Eicher Motors Ltd Management Discussions.

In the Management Discussion and Analysis, all the numbers pertaining to Eicher Motors Limited ("EML") refer to consolidated numbers.

Business Review two-wheeler industry performance

In 2020-21, the two-wheeler industry sales volume was 15.1 million units, a decline of 13% from 17.4 million units in 2019-20. The motorcycle industry sales volume was 10 million units in 2020-21, a decrease of 11% from 11.2 million units in 2019-20. The motorcycle industry performed better than the scooter industry. The scooter industry sales volume was 4.5 million units in 2020-21, a decline of 20% from 5.6 million units in 2019-20.

The year 2020-21 was an unprecedented year as the outbreak of COVID-19 pandemic affected economies and livelihoods across the globe. The instances of lockdown across the country and states, and the spread of the deadly disease resultedinsuspension offices, operationsat plants and dealerships, primarily in the beginning of the year which impacted business activities. The price increases on account of regulatory changes, supply chain disruption and acute commodity pressure further aggravated the situation. However, a buoyant demand from rural segment and a gradual recovery in urban segment, also supported by the preference for personal mobility, helped the motorcycle industry register a strong growth of 20% in the latter half of the year as compared to the same period in 2019-20.

Royal Enfield performance

Royal Enfields total sales volume including exports was at 6,09,403 motorcycles in 2020-21, a decline of 13% from 6,97,582 motorcycles in 2019-20. Your Companys sales performance was also impacted by COVID-19 led demand and supply disruption. The production operations gradually returned to the pre-COVID level as supply chain constraints eased over a period. A faster recovery in demand and an excellent response to the launch of Meteor 350 resulted in a strong order book. In India, your Companys sales volume was at 5,73,728 motorcycles in 2020-21, a decrease of 13% from 6,58,920 motorcycles in 2019-20. India continued to be the largest market for your Company given the share of India in your Companys total sales remained almost stable at 94%.

In international markets, Royal Enfield recorded a good performance despite the limitations placed at the beginning of the year. The total export volume was at 35,675 motorcycles in 2020-21, a decline of 8% from 38,662 motorcycles in 2019-20. North America and Latin America witnessed a growth in the sales volume for the year. A quick recovery in demand, launch of Meteor 350 and expansion of the distribution network helped your Company register a 50% growth in its export volume in the second half of the year over the same period in 2019-20. Your Companys focus on growing international business has resulted in an increase in the share of export volume to 5.9% in 2020-21 from 5.5% in 2019-20.

Your Company also faced the situation of tight availability of certain auto parts and raw materials which affected the ramp-up of production. An increase in motorcycle prices primarily driven by the transition to the new BS VI emission norm and the steep rise in commodity prices had also dampened consumer sentiment. Your Company managed the supply situation well to ensure pick-up in production levels. A calibrated approach towards passing on the material cost pressure, and launch of new products and online initiatives helped your Company improve and sustain the demand momentum.

For the year 2020-21, Royal Enfields market share in the motorcycle industry in India remained stable at 5.7%. A ramp-up in the production and launch of Meteor 350 led to a significant improvement in the market share to 6.3% in the second half of the year. Addition of more than 500 stores including studio stores also improved accessibility of the product in smaller cities in India.

The performance of the motorcycle segment with engine displacement of above 125cc was similar to the overall industry performance. The segment sales volume declined 11% to 2.2 million units in 2020-21 from 2.5 million units in 2019-20 on account of COVID-19 led disruption. Royal Enfield market share in the segment slightly declined from 27% in 2019-20 to 26% in 2020-21.

With an aim to fuel consumer demand and incentivise purchase, your Company took several steps, including introduction of easy and accessible financing, expansion of the retail network across the country, and launch of new motorcycles. In such difficult times of pandemic, your Company also adopted new ways of doing business which included the first ever digital launch for new products, bolstering of digital enquiry and booking process, and introduction of innovative financing products.

Product Enhancements and Portfolio Expansion

Your Company has long-term plans to expand its product portfolio in the middleweight segment to offer more choices to customers across the globe. Staying committed to this plan even through times of uncertainty in the industry, Royal Enfield introduced the next-generation platform with the Meteor 350 in November 2020, an all-new motorcycle in the cruiser segment. This also marked the first ever digital launch of a motorcycle for your Company. The very creative and unique way of using technology for the launch not only delighted the Royal Enfield community and enthusiasts but also helped your Company reach a much wider audience.

