Letter to the
Shareholders

Dear Shareholders,

I am delighted to write to you at the end of what has been a landmark reporting period for us at Eicher Motors Limited (EML). We have moved to financial year reporting because of which this annual report covers the 15-month period of January 1, 2015- March 31, 2016. Wherever possible we have provided a comparison between figures for the twelve months ended March 31, 2015 and the corresponding period ended March 31, 2016, for easier understanding.

In the last fifteen months, EML has once again demonstrated its ability to deliver industry-leading growth across all its businesses. Our reputation as an organisation that offers a truly differentiated and customer-centric proposition has been reinforced during this period. 2015-16 was marked by ground-up product introductions across our motorcycle and joint venture businesses. Our breakthrough go-to market business model, perseverance and single-minded pursuit of our goals have delivered this phenomenal growth trajectory.

CONSOLIDATED PERFORMANCE

The past year reflected a solid performance at EML. The total revenue from operations for the 15-month period ending March 31, 2016 was Rs.15,688.7 Crores and for the 12-month period ending March 31, 2016 was Rs.13,120.7 Crores, resulting in our best ever performance. Sales volumes for the 12-month period ending March 31, 2016 for VECV were 52,025 units (including Exports and Volvo units) and for Royal Enfield were 5,08,099 units. We have achieved our best ever EBIT margin at 13.0% for the 12-month period ending March 31, 2016.

STANDALONE PERFORMANCE

The total revenue from operations for the 15-month period ending March 31, 2016 was Rs.6,188 Crores and for the 12-month period ending March 31, 2016 was Rs. 5,226.9 Crores. This phenomenal growth was supported by our best ever EBIT margin at 26.0% for the 12-month period ending March 31, 2016.

ROYAL ENFIELD

The 15-month period ending March 31, 2016 has been yet another stupendous year for Royal Enfield. We exceeded our own plans and expectations, both in revenue and profit terms. During the 12-month period from April 2015 to March 2016, we sold over half a million motorcycles. Considering that this was just about 52,000 motorcycles in 2010, it gives you a sense of the phenomenal growth Royal Enfield has achieved over the years.

We are winning and continuing to achieve the improbable. We have been able to do this by following a single idea for well over a decade with fearlessness and persistence; and by continually challenging the fundamentals of how business should be run and brands should be created. We didn’t take the well-trodden path, and we didn’t follow industry conventions; we created our own path which has led us to this outstanding success.

We are working very hard to transform Royal Enfield into a truly front-end consumer and brand-led organisation, rather than what is typically seen at other automotive firms, which are engineering or manufacturing driven. It doesn’t mean that engineering and manufacturing are not important to Royal Enfield. In fact, they are more important than ever. It only means that even our most fundamental product, engineering and manufacturing decisions are driven by where we want our brand to go, and where we see our consumers shifting to - or with the right offering, where our consumers may shift to. Most automotive firms are driven by either creating differentiated products through modern technology, or by improving manufacturing processes so much that they will reap the benefits in lower cost or better productivity. We are driven by deep insights into our customer’s needs (met or unmet) and understanding the cultural nuances in a way that we can create a more holistic offering that gives an unparalleled experience to our customer.

We didn’t take the well-trodden path, and we didn’t follow industry conventions.

Our most fundamental product, engineering and manufacturing decisions are driven by where we want our brand to go, and where we see our consumers shifting to.

The launch of the Himalayan in March 2016, a motocycle purpose-built for adventure and touring the Himalayas, in a sense typifies this approach. The Himalayan is the culmination of Royal Enfield’s 60 years of enduring history in its spiritual home — the Himalayas. Our single biggest insight in all these years of riding has been that the best motorcycle for the Himalayas is not one that tries to dominate its landscape, but one that is able to go with its flow. Large adventure tourers that currently define this category in developed nations, do not fare well in the Himalayas as they are very heavy, extremely complicated, intimidating and not really designed for this environment.

With a completely ground-up design, and powered by a new LS 410 engine, the Royal Enfield Himalayan paves the way for a purer, non-extreme and more accessible form of adventure touring in India. In fact, its extremely capable off-road capabilities make it adept for riding though potholed urban jungles as it does for treacherous mountain trails. I am absolutely delighted with the response that the Himalayan has received from our customers and other motorcycling enthusiasts.

While we have created and own the leisure motorcycle market in India with our current market share of 96% in the 250cc and above category of motorcycles, we still hold less than 6% market share in the overall motorcycle industry in India. India is the largest commuter motorcycle market in the world, but largely concentrated in the sub-150 cc segment. With the Indian economy growing at a fast clip, a younger demographic and an aspirational environment, the demand for mid-segment motorcycles will continue to grow. Therefore, for a brand like Royal Enfield, the potential to expand the market further and penetrate deeper is significant. We see a significant headroom for growth. We continue to expand our retail footprint with almost all of our 500 stores reflecting our new brand retail identity. This has allowed us to create a truly differentiated retail environment for our customers.

