MANAGEMENT DISCUSSION AND ANALYSIS REPORT

The Indian tyre industry is more than 75 years old and TVS Srichakra has been able to achieve leadership position in the two wheeler tyre category in the country, though being one of the youngest Company in this business. The management discussion and analysis given below discusses the key issues of the business.

INDUSTRY STRUCTURE AND DEVELOPMENT GLOBAL TYRE INDUSTRY

Increasing per capita income in developing nations, population growth oriented towards middle class, urbanization, infrastructural growth, and the green movement is all expected to drive growth in the Industry over the coming years.

This increasing sale of passenger vehicles, two-wheelers and commercial vehicles and the resultant strong demand for replacement of these tyres in the After Market, offers significant opportunities for all the players in this industry.

While there is enough opportunity, dependency on Original Equipment Manufacturers and volatile Raw material prices are likely to posse challenges to the players in this industry. Consumer demand for better Fuel efficiency and their increasing safety awareness is transitioning the industry to move towards technology advancement for high performance tyres.

INDIAN TYRE INDUSTRY

India is one of the largest automobile markets in the world, which consequently makes the country one of the leading markets for tyres. Indian automobile sector has reported a Compounded Annual Growth Rate (CAGR) of about 11% during the period 2009-14. The Indian tyre industry has been reporting consistent growth figures over the past few years, spurred by the growing passenger vehicles, two and three wheeler market.

The rise in population, disposable income, aspirations of the Indian middle class and increase in the supply of vehicle models for the domestic market have been the major factors augmenting growth in the Indian tyre industry. In addition, with the emergence of new technology, ultra-modern production facilities and availability of raw materials, the sector is poised to grow further. However, the industry has emerged as one of the most competitive markets in the world.

TWO WHEELER MARKET

Indian Economy grew by 7.5% in the FY 14-15 (April-December) as per the revised GDP calculation methodology. Inflation came under control mainly due to the steep fall in crude oil prices which in turn made the Reserve Bank of India cut rates in the latter half of FY 14-15. During the first Half year of FY 14-15, the Two Wheeler industry saw a growth of about 16% Year on Year (Y-o-Y) but the growth in the second half, was at 6% Y-o-Y. The overall growth for the full year of FY 14-15 was at 10% Y-o-Y.

This growth was primarily driven by the scooter segment which saw a 34% Y-o-Y growth whereas the motorcycle segment experienced a growth of just 5%. While the demand for Scooter has been influenced by the growing female users and the urban growth, the demand for Motorcycles with Low to mid-range engine capacity has been due to the tepid growth in the rural side. However, Motorcycles with High end engine capacity did witness a positive growth under the influence of the growing youth population supported through the urban market.

OPPORTUNITIES AND THREATS

OPPORTUNITIES

Consistent increase in Two Wheeler sales over the last many years within India and the increasing Exports of Two Wheelers from the Indian OEM's to Africa and Latin America (LATAM) regions provided ample opportunity for the two wheeler tyre industry in replacement market and Exports through an increased demand. The ability to realize a greater value in these segments also offered the companies in this industry a better opportunity to increase their bottom line.

Increasing Export also offers a natural hedging to Foreign Exchange risks.

Your Company has been able to make good use of these opportunities in increasing the share in the After Market, but increase in Exports was marginal.

EXPANSION

Continuous strong growth rates in the two wheeler industry have also made your Company to expand its business and add capacities. Your Company has taken sufficient proactive steps to increase / plan the capacity to meet with the increase in demand over the next few years.

THREAT

While the immediate threats were from the volatile raw material prices, increasing competition in the Original Equipment segment and increase in imports of tyres, the larger ones are likely to arise from import of high performance tyres to support the increase in brmium and super-brmium two-wheeler sales and the interests evinced by the large tyre players in entering the two wheeler tyre market.

COMPETITION

In the light of this industry being highly competitive, there is a continuous struggle by all the players to gain market share; Cheaper imports from China and South-East countries during the year also added to the competitive brssures.