Meteor 350 is an all new, ground-up motorcycle that provides a completely new and enhanced riding experience in the middleweight segment and expands your Companys product portfolio. An easy cruiser with a smooth and refined engine, the Meteor 350 has great potential in India, India-like markets and even in evolved markets like the US and Europe as an entry level cruiser. Adding modern technology to retro styling,

Meteor has the all new ‘Tripper navigation pod, enabling easy access to turn-by-turn navigation without interfering with the easy and fun ride experience. Meteor 350 garnered a lot of positive reviews from experts, media, and customers alike and was praised for its excellent build quality, performance and riding experience. The motorcycle received a very encouraging response not only in the traditional cruiser markets but also all across the nation, resulting in a large order book. Meteor 350 should help in expanding the cruiser segment as its demand far exceeds the demand for Thunderbird, your Companys earlier offering in the cruiser segment.

Your Company also launched the Himalayan in new colourways along with a host of functional upgrades and the Tripper navigation. Himalayan, in a short span of 5 years, has opened up a new category within global adventure touring. Its simplicity, versatility and competence have earned incredible response from riders across the world.

In order to cater to all sets of customers by offering more choices, new colour variants were offered on Classic 350, Interceptor 650 and Continental GT 650. The 650 Twins also offered additional features and a host of personalisation options.

Taking a huge step towards advancing motorcycle personalisation in the 2-wheeler industry, your Company launched the Make it Yours (MiY) initiative. Its a first-of-its-kind initiative allowing a buyer to personalise, accessorise and configure a motorcycle at booking stage through a 3D configurator. MiY offers thousands of possible with choices across style, safety and comfort. MiY initiative is transformative across the entire Company. A large part of the portfolio is moved to MiY as Classic, Meteor 350, Himalayan and Twins are available with personalisation options. The new initiative has received a very good response as a large number of customers are booking through MiY. Penetration of personalisation and accessorisation is increasing as most customers of the Meteor 350 are opting for it given Meteor has the widest range of choices for accessories. Widening of choices under MiY across the product portfolio will also help enhance the customer spend on a motorcycle.

Royal Enfield has consistently evolved new ideas and initiatives to enhance the way consumers engage with the brand and has sought to transform their overall purchase and ownership experience. With a lot of customers moving to digital engagement and transactions during the pandemic, Royal Enfield strengthened its digital presence through the launch of the Royal Enfield App and by way of improvement in the online purchase process over the companys website.

The Royal Enfield App provides customers a whole new way to discover, purchase, own and engage with Royal Enfield. It offers a seamless experience in a time-efficient manner. Through the app, customers can explore the MiY options and customise their motorcycles, book a motorcycle, explore the community and ride schedules, schedule service appointments and even learn a few tricks via the Do-It-Yourself videos on the App. Additionally, the App connects to the Tripper device on the motorcycle and allows riders to navigate to their destination. The digital presence resulted in the share of online enquiries increasing to over 2.5X and the share of online booking increasing to over 5X in 2020-21 from 2019-20.

Dealership Network Expansion

In 2019-20, Royal Enfield introduced the concept of a studio store which was primarily meant for smaller and remote locations with minimal investment. The opportunity to set up a studio store was provided only to the existing Royal Enfield dealers to ensure delivery of a uniform customer experience conforming to the brand standards. The initiative was aimed at strengthening the competitive position of Royal Enfield and improving brand accessibility for prospective buyers in such locations. After opening a record number of studio stores (600 stores) in 2019-20, your Company added another 431 studio stores in 2020-21. Despite the COVID-19 induced lockdowns and restrictions during the year, the total tally was increased to 1,031 studio stores by the end of March 2021. All these stores were opened by existing Royal Enfield dealers which is a testament to the trust the dealer partners have in your Company and potential of studio stores in expanding the dealer business. Thus, Royal Enfield network expansion continued even during the most challenging times of the pandemic. Though the pandemic has slowed the ramp-up of operations at these stores, most of them have already started making profits.

In addition, Royal Enfield added 104 regular stores taking the total count of stores to 1,025. Hence, Royal Enfield retail touch points across the country including regular stores and studio stores crossed the 2,000 mark, standing at a total of 2,056 stores. The addition of more than 100 regular stores was achieved by introducing the ‘Hub format where a new dealer in a small location was appointed along with 2-3 studio stores which would act as ‘spokes to the hub‘ at nearby potential locations. This way your Company was able to penetrate deeper into the markets where existing dealers were not able to contribute because of long distances and other operational constraints.

