INDUSTRY STRUCTURE AND DEVELOPMENTS

Below normal monsoon resulted in a weak rural economic activity. Low commodity prices affected economic growth and in turn currency availability in key export markets in Africa. This resulted in a growth of 3% only in two wheeler industry during 2015-16 as compared to 9% during 2014-15.

In the domestic market, two wheeler industry grew by 3% (from 159 lakh units in 2014-15 to 164 lakh units in 2015-16). Scooter as a category continued to gain share in total two wheeler industry. The category share of scooters increased from 27% to 31% due to changing consumer brferences and strong urban demand. Scooters increased from 47.00 lakh units to 50.31 lakh units. The motorcycle segment remained flat for the second consecutive year (107.91 lakh numbers). Within motorcycles continued traction in urban demand enabled the brmium segment to grow by 14% (from 20.7 lakh numbers in 2014-15 to 23.7 lakh numbers in 2015-16). In complete contrast commuting segment declined by 3% (from 95.4 lakh numbers in 2014-15 to 92.1 lakh numbers in 2015-16). Mopeds declined by 3.5% in 2015-16 compared to a 3.6% growth in 2014-15.

The two wheeler exports grew by 1% (from 24.6 lakh units in 2014-15 to 24.8 lakh units in 2015-16).

Industry sales of three wheelers (Domestic plus Export)

The three wheeler industry inclusive of diesel vehicles (3 plus 1 segment) declined by 4% (from 6.23 lakh numbers in 2014-15 to 5.99 lakh numbers in 2015-16). Exports account for more than 70% of 3 Wheeler industry and it declined by 3% (from 4.04 lakh units in 2014-15 to 3.90 lakh units in 2015-16). 3 wheeler domestic passenger market declined by 5% during 2015-16 mainly due to non-availability of open permits in key states (from 2.19 lakh units in 2014-15 to 2.09 lakh units in 2015-16).

BUSINESS OUTLOOK AND OVERVIEW

Recovery in rural India is key to revival in economic activity. High fiscal thrust and a normal monsoon can stimulate rural demand. But lead time for these to translate into actual demand may vary across states. Urban demand is likely to be better than the current year due to 7th pay commission disbursements expected in later half of the year. Consequently, the growth in two wheeler industry in 2016-17 is expected to be around 3%.

New Product Launches and Initiatives

During the year 2015-16, the following new products and variants were launched.

TVS Victor:

TVS Victor was the first indigenously developed four stroke motorcycle and has been a well known brand in commuter segment. The TVS Victor, now comes in an all-new avatar. It is an ideal combination of modern styling, superior engine performance and class leading comfort. It houses an advanced and refined 3-valve Eco thrust engine. An electric start fires up the 4 speed powertrain to churn out 9.6 PS of power@ 8000 rpm with a torque of 9.4 Nm @6000 rpm. Telescopic oil damped front suspension and 5 step adjustable hydraulic series spring suspension at the rear ensure smooth ride and handling. A broad seat adds to the comfort of the motorcycle. TVS Victor comes with new mirrors and instrument panel. The new 55 watt headlight is brightest in the segment.

TVS Apache RTR 200:

Designed to deliver an adrenalin rush with an exhilarating race performance, TVS Apache RTR 200's advanced four valve racing O3C oil cooled over square five-speed engine is equipped with balancer shaft mechanism and is programmed to whip up an imbrssive 20.5 PS @8500 rpm with a torque of 18.1 Nm @ 7000 rpm. Apache RTR 200 also comes with a EFi variant and will be available in Indian & International markets. For the first time in the 200cc segment, TVS has introduced an oil cooled combustion chamber with ram air assist, which enables the motorcycle to achieve a top speed of 128 km/h with an astounding performance of 0-60 km/h in a mere 3.9 seconds. This makes it one of the fastest accelerating motorcycles in its segment. The bike is equipped with petal discs and advanced double channel ABS with rear liftoff protection (RLP) facility.

TVS Jupiter:

Jupiter brand lives true to its philosophy of 'ZYADA KA FAYDA'. Launched in September 2013 with next-gen 110cc CVT-i Engine, best-in-class mileage and many class-leading features, TVS Jupiter, the most awarded scooter took riding comfort of scooters to the next level. It is the no.2 scooter brand in India and has crossed one million customer base, the fastest ever in the scooter category.

Consistent product innovation has been an integral part of TVS Jupiter story. To continue the momentum and to infuse the excitement, a deluxe variant of TVS Jupiter christened as "TVS Jupiter ZX" was launched in 2 colours - Stallion Brown & Matte Sky Blue. Meticulously designed and lovingly crafted, TVS Jupiter ZX's Premium Beige coloured Interior Panels, Dura Cool Seat, 3D Logo of "Jupiter ZX" on side panels are pure indulgence. "Jupiter ZX" scooter adapts to the customer's needs and can be uniquely suited to match their style, status and personality.

