Mahindra Bikes

For most of the year under review, the global economy faced unparalleled pressures. While the first few months witnessed a sharp rise in the price of oil, food and other commodities, inflationary fears soon gave way to concern about depression and deflation as the financial crisis in the advanced economies snowballed into a global economic crisis of unprecedented magnitude. International trade and financial flows froze and financial institutions crumbled, leading to rising bankruptcies and widespread unemployment across the globe. India is neither insulated nor isolated from global events and has been significantly impacted by this global meltdown. Exports from, and capital flows to the country have contracted sharply, leading to a slowdown in the country's economic growth. However, in spite of the contraction of many world economies, India is expected to grow close to 6% in the coming fiscal, making it one of the very few countries in the world which would show any growth in the next two years.

Against this backdrop, your Company's performance has been satisfactory; indeed, your Company has outperformed industry in many of the segments in which it operates.

Industry Structure

The Automotive Sector

The automotive industry occupies a place of pre-eminence in the Indian economy, accounting for about 5% of GDP and over 13 mn direct and indirect jobs, and contributing about 17% of indirect taxes (Source: Automotive Mission Plan 2006-2016).

Domestic sales in the segments in which the Company participates - Multi Utility Vehicles (or MUVs) including soft tops, hard tops and pick-ups, Light Commercial Vehicles (LCVs), three wheelers, and C-segment cars - declined by 1.7% during the year under review over the previous year and stood at 917,260 vehicles. (Source: SIAM, Internal). Your Company sold 220,213 vehicles in the domestic market during the same period, a growth of 0.6% over the previous year.

MUVs are a family of vehicles capable of versatile applications such as passenger transport, goods transport or a combination of the two. There are six manufacturers of MUVs in India. Your Company is the largest manufacturer of MUVs in India, offering a range of over 20 models. In F-09 industry-wide domestic sales of MUVs were 268,753, a decline of 7.4 % over F-08 (Source: Industry and internal).

LCVs (gross vehicle weight from 3.5MT to 7.5 MT) are used mostly for intra-state movement of goods and short distance transport of passengers. In F-09, 52,705 LCVs were sold in the domestic market - a decline of 13.0% over F-08 (Source: Industry and internal). The Company competes in this segment through its subsidiary Mahindra Navistar Automotives Limited (MNAL). There are six manufacturers in India in this specific LCV segment.

India is the largest organised market in the world for three-wheelers. In F-09 this segment declined by 4.1% over F-08, with sales of 349,719 three-wheelers in the domestic market (Source: SIAM).

In F-09, the C-Segment of passenger cars sold 246,011 vehicles, a growth of 12% over the previous year. The C-segment is second largest segment of the passenger car market comprising 19% of the total car sales in India. There are nine players competing in this segment.

The Farm Equipment Sector

Agriculture plays an important role in the Indian economy and society. It accounts for a little less than 20% of the country's Gross Domestic Product (GDP) yet contributes to nearly 60% of employment in rural India.

The Indian tractor market is one of the largest markets in the world by volume, despite a low penetration level of tractors. The domestic tractor industry is fragmented, with about 13 national players and some regional players. In the current year, all the tractor manufacturers in India together sold 303,921 tractors. Additionally, 38,910 tractors were exported.

The domestic tractor market is traditionally segmented by horsepower into the low horsepower 20 HP - 30 HP segment, the mid segment of 30 - 40 HP and the higher segment of above 40 HP. Most of the major players cater to all the three segments. However, their relative strengths and market positions differ from segment to segment.

Many factors affect tractor sales including monsoons, availability of irrigation, reservoir water levels, government declared support prices for key crops, commodity prices, crop production expenses (such as seeds, fuel, fertilizer, pesticides and other costs) and credit availability. The availability of finance is one of the most significant factors influencing tractor demand, as approximately 80% to 90% of tractors are sold through finance from banks and other financial institutions.

Your Company's Farm Equipment Sector (FES), which designs, develops, manufactures and markets tractors for Indian and overseas markets is the largest manufacturer of tractors in India and has sustained its market leadership in the Indian tractor market for over 26 years.

Industry Developments

The Automotive Sector

Over the past one year, the global economic environment has undergone significant turmoil. Global economy is expected to shrink in 2009 for the first time in many decades, and may remain weak in the medium term. Financial markets have seen an unprecedented level of stress and volatility. The automobile industry worldwide is bearing the brunt of this general economic distress - with precipitous decline in volumes, financial losses and significant restructuring. India also witnessed lowered economic growth during the year which impacted the automotive industry adversely.

After several years of strong growth, the Indian automotive industry experienced significant challenges in F-09, particularly in the second half of the fiscal. A sharp deterioration in liquidity conditions in the financial markets significantly reduced availability of credit for automobile buyers. In addition, economic growth slowed down rapidly over the course of the fiscal year. As a result, F-09 saw a drop in domestic sales of motor vehicles of 5.0%. The commercial vehicle segment was the worst affected with a 21.7% drop in sales, while the three-wheeler segment declined by 4.1%, and passenger vehicles sales were flat (Source: SIAM).

Given the importance of the automobile industry to the economy, the government provided active support through fiscal stimulus (particularly by reducing the applicable excise duty) and by making liquidity and credit available. Interest rates and fuel prices were also reduced. As a result, domestic sales showed a partial recovery in the last quarter of the fiscal.

In addition, the automotive industry was also adversely affected by a sharp rise in commodity prices, especially