At Royal Enfield, along with supporting the dealers and service partners to succeed, your Company is also upskilling them by improving their technical know-how and ways of working. Your Company understands the crucial role played by its dealers and service partners in the times of the pandemic. Your Company encourages implementing the required health and safety measures and precautions owing to the COVID outbreak and engages on regular basis to ensure the same. Your Company also emphasises on protecting human rights in all its operations including dealers and provides equal opportunity to all. Going forward, your Company intends to collaborate with dealers and service partners for its end-of-life vehicle management and circular economy initiatives.

Financing

Aspiration among consumers for Royal Enfield motorcycles is rising across the country. Improvement in the availability of finance can help people fulfil their aspirations by financing their purchase. Also, financing is important in view of varied demographic profiles of the customers and their affordability levels. It becomes further important in the times of increasing pressure on the income sources and rising prices of motorcycles.

Your Company worked with financiers to ensure availability of financing for its customers across all stores. In order to support customers in managing their payment schedule better, your Company coordinated with financiers to introduce new financial products with a focus on lower down payment, lower EMI and longer loan tenure which yielded positive results. Your Company also organised finance campaigns with financiers on their online platforms. Financiers are now financing motorcycle accessories, apparels and soft products along with motorcycles which is also driving the sales of non-motorcycle business.

During the year, your Company also expanded its network of financing partners by tying-up with a couple of Non-Banking Financial Companies (NBFCs) to improve access to financing for its customers especially in smaller cities and towns.

Expansion of the partner network also benefited customers through reduction in their cost of financing and improvement in the conversion rate.

after-sales

Royal Enfield promotes the idea of pure motorcycling which encapsulates riding, owning, maintaining and caring for motorcycles. To ensure smooth and hassle-free ownership and fun riding experience, your Company is constantly working towards offering consumers complete peace of mind by taking care of their motorcycles. With a focus on delivering best-in-class service experience, Royal Enfield took several initiatives during the year.

Strengthening its digital presence in the service domain, your Company introduced online features to offer frictionless after-sales experience to its customers. A service module was added in the Royal Enfield App to facilitate easy identification and location of workshops in the vicinity for consumers, and make a service booking for the motorcycle.

A new RE Mechanic App was launched to support the troubleshooting of the Electronic Fuel Injection (EFI) system which replaced the carburetor system for transitioning to new BS VI emission norms. The app makes the overall troubleshooting process easily accessible and affordable to mechanics both for authorised network and freelance mechanics. It supports Meteor 350 in the first phase and will be extended to other models in a phased manner.

In order to build a resilient supply chain with a lean inventory and also ensure parts availability at the retail counter and workshop, Royal Enfield completely revamped its parts operations from suppliers to sales outlets. This benefited both the Company and customers in many ways.

Auto replenishment of parts at 100% channel partners Parts branding which helps customer to differentiate between genuine and spurious parts Eco-friendly and more durable parts packaging and branding High velocity retail programme to improve parts penetration in the market through advocacy

Your Company continued to take a series of service excellence initiatives to improve its customer satisfaction.

In a bid to provide service support at the doorstep of customers, "Service on Wheels" initiative was launched in 2019. This programme can address up to 80% of all typical service related issues at the doorstep of the customer. Encouraged by an excellent response to the initiative in terms of gaining back the discontinued customers, your Company added a fleet of 800 motorcycles in 2020 under this programme. The programme has improved the reach of doorstep servicing facilities in over 600 cities Motorcycle pickup and drop facility has been started in all the metros and state capitals. This will offer customers hassle-free service experience without visiting a workshop Your Company commissioned 13 mobile service trucks to improve service reach especially in upcountry markets. The truck can station itself at a location and has the entire set-up to service a motorcycle Royal Enfield tied-up with one of the leading bike taxi companies for customer drop off from workshop to residence or office and vice versa Optimisation of top repair activities will result in reducing the time for resolution of frequently occurring repair issues

Along with providing after-sale services, your Company understands the importance of end-of-life management of its vehicles. The scrappage policy announced by the Ministry of Road Transport and Highways, India in March 2021 encourages customers to scrap their vehicles at the end of life which will drive efforts towards maximising recycling. While your Company already uses recycled raw materials in its products, it would like to extend its initiatives to include reused / recycled vehicle scrappage. The after-sales team is planning to educate consumers and encourage them to assist your Company in its efforts to increase the percentage of recycled raw materials.

