.6 12.0 11.2 9.8 11.7 Piaggio India Vespa LX125 0.4 0.7 1.1 1.4 1.2 0.7 1.7 2.0 Mahindra Two-wheelers Duro/Duro DZ, Rodeo, Flyte 4.4 3.7 4.9 4.0 4.2 3.2 3.9 4.0 Mahindra Two-wheelers Kine 0.1 0.2 0.0 0.0 0.1 0.0 0.1 0.1 Source: SIAM, Nirmal Bang Institutional Equities Research Dealer network expansion: One of the main reasons behind the recent success of HMSI and Suzuki Motorcycle India is the scale at which these companies ramped up their dealer network. In the past one year, these two companies led percentage increase in dealer network as they ramped up their dealer network by 47% and 25%, respectively, as against an increase of 7% and 8% in case of Hero MotoCorp and Bajaj Auto, respectively. TVS Motor Company also ramped up its dealer network, but lost market share across segments due to lack of new product launch. Exhibit 11: Dealer network Company Oct-11 Oct-12 YoY (%) Hero MotoCorp 700 750 7.1 Bajaj Auto 600 647 7.8 HMSI 400 588 47.0 TVS Motor 650 784 20.6 Yamaha India 450 450 0.0 Suzuki Motorcyle India 200 250 25.0 Mahindra Two-wheelers 370 410 10.8 Source: Crisil

5 Two-wheeler Sector

Institutional Equities

New product launch: Launch of new products plays a very important role in gaining market share and is one of the key reasons behind the success of HMSI and Suzuki Motorcycle India. New products launched by these companies were well accepted by the market and helped them in gaining strong market share. New launches also hold significant importance in the scooter segment as all new products launched in the past one year have been very well accepted by customers. HMSI has been most aggressive with four new launches in CY12, while Suzuki Motorcycle India and Yamaha India made two new launches each. Yamaha India marked its entry into the scooter segment with its Ray scooter, which garnered a 4% market share within a few months of its launch. Established players Bajaj Auto launched two new motorcycles and Hero MotoCorp launched a scooter and a motorcycle in CY12. TVS Motor Company has been a laggard, as it launched only a motorcycle and that too last month, which led to significant market share erosion. Exhibit 12: Vehicle models launched recently Company Segment Model Month of launch Engine capacity Bajaj Auto Motorcycle Pulsar 200NS Sep-12 200 cc Motorcycle Discover 125 ST May-12 125 cc

Bajaj- KTM Motorcycle KTM Duke 200 Jan-12 200 cc Yamaha India Scooter Ray Sep-12 113 cc Motorcycle YZF - R15 2.0 Sep-11 150 cc

Hero MotoCorp Motorcycle Ignitor Jun-12 125 cc Scooter Maestro Apr-12 110 cc

Motorcycle Impulse Oct-11 150 cc

HMSI Motorcycle Dream Yuga May-12 109 cc Motorcycle CBR 150R Mar-12 150 cc

Scooter New Dio Feb-12 110 cc

Motorcycle CBR 250R Mar-12 250 cc

Motorcycle CB Unicorn Dazzler Nov-11 125 cc

Mahindra Two-wheelers Motorcycle Stallio Jan-12 110 cc Scooter Duro DZ Dec-11 125 cc

Suzuki Motorcycle India Motorcycle Hayate May-12 110 cc Scooter Swish Jan-12 125 cc

TVS Motor Co. Motorcycle Phoenix Oct-12 125 cc Piaggio India Scooter Vespa LX Apr-12 125 cc Source: Crisil Exhibit 13: Upcoming new products Company Segment Model name/sub-segment Likely launch Bajaj Auto Motorcycle 100cc commuter bike 4Q FY13 Bajaj-KTM Motorcycle Sports/dirt bikes 2QFY14 Hero MotoCorp Motorcycle 250cc sports bike 3QFY14 Motorcycle 100cc-125cc commuter bike 4QFY14

HMSI Motorcycle 100cc-125cc commuter bike 3QFY14 Yamaha India Scooter 125 cc scooter 2Q FY14 Piaggio India Motorcycle Sports bike 3Q-4QFY14 Scooter 100cc-125cc scooter 3Q-4QFY14

Source: Crisil Outlook and valuation: We currently have a Sell rating on Hero MotoCorp (target price Rs1,687), Bajaj Auto (target price Rs1,633)and TVS Motor Company (target price Rs38) as we believe the domestic two-wheeler industry faces structural issues, given its higher base and intense competition. Further, we do not expect any meaningful improvement in demand in FY14 and hence maintain our negative view on the sector.

