Hero MotoCorp Ltd

Dear Members,

We, the Directors of Hero MotoCorp Ltd., are delighted to present the 28^thAnnual Report for the financial year 2010-11. The report is being presented along with theAudited Statement of Accounts for the financial year ended March 31, 2011.

FINANCIAL RESULTS

(Rs. in crores)

BUSINESS PERFORMANCE

During the year your Company notched 17.44% growth in sales, with volumes of 54,02,444units compared to 46,00,130 units in 2009-10. In value terms total sales (net of exciseduty) increased by 22.13% to Rs. 19,245.03 crores in 2010-11 from Rs. 15,758.18 crores in2009-10.

Your Company continued to lead the domestic motor cycle market with 54.6% market share.The Company successfully launched six new models including variants during the year underreview.

Total income of the Company grew by 22.18%, from Rs. 16,098.79 crores to Rs. 19,669.90crores in 2010-11.

The Company’s Profit After Tax (PAT) declined by 13.62% to Rs. 1,927.90 croresfrom Rs. 2,231.83 crores in the previous fiscal. The Company’s Earnings BeforeInterest Depreciation and Taxes (EBITDA) margins decreased from 17.45% in 2009-10 to13.49% in 2010-11. Operating Profit (PBT before other income) decreased from Rs. 2,575.48crores in 2009-10 to Rs. 2,214.61 crores in 2010-11. The margin fell despite a healthygrowth in the sales volume on account of higher prices of raw materials & components.

During the year, the Company also retained, for the tenth year in a row, its positionas the World’s No. 1 Two Wheeler Company.

A detailed discussion on the business performance and future outlook has been given inthe Management Discussion & Analysis.

DIVIDEND

Given the strong financial position, your Company declared and paid an Interim Dividendof 3500% i.e. Rs. 70 per Equity Share of the face value of Rs. 2 each, totaling Rs.1,397.81 crores (exclusive of tax on Dividend).

Your Directors are pleased to recommend a Final Dividend of 1750% i.e. Rs. 35 perEquity Share of the face value of Rs. 2 per share, aggregating to Rs. 698.91 crores(exclusive of tax on Dividend), for the financial year ended March 31, 2011 for yourapproval. The final dividend, if approved will be paid to the eligible members well withinthe stipulated period.

TRANSFER TO GENERAL RESERVE

Reaffirming the financial strength of the Company, a sum of Rs. 192.79 crores has beentransferred to the General Reserve of the Company for the financial year 2010-11.

MATERIAL CHANGES AND COMMITMENTS

No material changes and commitments affecting the financial position of the Companyhave occurred between April 1, 2011 and the date on which this Report has been signed.

PROMOTER GROUP REALIGNMENT AND IMPLICATIONS

During the year, the Indian Promoter Group of the Company, which comprised of HeroInvestments Private Limited ("HIPL"), Bahadur Chand Investment Private Limited("BCIPL") and Hero Cycles Limited ("Hero Cycles"), re-aligned theshareholding in the Company, following a family agreement. As a result, Hero Cyclestransferred its shareholding in the Company to HIPL on May 28, 2010.

As a result of these transactions, the Indian Promoter Group of the Company nowcomprises of HIPL and BCIPL owned and controlled entirely by the Munjal Family headed byMr. Brijmohan Lall Munjal, Chairman of the Company.

Also, during the year, the Indian Promoter Group and Honda Motor Co. Ltd., Japan("Honda") entered into a Share Transfer Agreement ("the Agreement") onJanuary 22, 2011. As per the terms of the Agreement, Honda had agreed to transfer itsentire shareholding of 26% in the Company to the Indian Promoter Group, bringing an end tothe joint venture between the two promoter groups of the Company. The acquisition wascompleted on March 22, 2011 and the shares held by Honda were transferred to the IndianJoint Venture partner.

In addition to the Agreement, the Indian Promoter Group and Honda also entered into aLicense Agreement on January 1, 2011. As per this Agreement, Honda has given to theCompany, the right and license to manufacture, assemble, sell and distribute certainproducts and their service parts under their Intellectual Property Rights.

The amount to be paid by the Company for licenses involve: Rs. 1,928.37 crores formanufacture, assembly, selling and distribution and Rs. 550.96 crores for exports. Theamounts have been capitalised as Intangible Assets (along with applicable cess and duty),based on the probability that the future economic benefits attributable to these assetswill flow to the Company. This is because w.e.f. January 1, 2011 the Company’sliability to pay ongoing royalty for all existing/modified products/parts would cease.