GROWTH

Your Company was able to increase its market share in the Original Equipment Manufacturer (OEM) segment and further consolidate the leadership position. In the After-Market segment, your Company was able to gain market share and increase its visibility. Your Company was able to sustain its volumes in Export segment in spite of a sluggish demand from European countries.

SEGMENT WISE PERFORMANCE

DOMESTIC OEM MARKET

Your Company registered a growth in excess of the Two and Three Wheeler Industry growth of 9.8% in comparison to the volumes of FY 13-14. This growth over the industry was possible due to our increased Share of Business (SOB) with major vehicle manufacturers from its current product lines as well as through new product additions.

During the year, your Company was successful in soliciting new OEMs as its customers and also made further in-roads into the brmium segment two wheelers.

AFTER MARKET

Your Company has achieved a significant growth of value in turnover during the year 2014-15 in the After Market, in spite of the falling Raw material prices. This growth has been possible due to increased visibility driven by focused advertising efforts, rapid network expansion as well as new product offering undertaken during the year. Your Company, in spite of the competition, was able to end the year with an improved Debtors Turnover Ratio as compared to the brvious year. Eleven new products were introduced during the year with a focus on tubeless tyres in-line with the growing demand from customers. In order to expand its reach and increase the service levels, your Company has opened new Depots during the year. The recent launch of its new logo has been received well in the market and has also created positive vibes in increasing the sales.

EXPORTS

Your Company has entered new markets for the sale of Off - Highway Tyres and also expanded the distribution channel for the sale of two wheeler tyres. Commercial sale of Tractor Radial commenced during the year, In order to improve the visibility of the brand, your Company participated in various international shows.

INDUSTRY AND BUSINESS OUTLOOK

Indications of Industry growth forecasts for the FY 2015-16 looks a bit subdued. The two wheeler industry is expected to grow at the rate of 5-6%, with the growth of the scooter segment overshadowing the Motorcycle segment. However, the yesteryear sales of vehicles will continue to drive the After Market segment growth and is estimated to be at 10% over 14-15.

BUSINESS STRATEGY

Your Company holds the market leadership position in the OEM segment and plans to hold onto that position. In the After market segment your Company has been gaining share and plans to further grow its share this year too. To support this growth, your Company has plans to continue its investment in brand building. Your Company also plans to invest time and resources towards product innovation for release of high performance tyres to the market. Your Company strives to provide the best two wheeler conveyance solution in the industry while maintaining low cost of manufacturing.

RISKS AND CONCERNS

Your Company's primary business risks are arising out of its larger brsence and orientation towards the OEM segment. Continuous availability of trained and skilled manpower is a concern that your Company has to deal with. Though your Company witnessed improvement in power situation in Tamil Nadu during the brvious year, availability of adequate power is continues to be an area of concern. However, your Company has created plans to deal with these risks and concerns.

PRODUCT PORTFOLIO

Your Company has plans to introduce High Performance Tyres including Textile radials during this year to strengthen the product range, in meeting with the complete demands in the two wheeler tyre industry. In addition your Company has also planned for introduction of radial products in the Off-Highway agricultural segment.

SUSTAINABLE DEVELOPMENT

The Company in cognizance of various business risks that it faces has proactively taken steps to mitigate these risks. To achieve distributed and diversified segmental revenue mix, significant efforts are underway to increase the after-market and export business. In order to increase the after-market business your Company has taken initiatives for brand building and improves the top of the mind recall quotient. A separate vertical has been created for brand management with induction of professionals.

The share of tubeless tyres in two-wheeler market has significantly increased in the FY 2015 and your Company believes this trend to accelerate in the coming years. Your Company is fully geared up to cater to this surge in demand. Your Company is keeping pace with the trends and has one of the best offering in terms of the tubeless products.

Lastly, your Company is consistently monitoring the power and human resources situation, including that arising out of the proposed capacity expansions, and taking timely measures to deal with these issues.