 1 As per MCIA data from January 2020 to December 2020.

Motorcycle Accessories

Royal Enfield motorcycles are known for their ease of personalisation and customisation, and over the years, consumers have inspired your Company with their customised or personalised Royal Enfields that reflects their own personality in a certain sense. Your Companys accessory sales have experienced the strongest ever growth regardless of the pandemic. As an experiential brand, Royal Enfield built on that excitement with the incredible launch of the "Make it Yours (MiY)" programme where customers can choose a new model via the Royal Enfield App, website or dealer to create the motorcycle of their dreams with their own choice of accessories which come fitted from the Company. This is a truly unique and engaging experience for the customer unlike any other. MiY was first launched with the 650 Twin motorcycles in October 2020, followed by the Meteor 350, Classic and Himalayan. Like Meteor 350, all new models in future will be launched and available via MiY from day 1.

The team has been working towards creating new concepts and designs in motorcycle accessories, to offer even more exciting products for customers to choose from. The portfolio now stands at over 180 products from 125 products in 2019-20 and there is a plan to increase it further. Meteor 350 was digitally launched seamlessly in November along with 37 brand new accessories.

Each accessory is designed and developed alongside the motorcycle itself and tested extensively in parallel to deliver world-class quality and durability, all backed by a comprehensive 2-year manufacturers warranty for complete peace of mind. Accessories for the Meteor now come with a 3-year warranty which is a first for the business. In terms of popularity, the protection category continues to be very strong with products like engine guards, sump guards selling well. Cast alloy wheels are also proving a popular choice among the consumers, as are seats and seat covers.

During the year, the team was also focussed on improving the distribution model for accessories. Products like engine guards are being distributed through motorcycle depots which has significantly improved their availability for the dealers.

Following the success of a pilot programme to sell accessories via select service workshops, the initiative has now been rolled out pan-India and has resulted in an important additional sales channel for your Company and dealers to leverage.

Dedicated sales executives for stocking and selling the accessories to customers during servicing will help drive the business further.

Apparel and Riding Gear

Rider apparel and gear is a huge form of self expression for motorcycle riders. The jacket, gloves, protective riding gear, the helmet and other safety guards on the rider, are all part of the motorcycling lifestyle that each rider aspires to lead. Inspired by the consumers interest in motorcycle personalisation and customisation, Royal Enfield launched the MiY initiative in an attempt to promote this culture. Taking further inspiration from this, your Company introduced the MiY initiative to its range of apparel and riding gear as well.

Consumers now have an exciting range of personalisation options across helmets and T-shirts. There are now more than 7,000 options to personalise helmets, and more than 15,000 options to personalise T-shirts using text, decals, graphics, colours, and several other choices. Motorcycling enthusiasts can now wear their personality, on or off the saddle.

In order to provide Royal Enfield brand lovers with an opportunity to engage and express themselves through another lifestyle brand with legacy, your Company tied-up with Levis. Both the brands share values and have a rich history which formed a natural connection. A co-branded collection was created keeping in mind the comfort and style of the motorcycling community and other consumers alike.

Royal Enfield collaborated with Knox, experts and innovators of protective apparel and body armour, to build a range of high protection, CE certified and accessible riding gear. Under the partnership a new range of riding jackets, gloves, and riding trousers was launched by Royal Enfield to carry Knox armour.

The launch is part of the long-term collaboration in line with Royal Enfields commitment to provide protection, comfort and aesthetically designed riding gear and accessories.

Propagating a culture of pure motorcycling, it was natural for Royal Enfield to create a collection of clothing especially for the women riding community. Inspired by the ‘Motorcycling

Way of Life, your Company launched its first-ever exclusive womens apparel and riding gear range. The clothing range was designed to be aspirational yet accessible and support women in their pursuits of exploration.

Your Company acknowledges the growing consciousness among its stakeholders on understanding their organisations efforts towards environmental and social performance. In line with its philosophy and sustainability action, your Company will also include the apparel division in its efforts. Utilising recycled and certified raw material, partnering with sustainable suppliers, and also communicating through eco-labelling, are some of the initiatives that Royal Enfield intends to implement. Your Company is exploring ways to integrate environmental and social sustainability principles in the apparel and accessories it offers.

International Business

After recording a phenomenal performance in 2019-20, Royal Enfields international business delivered a sustained and resilient performance in such unprecedented times. The pandemic-led lockdown situation in various countries presented difficult times for the Royal Enfield team and dealer network. However, development of new systems and finding of new ways of working resulted in continued brand traction across the markets.

During 2020-21, a number of key initiatives were taken in global markets that laid solid foundations for sustained brand growth, enhancing customer experience, further strengthening the dealer network and promoting greater brand awareness across regions and targeting entirely new audiences and customer segments.