These Intangible Assets have been amortised over a period of 42 months up to June 30,2014. Accordingly, liability payable up to March 31, 2011 has been included under currentliabilities and the balance has been disclosed as Defer payment credits.

CHANGE OF NAME

During the current financial year, in view of the separation of the joint venturepartners, your Company had started the process of change of name of the Company from"Hero Honda Motors Limited" to "Hero MotoCorp Limited". The new namewas approved by the members of the Company in their Extra-ordinary General Meeting held onJune 17, 2011 and subsequently fresh certificate of incorporation consequent to change ofname dated July 28, 2011 has been received by the Company. Also, the new CorporateIdentity (new Corporate Logo) was adopted by the Board of Directors of the Company onAugust 17, 2011 for all future practical purposes.

BOARD OF DIRECTORS

Appointment/re-appointment

During the year under review, Mr. Toshiaki Nakagawa was re-appointed as the Jt.Managing Director w.e.f. February 1, 2011 for a further period of 6 (six) months.

Also, Mr. Paul Edgerley was appointed as Non-Executive Director of the Company w.e.f.May 4, 2011. The Board extends its warm welcome to Mr. Edgerley on the Board and wisheshim a successful tenure with the Company.

In terms of the provisions of the Companies Act, 1956 & the Articles of Associationof the Company, Mr. Pradeep Dinodia, Gen. (Retd.) V.P. Malik, Mr. Brijmohan Lall Munjaland Mr. Sunil Kant Munjal will retire by rotation at the ensuing Annual General Meetingand being eligible, offer themselves for re-appointment.

The present term of appointment of Mr. Brijmohan Lall Munjal, Chairman and Director inthe Whole-time employment of the Company has expired on August 2, 2011. Further the termof the appointment of Mr. Pawan Munjal, Managing Director & CEO will come to an end onSeptember 30, 2011.

The Board has, on the recommendation of Remuneration Committee and subject to yourapproval in the general meeting and such other approvals, if any, has re-appointed themfor a further period of 5 (five) years respectively . The Board has also appointed Mr.Sunil Kant Munjal as the Jt. Managing Director of the Company for a term of 5(five) years effective August 17, 2011.

Brief resume/details of the Directors, who are to be appointed/ re-appointed asmentioned herein above have been furnished alongwith the Explanatory Statement to theNotice of the ensuing Annual General Meeting.

The Board recommends their re-appointment/appointment at the ensuing Annual GeneralMeeting.

Resignations

Mr. Om Prakash Munjal resigned from the Board w.e.f July 29, 2010 and Mr. ToshiakiNakagawa and Mr. Sumihisa Fukuda resigned from the Company w.e.f. March 22, 2011 in viewof the abovestated changes in the promoter group.

Further, Mr. Yuji Shiga and Ms. Shobhana Bhartia resigned from the Board of the Companyw.e.f. April 13, 2011. Thereafter Mr. Toshiyuki Inuma, who was appointed as aNon-Executive Director of the Company w.e.f. April 13, 2011 and Mr. Takashi Nagai resignedfrom the Board of the Company w.e.f. August 8, 2011.

The Board appreciates and expresses gratitude for the valuable contribution made by allthe outgoing Directors during their fruitful tenure as the Directors of the Company.

DIRECTORS’ RESPONSIBILITY STATEMENT

To the best of our knowledge and belief and according to the information andexplanations obtained by us, your Directors make the following statement in terms ofSection 217(2AA) of the Companies Act, 1956:

1. that in the preparation of the annual accounts for the year ended March 31, 2011,the applicable accounting standards have been followed;

2. that appropriate accounting policies have been selected and applied consistently andjudgements and estimates that are reasonable and prudent have been made so as to give atrue and fair view of the state of affairs as at March 31, 2011 and of the Profit of theCompany for the financial year ended March 31, 2011;

3. that proper and sufficient care has been taken for the maintenance of adequateaccounting records in accordance with the provisions of the Companies Act, 1956 forsafeguarding the assets of the Company and for preventing and detecting fraud and otherirregularities; and

4. that the annual accounts for the year ended March 31, 2011 have been prepared on agoing concern basis.