While India continues to be our stronghold market, at Royal Enfield we believe that our next level of growth will also come from our developing international business. Our focused international thrust is based on creating demand and building aspiration for the Royal Enfield brand in identified international markets. This means focusing on cities, rather than countries. Towards this we have opened several beautiful stores in prominent parts of London, Paris, Madrid, Bogota, Medellin, to name a few. This year we also launched the brand in the leading two-wheeler markets of Indonesia and Thailand with exclusive stores in Jakarta and Bangkok. In addition to our evocative motorcycles and gear, we support these stores with several rides and community events that engage our customers in these parts of the world. We believe that a few years down the line, if we are successful in these cities, we will be able to succeed in these countries.

In 2015, as part of our international business growth plans, we also announced our market company in the world’s most valued motorcycle market - North America. With the close of the calendar year, we completed our transition from our erstwhile distributor led business to our subsidiary in North America. With the team in place we are now working on our strategy to make a mark in this market.

While we continue to work relentlessly on demand generation, we have also taken significant steps to reinforce our product development capabilities at Royal Enfield. This year we made a strategic decision to buy the UK-based motorcycle engineering and design firm, Harris Performance. We are also on track with setting up both our technology centres in Leicestershire, UK and Chennai, India. In UK, we already have a team of more than 50 engineers with deep experience in design and development of motorcycles. Our third manufacturing facility at Vallam Vadagal, Tamil Nadu will also be ready as per plan. We continue to build a robust team and create capabilities across the organisation.

Encouraged by the performance in the year that went by Royal Enfield plans to manufacture around 6,75,000 motorcycles in 2016-17. We will also be investing Rs.600 Crores towards setting up two technical centres, product development, enhancing our manufacturing capacity and market development activities across geographies.

VE COMMERCIAL VEHICLES (VECV)

VE Commercial Vehicles (VECV), our joint venture with the Volvo Group, reported a strong performance together with market share growth. The commercial vehicle industry is now coming out of a prolonged downturn and we are positive that the it will grow as we continue through this year.

After two successive years of insufficient rains in some parts of India, the forecast for the ensuing year is good. Therefore, this will lead to a positive sentiment, and consequently spur demand across the spectrum. The reduction in interest rates on small saving schemes by Government of India is also indicative of the southward movement of interest rates in the near future. There is significant focus on execution of announced infrastructure projects by Government of India and we can now see some movement at the ground level with pickup in demand for tippers that are mostly used in road constructions and mining applications.

These positive developments are leading to growth in the CV industry and we expect a lot of traction in infrastructure sector in the current year. We believe the construction truck segment will lead the boom in 2016 and we might see a new peak in HD trucks crossing the earlier peak of 2,40,000 units in 2011. LMD trucks started doing well from the second half of 2015. We do hope that in 2016-17, this sector should mirror the growth as recorded by HD trucks in 2014-15 and should cover substantial gap with the earlier peak of 1,00,000 units achieved in 2011.

VECV recorded strong growth across its heavy duty and light and medium segments during the fifteen month period ended March 31, 2016. Building on the remarkable performance of the Pro series range of trucks and buses, VECV successfully launched new variants in the Pro 6000 and the Pro 8000 series across the country. In the FY 2016-17 Eicher Trucks & Buses will enter the sub 5T category of commercial vehicles with the launch of Eicher Pro 1049. We are planning to invest Rs. 400 Crores in VECV towards product development and capacity expansion.

EICHER POLARIS PRIVATE LIMITED (EPPL)

EML’s joint venture with Polaris Industries - Eicher Polaris Private Limited launched its ground- breaking product- Multix in June 2015. This is India’s first 3-in-1 Personal Utility Vehicle, created for the independent businessman. Multix creates a new consumer segment in the Indian automotive industry.

With versatility at its heart, Multix offers the unique power of extreme adaptability to the consumer. Multix has a generous cabin space that can comfortably seat a family of five along with luggage, Multix can be adapted to create large storage space of 1918 litres. Multix is equipped with X-PORT ™ - a unique power-takeoff point, which can generate power of upto 3 KW that can be used for lighting homes and powering professional equipment such as drilling machines, DJ systems, water pumps and more.

Given its value proposition, Multix has received significant traction amongst its target audience. EPPL has been expanding its footprint across its target markets. It is now present in 34 locations across 8 states and continues to gain momentum in its target markets.

CSR INITIATIVES

Eicher has always been very active in the area of ‘corporate social responsibility’ and building the local community in the areas where we are located. Over the last decades, we have supported Delhi and North India’s premier charitable eye hospital, and extended its reach over time. In these years, we have also put a lot of energy and resource behind education for underprivileged girl children in the tribal areas of Alwar District, Rajasthan. In addition, we are now working on vocational training for under privileged youth in cities across the country, education for the healthcare for Delhi’s truck drivers and local area development around our Chennai factories.

Building on the remarkable performance of the Pro series range of trucks and buses, VECV successfully launched new variants in the Pro 6000 and the Pro 8000 series across the country.

Multix is India’s first 3-in-1 Personal Utility Vehicle, created for the independent businessman. It creates a new consumer segment in the Indian automotive industry.

At Eicher Motors Limited we have emerged as one of the leading, prominent and well respected players in the automotive segment in India. Our long term approach to business has given us a solid momentum in our core businesses. We are reaping the benefits of that now, while laying the foundation for the next phase of growth in the coming years.

Thanking you for the continued support and faith in our vision.

Siddhartha Lal

Managing Director & CEO
Eicher Motors Limited