INDIAN TWO-WHEELER INDUSTRY

The two-wheeler industry registered a 5.2% growth in FY 2016-17, compared to the previous
year. The overall industry (domestic and export) increased from 18.94 million units in FY
2015-16 to 19.92 million units in FY 2016-17. The performance of Indias two-wheeler
industry in FY 2016-17 can be divided into two parts: pre- and post-demonetisation.

Pre-demonetisation: The industry witnessed double-digit growth from April to October

2016, highest since FY 2011-12. The demand in this phase was strong in rural markets
owing to average monsoons. Moreover, the Seventh Pay Commission pay-outs played a
part in pushing demand in urban and semi-urban India.

Post-demonetisation: Demonetisation had a short-term impact on the overall automotive

sector, as it led to a cash crunch in the market. Consequently, the two-wheeler industry
recorded a decline in the post-demonetisation phase (November 2016 to January 2017).

In February-March, 2017 the industry partially recovered, although it was hampered by the
industrys migration from BSIII to BSIV emission norms.
Risk Assessment

The landscape of the framework includes strategic, external, financial, regulatory and
operational risks to achieve key business objectives. Key strategic initiatives are identified to
mitigate specific risks. Hero MotoCorp seeks to minimise the adverse impact of these risks;
thereby enabling us to leverage market opportunities effectively and enhance its long-term
competitive advantage.

COMPETITIVE LANDSCAPE

The two-wheeler market is driven by the motorcycle segment and the market leader is one who
maintains the lead in that segment. However, the complexion of Indias two-wheeler industry
is changing due to two main reasons:

Change in segment contribution to the overall market - scooters continued to have a larger
share of the overall industry. Also, the revival of mopeds and growth in premium
motorcycle segment.
Competition intensification with new, global players entering and/or raising their
competitive intensity.
Moreover, domestic and global players alike have expanded their product portfolio in not just
the above-mentioned segments; but also in entry and deluxe segments of the market.

Except for the 2nd half of the calendar, FY 2016-17 witnessed a significant traction in each of
the segments including:

Entry motorcycles- with the launch of lower priced products

Premium motorcycles- as both global and domestic players
Scooters
Mopeds
Hero has been the market leader for 16 consecutive years now, including the six years of its
solo journey; amidst increasing competition across segments. Not only have we scaled up our
in-house R&D capabilities, have also invested in strengthening our processes and systems
appropriately. We will continue to set new benchmarks in product introductions, innovations,
global expansion and customer orientation in the years to come.

EVOLVING CUSTOMER PREFERENCES, DRIVING STRUCTURAL INDUSTRY

SHIFTS

Evolving customers preferences, higher disposable incomes, increasing urbanisation

and infrastructure turnaround may lead to structural and segmental shifts in the two-
wheeler industry. The increase in Scooter contribution and the growth of Premium motorcycles
in the industry are led by the emergence of women buyers and millennials. Hero MotoCorp is
addressing these structural shifts with its new product pipeline. We are also making our
processes, capacities and plans agile and lean to adapt to the changing scenario with swiftness,
through closer inter departmental collaboration.

REGULATORY CHANGES DRIVING TECHNOLOGY AND COST IMPLICATIONS

Regulatory changes, especially in vehicular emissions, have grown significantly in recent

times. The big impact of the changeover from Bharat Stage III to Bharat Stage IV (BSIII to
BSIV) emission norms was visible in FY 2016-17. While the upcoming regulatory changes
will enhance technology standards and hence may have cost implications, it is imperative all
manufacturers, not just work on preparedness but also consider the possible cost of compliance.

MACRO TRENDS

Hero MotoCorp has worked towards diversifying its products and expanding into new markets
to neutralise the impact of unforeseen trends in specific markets.

CYBER SECURITY THREATS

The Companys IT systems along with its third-party service providers and vendors
systems are vulnerable to the continually evolving cyber security risks. A Cyber
Security breach may adversely affect the Companys reputation, revenue and
earnings. We continue to strengthen our Information technology controls to prevent
ourselves from emerging cyber security threats

DECLINE IN COMPANYS MARKET SHARE OR FAILURE TO ACHIEVE GROWTH

A decline in the market share in domestic markets or failure in growth in exports could have
an adverse impact on a Companys growth plans. These could be due to capacity
constraints, competitive pressures or other factors.

We aim to maintain competitive economies of scale and grow market share in domestic and
export markets.

RISK MANAGEMENT FRAMEWORK

Company follows a comprehensive system of Risk Management. It has adopted a policy and
procedure for rapid identification, definition of risk mitigation plans and execution. Actions
include adjustments in prices, dispatch plan for specific durations across models, inventory
build-up, aligning product line-up as per regulatory mandates and active participation in
regulatory mechanisms. Many of these risks can be foreseen through systematic tracking.

Major risks can be categorised across following:

 Changes in regulations
Market contraction due to macro-economic factors
Socio-economic-political disruptions

Company has constituted a Risk Management Committee to oversee the risk management
efforts under the Chairmanship of Mr. M. Damodaran, Independent Director. The details of
the Committee along with its charter are set out in the Corporate Governance Report, forming
part of this report. The Board periodically reviews the Risk Management framework of the
Company.