MANAGEMENT DISCUSSION & ANALYSIS REPORT

A detailed chapter on, ‘Management Discussion and Analysis’ (MDA), pursuantto Clause 49 of the Listing Agreement is annexed and forms part of this Annual Report.

CORPORATE SOCIAL RESPONSIBILITY

Corporate Social Responsibility (CSR) is an integral part of the Company ethos. TheCompany supports the Raman Kant Munjal Foundation, which in turn runs a school and ahospital. The Foundation also conducts various outreach programs in the villages aroundthe Company’s factories. These programs are conducted in partnership with leadingNGOs, and over the years, there have been significant spinoffs.

CORPORATE GOVERNANCE

At Hero MotoCorp, it is our firm belief that the essence of Corporate Governance liesin the phrase ‘Your Company’. It is ‘Your’ Company because it belongsto you – the shareholders. The Chairman and Directors are ‘Your’fiduciaries and trustees. Their objective is to take the business forward in such a waythat it maximises ‘Your’ long-term value.

Your Company is committed to benchmarking itself with global standards for providinggood Corporate Governance. It has put in place an effective Corporate Governance Systemwhich ensures that the provisions of Clause 49 of the Listing Agreement are duly compliedwith.

The Board has also evolved and adopted a Code of Conduct based on the principles ofGood Corporate Governance and best management practices being followed globally. The Codeis available on the website of the Company www.heromotocorp.com. A Report on CorporateGovernance along with the Auditors’ Certificate on its compliance is annexed heretoas Annexure - I.

INTERNAL CONTROL SYSTEMS

The Company has a proper and adequate system of internal controls. This ensures thatall assets are safeguarded and protected against loss from unauthorised use or dispositionand those transactions are authorised, recorded and reported correctly.

An extensive programme of internal audits and management reviews supplements theprocess of internal control. Properly documented policies, guidelines and procedures arelaid down for this purpose. The internal control system has been designed to ensure thatthe financial and other records are reliable for preparing financial and other statementsand for maintaining accountability of assets.

The Company also has an Audit Committee, comprising four Non-Executive &Independent and professionally qualified Directors, who interact with the StatutoryAuditors, Internal Auditors, Cost Auditors and Auditees in dealing with matters within itsterms of reference. The Committee mainly deals with accounting matters, financialreporting and internal controls. During the year under review, the Committee met 4 (four)times.

AUDIT COMMITTEE RECOMMENDATION

During the year there was no such recommendation of the Audit Committee which was notaccepted by the Board. Hence, there is no need for the disclosure of the same in thisReport.

RISK MANAGEMENT SYSTEM

Your Company follows a comprehensive system of Risk Management. Your Company hasadopted a procedure for risk assessment and its minimisation. It ensures that all theRisks are timely defined and mitigated in accordance with the well structured RiskManagement Process. The Audit Committee and Board reviews periodically the Risk ManagementProcess.

RATINGS

The rating agency ICRA Limited, has reviewed and reaffirmed the rating assigned to theCompany for its Non-convertible Debenture Programme as LAAA [pronounced "L tripleA"] indicating the highest credit quality and A1+ [pronounced "A one Plus"]for its Non-fund based facilities and LAAA [pronounced "L triple A"] to Fundbased facilities indicating the highest credit quality rating carrying lowest credit risk.ICRA also has LRAAA [pronounced "L R triple A"] issuer rating assigned for theCompany.

The rating agency CRISIL, during the year under review, assigned the bank loan ratingsof "AAA/Stable" and P1+ to the Cash Credit Limit & Letter of Credit LimitFacility respectively to the Company.

FIXED DEPOSITS

During the year under review, the Company has not accepted any deposit under Section58A and 58AA of the Companies Act, 1956 read with the Companies (Acceptance of Deposits)Rules, 1975.

AUDITORS

M/s. A. F. Ferguson & Co., Chartered Accountants, New Delhi, Auditors of theCompany will retire at the conclusion of the ensuing Annual General Meeting and beingeligible, offer themselves for re-appointment. The Company has received a certificate fromthe auditors to the effect that their re-appointment, if made, would be in accordance withSection 224(1B) of the Companies Act, 1956. The Board recommends their re-appointment.

AUDITORS’ REPORT

The observations of Auditors in their report, read with the relevant notes to accountsare self explanatory and therefore do not require further explanation.