TVS Wego:

TVS Wego is the only dual usage Scooter which enables young urban married couples to enjoy quality time together. It was introduced in 2010 as Premium stylish scooter designed for the riding suitability of both "him & her". It is loaded with a long list of features starting from a fully digital speedometer, body balance technology, all metal body, a powerful 110 CVT-i engine which gives the best-in-class mileage.

To raise the bar, TVS Wego recently launched a refresh version in Mono and Dual Tone Sky Blue color, adding more features like synchronized braking system, digital clock, body colored pillion grab rail and easy to use parking brakes. With this, TVS Wego has become an epitome of a clever integration of style, performance, power, convenience, comfort and safety.

TVS Scooty Zest 110:

TVS Scooty Zest 110 is designed to partner the young modern woman of today. With best-in-class pick-up, handling, storage and mileage, this scooter excels in all departments like its confident rider With gorgeous color options and a first-time ever USB charger, it is the perfect 'college wali gaadi'.TVS Scooty Zest 110 has been awarded the 'Best Executive Scooter'. TVS Scooty Zest 110 also became the first-ever Scooter with a female rider to conquer the 18380 feet of Khardung la in Himalayas, one of the highest Motorable roads in the world. To celebrate this unique feat Company introduced, 'Special Edition' of Scooty Zest 110'. with a new color, new sticker, new seat cover, new pigmented panels and a total new look for Scooty.

TVS XL 100:

A new four stroke TVS XL 100 moped was launched in October 2015. The new TVS XL 100 has been designed to meet the evolving needs of today's customer.

Two wheeler operations

The superior quality of our products is well reflected in the recently concluded JD Power study. The Company's products have the lowest number of defects compared to competitors. The study ranks them among the top, second year in a row, in all the segments the Company plays in. TVS Wego has the best initial quality in scooter industry, followed by Jupiter and TVS Zest. In Economy Segment motorcycles; TVS Star City+ and Sport are at 2nd & 3rd positions while in Premium Segment Apache RTR 180 & 160 are at 1st & 2nd position. In APEAL (Automotive Performance, Execution and Layout) survey, measuring how gratifying a new two-wheeler is to own and ride based on owner evaluations TVS Zest, TVS Wego, Jupiter, StaR City+ & Sport secured highest rank in their respective categories.

Domestic Sales

Category shift from motorcycles to scooters continued in 2015­16. Scooter share in two wheeler industry went up from 28% to 31%. The shift in the scooter consumer brferences towards bigger scooters resulted in drop of TVS Scooty sales and this was addressed by TVS Jupiter. Also the timely refreshes and introduction of limited edition kept the brand momentum high. Scooter sales in domestic market grew by14%.

Apache scaled new heights with a growth of 32% during the year. The Company expanded the portfolio in brmium segment by launching new Apache 200. Overall Motorcycles sales grew by 8% during the year.

The Company has strong distribution network of authorized dealers across India and continuously seeks to increase its reach.

Exports

The Company's two wheeler exports grew by 11% in 2015-16 despite global economic downturn driven by low crude and commodity prices. However, the exports to key African countries suffered due to restricted availability of foreign exchange in these countries.

Three wheeler operations

Sale of three wheelers grew by a modest 2.7% due to non­availability of permits in key states and slow growth in diesel segment. Exports suffered due to forex shortage in Nigeria and higher down payment regulation in Srilanka.

Opportunities and Threats

Growing middle class, need for mobility and increased penetration levels will continue to trigger growth of two wheeler industry. Strong brsence of the Company in all segments of two wheeler industry will help the Company to consolidate its gain of last year.

RISKS AND CONCERNS

For continued thrust in rural India, efficient implementation of schemes enabling entrebrneurship and investment, a good monsoon is essential for sustained growth in consumer demand. Currency devaluation in key two wheeler export markets remains a concern. Moreover, currency availability in key export markets can exert further brssure. The continued momentum in scooters and motorcycles and success of planned launches is vital to achieve business objectives. If the two wheeler industry growth remains at a low level, higher competitive intensity can lead to lower margins. The Company will initiate various cost reduction measures to mitigate this risk.

RISK MANAGEMENT POLICY

The board has established a Risk Management Policy which formalizes the Company's approach to oversight and management of major business risks. The policy is implemented through a top down and bottom up approach identifying, assessing, monitoring and managing key risks across the Company's business units.

Risks and effectiveness of their management are internally reviewed and reported regularly to the board. The Management has reported to the board that the Company's risk management and internal compliance and control system are operating efficiently and effectively in all material respects.