INTERNAL CONTROL SYSTEMS AND THEIR ADEQUACY

The Company has an Internal Control System, commensurate with the size, scale and complexity of its operations. The scope and authority of the Internal Audit (IA) function is defined in the Internal Audit Charter. To maintain its objectivity and independence, the Internal Audit function reports to the Chairman of the Audit Committee of the Board.

The Internal Audit Department monitors and evaluates the efficacy and adequacy of internal control system in the Company, its compliance with operating systems, accounting procedures and policies at all locations of the Company and its subsidiaries.

FINANCIAL PERFORMANCE WITH RESPECT TO OPERATIONAL PERFORMANCE

The Company has achieved overall revenue growth of 15% over the brvious year. The domestic segments of OE and AM have shown a growth higher than the respective industry growths indicating an increased market share. However, growth in exports remained subdued doing the year.

During the year, your Company was able to retain the benefits of the falling material prices, which was achieved through strong procurement strategies. Strong growth in the After-market as well as rupee weakening against Euro for most part of the year resulted in a better realization. These actions along with more effective controls on material consumption resulted in a lower material cost compared to the brvious year.

Wage settlement for a four year term was successfully executed during the year. Increase in wages cost as a fall out of this settlement and increases in power costs could be well managed by way of increasing the capacity utilization across both the plants at Madurai and Uttarakhand, respectively. This increased utilization has also helped the Company keep the other operational costs within control.

Revised credit policies with dealers in the After-market, coupled with a strong working capital management has played a crucial role in bringing down the interest costs in comparison to earlier years.

Current in-roads made into the AM as well as the medium and long-term intent of growing the share in this segment warranted increased spending on promotional and branding campaigns.

MATERIAL DEVELOPMENTS IN HUMAN RESOURCES / INDUSTRIAL RELATIONS FRONT

The Company has employed more than 2950 employees, on its rolls both direct and indirect, as at the end of the year.

EMPLOYEE ENGAGEMENT INITIATIVES

As a part of Middle management development, program has been rolled out for enhancing the leadership skills among the middle level managers. To increase the effectiveness of font line sales members, Sales

Effectiveness program has been conducted.

Communication meetings, recreation activities have been held to create a cohesive team of energetic & motivated employees and maintain harmonial industrial relations.

OCCUPATIONAL HEALTH AND SAFETY (OH&S)

Your Company is aiming at ensuring 100% safety in the manufacturing and other related processes. Towards this, several safety awareness programs were conducted for our employees by industrial experts periodically. Induction training for all new employees and improved handling of contract labour and permit systems, your Company focusses on brvention of accidents.

Unsafe conditions are tracked on a perpetual basis and actions initiated to reduce the same. Awareness is created amongst the workers to check their individual machines on safety aspects and to initiate corrective actions through the Department concerned.

Do's & don'ts of each machinery, process wise, is displayed and regular pep talk is also conducted on the shop floor to create the awareness on safety.

Senior management team is actively involved as mentors for supporting safety activities to achieve our goal as "ZERO ACCIDENT & ZERO HEALTH HAZARDS".

"NEAR MISS" incidents are captured and corrective and brventive actions are taken immediately with proper horizontal deployment in other similar work places.

Started following work permit system for height work, hot work, etc., for all employees including contract labour to brvent any unsafe act, conditions during their operation.

Conducting regular inspection for all plant machineries available inside our factory including contractors for avoiding unsafe conditions.

CORPORATE SOCIAL RESPONSIBILITY (CSR) INITIATIVES

Your Company is committed to Corporate Social Responsibility initiatives and the details of activities initiated / completed during the year are given as an Annexure to Directors Report.

CAUTIONARY STATEMENT

Statements in the Management Discussion and Analysis describing the Company's views, projections, estimates and expectations may be forward looking statements within the meaning of applicable securities laws and regulations. Actual results may differ materially from those exbrssed or implied. Important factors that could make a difference to the Company's operations include among others, economic conditions, global and domestic supply and demand situations, input prices and their availability, changes in Government regulations, tax laws and other factors such as industrial relations and economic developments etc. may influence the Company's operations or performance.