COST AUDITORS

The Board has re-appointed M/s. Ramanath Iyer & Co., Cost Accountants, New Delhi,as the Cost Auditors of the Company under Section 233B of the Companies Act, 1956 for thefinancial year 2011-12 and the necessary application for obtaining the requisite approvalhas been filed with the Central Government. The Cost Auditors’ Report for 2010-11will be forwarded to the Central Government in pursuance of the provisions of theCompanies Act, 1956.

CONSERVATION OF ENERGY, TECHNOLOGY ABSORPTION, FOREIGN EXCHANGE EARNINGS AND OUTGO

Information required under Section 217(1)(e) of the Companies Act, 1956, read withCompanies (Disclosure of Particulars in the Report of the Board of Directors) Rules, 1988is given as Annexure - II and forms an integral part of this Report.

LISTING

The shares of your Company are presently listed on Bombay Stock Exchange Limited (BSE)and National Stock Exchange of India Limited (NSE).

PERSONNEL

As on March 31, 2011 the total number of employees on the records of the Company were5,257.

Your Directors place on record their appreciation for the significant contribution madeby all employees, who through their competence, dedication, hard work, co-operation andsupport have enabled the Company to cross new milestones on a continual basis.

A detailed note is given in the chapter "People Approach" (Human ResourceManagement) of Management Discussion & Analysis, which forms part of this AnnualReport.

PARTICULARS OF EMPLOYEES

Information of Particulars of Employees as required under Section 217(2A) of theCompanies Act, 1956 read with The Companies (Particulars of Employees) Rules, 1975 formsan integral part of this Report. As per the provisions of Section 219(1)(b)(iv) of theCompanies Act, 1956, the Report and Accounts are being sent to the shareholders of theCompany excluding the statement of Particulars of Employees under Section 217(2A) of theCompanies Act, 1956. Any shareholder interested in obtaining a copy of such statement maywrite to the Sr. G.M. Legal & Company Secretary at the Registered Office of theCompany.

ACKNOWLEDGEMENT

It is our strong belief that caring for our business constituents has ensured oursuccess in the past and will do so in future. Your Directors acknowledge with sinceregratitude the co-operation and assistance extended by the Central Government, StateGovernment(s), Financial Institution(s), Bank(s), Customers, Dealers, Vendors andAncillary Undertakings. The Directors also place on record their appreciation for thevaluable assistance and guidance extended to the Company by the promoter companies and forthe encouragement and assurance, which our former collaborator has given for the growthand development of the Company. The Board also takes this opportunity to express its deepgratitude for the continued co-operation and support received from its valuedshareholders.

ANNEXURE - II TO DIRECTORS’ REPORT

Information Under Section 217(1)(e) of the Companies Act, 1956 read with Companies(Disclosure of Particulars in the Report of Board of Directors) Rules, 1988 and formingpart of the Directors’ Report for the year ended March 31, 2011 ;

I. CONSERVATION OF ENERGY a) Techno-economic viability of few energy saving proposalsare being carried out and few proposals have been already implemented Energy conservationmeasures taken and their impact

1. As our long term initiative for "Green Technology", Natural Gas has beenintroduced as source in Captive Power Generation as well as in critical processes of Paintshop and Heat treatment at Dharuhera and Gurgaon plants.

2. "Resource Conservation" has been the prime focus in the plants andinitiatives like Waste Heat Recovery / Air loss optimisation / Advanced Rain Waterharvesting technology etc. are being continuously taken to realise the benefits.

3. Energy efficiency measures have been taken in terms of switchover from conventionalto energy efficient lighting systems / Advanced VFD’s for various critical processapplications etc. This has led to annual savings of approx.

b) Additional Investments and Proposals being implemented for reduction of consumptionof energy

Approx. investment of Rs. 150 million is proposed in areas of:

1. Green initiatives - Natural Gas based Gensets / Pilot project of solar based Powerplant.

2. Resource conservation – VAM / HRU’s

3. Energy Efficiency – Conventional to CFL / Advanced Air Dryers / Optimisation ofPump running in critical areas / Advanced Chillers for Process plants.

Note: The additional investment cannot be precisely ascertained, and is part of theRepairs and Maintainence; consumables expenditure and investments in fixed assets.

For FY 2010-11 : Approx. Annual Saving on Vehicles Produced - Rs. 21 million For FY2011-12 : Expected approx. Annual Saving on Veh. Produced - Rs. 35 million.