The board is satisfied that there are adequate systems and procedures in place to identify, assess, monitor and manage risks. The Company's audit committee reviews reports by members of the management team and recommends suitable action. Risk minimisation policy has already been approved by the board.

OPERATIONS REVIEW

Total Quality Management (TQM)

In the journey towards excellence, the Company continues to rely on TQM. Periodic assessment of gaps and immediate action to address such identified gaps have strengthened the process across the Company.

Cost Management

Total cost management is a continuous journey and the Company has been instituting various cost control measures across the organization. The Company will continue to pursue process innovation, value engineering and alternate sourcing to reduce material costs during this year.

Research and Development

Company's Research and Development (R&D) team has launched three attractive new products in key segments. Leveraging the strength of indigenous competence and capabilities, these new products have been developed meeting highest quality standards, with very high appeal value for the customers in terms of overall product quality, innovative features, superlative performance and brmium touch and feel.

The R&D team continued their efforts in developing cutting edge technologies that are relevant for the requirements of the Company. These are centered on customers, emerging needs of environment, safety and sustainability. The Company also collaborates with leading research establishments and educational institutions, both within and outside the country to explore and develop breakthrough opportunities. The R&D team has so far published 100 technical papers in national and international conferences.

TVS Racing continues to add valuable inputs to the new product development by leveraging its advanced capabilities and racing experience. TVS Racing has won 8 out of 9 National championships and 5 major awards in 2015.

Information Technology

The Company has been using ERP to integrate its various business processes within the Company and its business partners. The Company continued to implement several projects in the supply chain to improve its efficiency and transparency. Digital manufacturing execution system has been improved to further enhance automation, process quality control and traceability.

During the year the Company has embarked on mobile platforms to get closer to customers by launching mobile apps. Digital frameworks and several enhancements in dealer management system were undertaken to integrate Customer Relationship Management (CRM) and measure customer satisfaction and retention.

As part of continuous improvement and benchmarking the Company's IT systems were audited by external experts and recommendations were implemented. To enhance information security, periodic audits are conducted by external experts and necessary control measures are taken.

The Company is ISO 27001:2005 certified for all manufacturing units and sales offices. Business continuity plan for major business and design applications have been implemented and tested.

INTERNAL CONTROL AND THEIR ADEQUACY

The Company has a proper and adequate internal control system to ensure that all the assets of the Company are safeguarded and protected against any loss and that all the transactions are properly authorized and recorded. Information provided to management is reliable and timely. Company ensures adherence to all statutes.

INTERNAL FINANCIAL CONTROL

The Company has an established Internal Financial Control framework including internal controls over financial reporting, operating controls and anti-fraud framework. The framework is reviewed regularly by the management and tested by internal audit team and brsented to the audit committee. Based on the periodical testing, the framework is strengthened, from time to time, to ensure adequacy and effectiveness of Internal Financial Controls.

Occupational Health & Safety (OHS)

The Company has successfully completed 2nd surveillance audit in the 3rd recertification process of Occupational Health & Safety system through implementation of OHSAS 18001:2007 standard in Hosur & Mysore plants. During this year, as a part of continual improvement, around 1375 hazard control measures have been implemented across its plant in Hosur, Mysore and Himachal Pradesh. Robot automations with safety features were part of the Company's control measures to eliminate human exposures to different hazards. The plant safety rating system scores have significantly improved and the Company plants have reached "Gold" status. Towards building a sustainable safety culture, periodical safety trainings have been organized and around 4850 employees were covered in last year.

Towards environmental sustainability, advanced facilities, to recycle waste and to harness renewable energy, were commissioned. Several combrhensive systems like Environmental Management System (ISO14001:2004) and Occupational Health and Safety Management System (OHSAS 18001:2007) are adopted.

HUMAN RESOURCE DEVELOPMENT (HRD)

HRD framework has manpower planning & resourcing, employee engagement, performance & compensation management, competency based development, career & succession planning and organisation building as its six constituents. Each of these constituents have a structured approach, guidelines, policies and standard operating procedures which are reviewed and updated periodically to deliver consistent results.

Through a systematic talent review process, leadership development for identified talent through exposure to globally acclaimed programs, challenging project assignments and job rotations are taken up on a regular basis.

The Company continues to maintain its record of good industrial relations without any interruption in work. As on 31st March 2016, the Company had 5240 employees on its rolls.

CAUTIONARY STATEMENT

Statements in the management discussion and analysis report describing the Company's objectives, projections, estimates and expectations may be "forward looking statements" within the meaning of applicable securities laws and regulations. Actual results could differ materially from those exbrssed or implied. Important factors that could make a difference to the Company's operations include, economic conditions affecting demand / supply and price conditions in the domestic and overseas market in which the Company operates, changes in the government regulations, tax laws and other statutes and incidental factors.