1. Trends in the Indian aftermarket & Distribution K R Sridhar TVS & Sons Limited Head - Distribution 1

2. Automobile Industry is growing at a healthy clip 2 CAGR – 15% CAGR – 11% Unit of Sales Indian Automobile market has been growing at a healthy rate of 15% CAGR over last 6 years.

3. Biwheeler Parts constitute half of Total Parts PC & CV production are driven by healthy GDP growth & expansion of Road Network. Biwheeler industry derives its growth from robust rural income and poor public transport in urban spaces. 3 Total Aftermarket Potential F12 - Rs.28000 Crores Expected to grow 9 to 11% till F16…

4. 4 - Growing Vehicle Parc (9-11%) -Rapid increase in share of high-end vehicles will lead to after market growth. - Growing Vehicle Parc (9-11%) -Rapid increase in share of high-end vehicles will lead to after market growth. Service Potential in Crores

5. Despite robust growth, ROCE continues to decline across the channel except for large national distributors Higher Capital Cost in Inventory / Land & Infrastructure Higher overheads in manpower & training 5 Unorganized Retailers Independent garages OEM Dealership Workshops Large National Distributors Private interviews and market intelligence indicate 30% to 50% decline in Return on Capital for all except Large National Distributors

6. Considerable intermediation required to reach the parts from factory floor to end users Manufacturer OEMOESGeneric Distributor Authorized OEM Dealers Independent Distributor Retailer Unorganized Large nos Close to end users Workshops Dealership workshops Authorized Service Center Small Garages Multibrand Organized Workshops Users Private Fleet Commercial 6

7. Most of intermediaries are Sub-Scale and buffeted by combination of rising cost & margin pressures The trend is likely to accelerate since most players are subscale and will be stressed by a combination of pricing pressure and cost increase This is expected to affect the entire channel but differentially No of players are expected to reduce in line with trend in many countries affecting unorganized retailers and workshops most. 7

8. Spare parts for aftermarket is becoming increasingly important for OEMs and OES Post 2008 – 2009, OEMs are taking active role in promoting OEM branded Spare Parts Sales by Expanding Service Network Promoting dedicated brand shops Create awareness of Genuine Parts through promotions Use of IT connect up with end users – Bar Codes, etc Lock in Customers with Extended Warranty Schemes Bind suppliers through exclusive contracts Aftermarket may contribute only 15% - 20% of Revenues but as much as 50% of Gross Margins – Forward Integration Quality of generic branded products are getting better. They offer lower prices to customers and better margins to Retailers 8

9. Independant Distributors will take actions to counter decline of ROCE – Better inventory management practices – Superior service levels availability / FFR – Better margins through judicious product mix – Get lean to control overheads – Cooperative purchase syndicates – Rapid delivery logistics – Get in to Branded generics – Forward Integration into Retailing (Autozone – USA) 9

10. Consolidation in Service Market Consolidation in Service market will be driven by increasing use of electronics & mechatronics in Automobiles. Major trends Adoption of – ECUs – Navigation Equipment – Entertainment Electronics – Vehicle Stability Systems – Steering and Brake Control Systems Will necessitate use of high cost diagnostic equipments and skill Use of electronics expected to grow at 22% until 2016 For Parts Retailers this is additional volume at attractive margins 10

11. What can the Component Manufacturer do ? Strategic Review of Distribution Channel for competitiveness Align distribution with national distributors to achieve access to markets, faster reach and benefits of bundling Explore possibilities of setting up exclusive Service Centers where the nature of products permits Promotion and Awareness campaigns with growing Retail Chains on exclusive basis or otherwise 11

12. In Summation Rapidly Growing vehicle Parc, high end variants and use of electronics are driving long term growth of Aftermarket Declining Return on Capital and New Technologies will lead to consolidation in Aftermarket Parts and Service businesses Market is fragmented and multiple intermediaries are competing for share of growing opportunity Choices made now will determine the Winners over the next 5 years 12