1. Specific areas in which R & D carried out by the Company

• New Model Technology Absorption

• Indigenisation of CKD Parts

• Multi Source Approval

• Meeting Legislative Norms

• Active Participation in deciding the needs of future Automobile Regulations inIndia

2. Benefits derived as a result of the above R & D activities

• Launched HunkPro (150 cc - 4 stroke), Splendor+/ Splendor Pro (100cc – 4Stroke), Achiever (New Aesthetic), Super Splendor (125 cc – 4 stroke), GlamourCarb./FI (New Aesthetic), Glamour FI (New Aesthetic), Karizma (New Aesthetic), Karizma ZMR(New Aesthetic), Passion Pro (Special Edition), CBZ Extreme (150cc – 4 stroke)

• 619 Multi source Components added;

• 24 new sources added for existing models;

• Indigenisation done for 8 items;

• Compliance to the Regulations

- E-10 Compliance [Material Compatibility] (on-going)

- BS-III Compliance ground work

- EMC Compliance (Pre-implementation verification)

3. Future plan of action

• New Model Launch

• Indigenisation plan, 4 more items to be localised

• Participation at different Forums for formation of two wheeler Regulations inIndia & GTRs.

• Compliance Plan for Future Regulations :-

- EMC

- Tell-Tails, Symbols & Controls

- Safety Related Standards

- E-10 Compliance (on-going)

- Spray Suppression

4. Expenditure on R & D

1. Efforts in brief, made India technology absorption, adaptation and innovation

More parts development approval in India

2. Benefits derived as a result of the above efforts e.g. product improvement,cost reduction, product development, import substitution

• New Model Development to increase market share;

• Supply capacities and quality of bought out parts (BOP) increased with MultiSource Development to support the increasing production;

• Indigenisation - To meet Cost Challenge;

• Compliance to Latest Regulations

Further, in last five years the Company’s ancillaries have imported technologiesfor Emission Devices – cast wheel, drive chain (solid bush type), fuel injection(close loop type), Real Time Mileage Indicator (RTMI), non-asbestos brake shoe andgaskets, migration from hexachrome - trichrome, low friction high F.E. engine technology,LED lighting device, self sealing – puncture resistance wheel tube, rear cushion withreservoir tank, emission devices – low cast catalic converter, rear disk brake andoil cooler.

III. FOREIGN EXCHANGE EARNINGS AND OUTGO

A) EXPORT ACTIVITIES / INITIATIVES TO INCREASE EXPORTS / DEVELOPMENT OF NEW EXPORTMARKETS / EXPORT PLANS

EXPORT INTIATIVES 2010-11

During the year under review, your Company :

• exported 1,33,063 two-wheelers, an increase of 36 per cent and spare parts worthRs. 24.10 crores, an increase of 37 per cent over the last financial year;

• successfully launched new models in Sri Lanka, Bangladesh & Columbia;

• organised sales and technical trainings on new model for the dealer staff; WorldCup activation in Sri Lanka and Bangladesh;

• focused on rural markets;

• strengthened after-sales support in Sri Lanka and Bangladesh

EXPORT PLAN FOR 2010-11

Under the changed scenario, your Company will have more focus on the Exports Markets.The planned activities are :

• explore and enter new markets;

• appoint and develop new distribution network;

• build, launch and establish new brand;

• impart training

B) EARNINGS & OUTGO

Foreign exchange earnings during the period under report was Rs. 444.62 crores,compared to Rs. 337.59 crores in the previous year.

On account of Royalty, Technical Guidance Fee, Technical know-how/export licenses,Model Fee, Export Commission, Travel and other accounts and Advertisement and Publicity,the foreign exchange outgo was Rs. 2694.26 crores, compared to Rs. 485.46 crores in theprevious year.

The outgo on account of Dividend was Rs. 155.76 crores compared to Rs. 519.19 crores inthe previous year.

Outgo for import of components, spare parts, raw materials and capital goods was Rs.837.12 crores compared to Rs. 624.73 crores in the previous year.

TABLE – A

TOTAL ENERGY CONSUMPTION AND ENERGY CONSUMPTION PER UNIT OF PRODUCTION AS PER FORM– A FOR GURGAON, DHARUHERA AND HARIDWAR PLANT(S) OF THE COMPANY.

* fuels (Furnace Oil/HSD) used in Boiler for direct production of Two Wheeler only

** fuels (Furnace Oil/HSD) used in Hot Water Generator for direct production of TwoWheeler only