6 Two-wheeler Sector

Institutional Equities

Hero MotoCorp – Rating: SELL; CMP: Rs1,878; TP: Rs1,687 Y/E March (Rsmn) FY10 FY11 FY12 FY13E FY14E Net sales 157,582 193,979 235,790 240,925 273,315 EBITDA 26,620 24,309 27,965 26,927 32,553 Net profit 22,318 20,077 23,776 22,761 24,961 EPS (Rs) 111.8 100.5 119.1 114.0 125.0 EBITDA margin (%) 16.9 12.5 11.9 11.2 11.9 PER (x) 16.7 18.7 15.7 16.5 15.0 P/BV (x) 10.9 12.7 8.7 6.7 5.3 EV/EBITDA (x) 13.4 15.4 13.4 13.6 10.8 RoCE (%) 64.1 64.2 65.5 45.3 43.5 RoE (%) 61.4 62.5 65.6 46.2 39.6 Source: Company, Nirmal Bang Institutional Equities Research Bajaj Auto – Rating: SELL; CMP- Rs2,145; TP: Rs1,633 Y/E March (Rsmn) FY10 FY11 FY12 FY13E FY14E Net sales 119,210 163,982 195,290 205,620 228,647 EBITDA 25,926 31,690 37,191 38,442 42,315 Net profit 18,652 26,130 31,372 31,486 34,298 EPS (Rs) 128.9 90.3 108.4 108.8 118.5 EBITDA margin (%) 21.7 19.3 19.0 18.7 18.5 PER (x) 16.6 23.7 19.7 19.7 18.1 P/BV (x) 10.6 12.6 10.3 8.1 6.5 EV/EBITDA (x) 12.5 19.6 16.3 15.7 14.3 RoCE (%) 63.7 64.1 62.6 52.7 46.4 RoE (%) 84.5 48.2 59.7 45.9 39.8 Source: Company, Nirmal Bang Institutional Equities Research TVS Motor Company– Rating: SELL; CMP: Rs43; TP: Rs38 Y/E March (Rsmn) FY10 FY11 FY12 FY13E FY14E Net sales 44,301 62,880 71,262 74,437 83,943 EBITDA 1,872 3,921 4,694 4,637 5,400 PAT 878 1,946 2,491 2,219 2,787 EPS 3.7 4.1 5.2 4.7 5.9 EBITDA margin (%) 4.2 6.2 6.6 6.2 6.4 P/E 11.6 10.5 8.2 9.2 7.3 P/BV (x) 1.2 2.05 1.7 1.5 1.3 EV/EBITDA 4.8 1.6 1.5 1.3 0.9 RoE (%) 10.5 20.9 23.0 17.8 19.5 RoCE (%) 9.0 14.4 16.7 13.8 15.2 Source: Company, Nirmal Bang Institutional Equities Research

7 Two-wheeler Sector

Institutional Equities

Rating history – Hero MotoCorp Date Rating Market price (Rs) Target price (Rs) 28 November 2011 Sell 2,050 1,891 18 January 2012 Hold 1,826 1,891 20 January 2012 Hold 1,945 1,947 18 April 2012 Sell 2,141 1,947 2 May 2012 Sell 2,245 1,956 12 July 2012 Sell 2,059 1,956 20 July 2012 Sell 2,104 1,925 4 October 2012 Hold 1,849 1,925 25 October 2012 Sell 1,796 1,687

Rating history – Bajaj Auto Date Rating Market price (Rs) Target price (Rs) 28 November 2011 Hold 1,642 1,660 18 January 2012 Hold 1,452 1,659 20 January 2012 Hold 1,561 1,701 18 April 2012 Sell 1,718 1,701 18 May 2012 Buy 1,529 1,759 12 July 2012 Buy 1,491 1,759 20 July 2012 Hold 1,548 1,723 04 October 2012 Sell 1,781 1,723 22 October 2012 Sell 1,772 1,723 23 October 2012 Sell 1,783 1,633

Rating history – TVS Motor Company Date Rating Market price (Rs) Target price (Rs) 28 November 2011 Hold 61 69 18 January 2012 Buy 49 69 1 February 2012 Hold 52 58 18 April 2012 Buy 41 58 25 May 2012 Hold 34 38 12 July 2012 Sell 41 38 30 July 2012 Sell 37 36 04 October 2012 Sell 45 36 01 November 2012 Sell 39 38

8 Two-wheeler Sector

Institutional Equities

Disclaimer Stock Ratings Absolute Returns

BUY > 15%

HOLD 0-15%

SELL < 0%

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9 Two-wheeler Sector