Launch of Meteor 350, entry into new markets such as Japan and Cambodia, introduction of digital campaigns, curation of custom motorcycle events and excellent response from the riding community and enthusiasts supported the steady performance of the brand in international markets. Despite the pandemic-driven constraints on supply and distribution, the overall sales volume was slightly lower by 8% on a year-on-year basis to 35,675 motorcycles for the year 2020-21. The 650 Twins maintained strong demand momentum in export markets. The Interceptor 650 was UKs highest selling ‘naked motorcycle for the calendar year 20201. Both North America and Latin America witnessed strong performance and concluded the year with a growth in volume.

In line with the vision to expand the middleweight motorcycling segment globally and also to increase its footprint in important global markets, your Company expanded its distribution network and set up local assembly operations.

Expansion of retail distribution primarily through exclusive stores in the key markets of the UK, Thailand, Brazil and Colombia improved brand accessibility and experience. Royal Enfield also set-up its first motorcycle assembly unit in Argentina to produce motorcycles outside India. Argentina is among the biggest mid-size motorcycle markets in Latin America. Plans are in progress for setting-up local assembly units across specific markets in Asia Pacific and Latin America regions.

Product Launches Picking Up

Encouraged by great response to the 650 Twins and guided by the plan to grow the scale and expanse of international business in the overall portfolio, your Company took the new Meteor 350 to the primary international markets soon after its launch in India. Meteor 350 has been successfully launched 1 in the UK, Europe, Australia, New Zealand and Thailand. The motorcycle has received great reviews from experts and media. It has also been accepted extremely well by the customers and dealers. Within a few months of its launch, Meteor 350 won the ‘Best Modern Classic Over 250cc award in Thailand, a key market for Royal Enfield.

Additionally, the new Euro 5 Himalayan and 650 Twins motorcycles - with a host of exciting new colourways - were introduced in the European market and they look set to further build upon the phenomenal success of the marquee models.

In the Americas, Classic and Bullet were migrated to BS VI emission norms and the Himalayan was launched in its Euro 4 version with switchable ABS in new colourways. The Classic 500 Tribute Black edition was introduced in limited numbers and immediately sold out in select markets across the Americas.

Brand Building - Different Times Call for Different Measures

The problems and restrictions, posed by the pandemic, encouraged your Company to reimagine its brand building beyond the conventional channels. Leveraging on digital capabilities, innovative ways of engaging with diverse communities were found for almost all purposes. Successful digital launch of new products and leadership interaction with media across geographies in a distinctive hybrid format via both online and offline channels was a first for your Company.

In order to address the constraints on rides and physical events, digital campaigns on social platforms were curated to keep a diverse community of brand advocates, ambassadors, influencers and enthusiasts engaged with the brand. Numerous innovative campaigns such as DIY sessions, #MyTripStory, #CustomShowcase, testimonials from customers were created through the year on social media for increasing brand awareness and product thrust. These campaigns provided people with an opportunity to share their own riding experiences, stories, interests and showcase their customised motorcycles. The main intent of the programme was to reach out to new audiences, tap into wholly new markets and generate interesting, authentic and original content from Royal Enfield riders and enthusiasts.

With a guiding principle of building community, fostering genuine brand experiences and strengthening customer ties with the dealer network, your Company continues to promote formation of riders clubs across locations. The riders clubs embody Royal Enfields "Pure Motorcycling" ethos. The clubs share programmes of dedicated rides, events and brand experiences which help in building strong communities that are approachable for all Royal Enfield riders. The community is growing ever stronger as your Company continues to bring a creative, passionate and diverse group of individuals to the wider Royal Enfield family.

Continued media engagement along with the company management resulted in presenting the Royal Enfield success story, brand heritage and its plan to become a global leader in the middleweight motorcycle segment, to the world. Thousands of press stories covered 120 years of rich history and legacy of Royal Enfield, product portfolio, media rides and market specific announcements.

The international business teams focussed on devising key city strategy. The intention is to implement strategic development programmes in specific cities which have the highest middleweight motorcycle potential and where positive growth opportunities have been identified. Out-of-store experiential programmes, test rides and city tour campaigns were held across the key cities for intenders to experience the various motorcycles in the portfolio.

A concerted focus was placed on developing brand exposure and awareness to new or alternative customer segments through customisation and design events in the UK and Asia Pacific. Collaboration with Bike Shed in London and launch of Bolt-On-Build project to engage with prominent customisers and influencers in Thailand, Indonesia and Australia resulted in unique and creative custom projects. In Europe, the Royal Enfield custom team along with a few major custom houses conducted a brand building exercise and storytelling through a weekly series of ‘Custom World Live during the lockdown period. The customisation capabilities of Royal Enfield motorcycles were further strengthened with the launch of exclusive custom kits for Himalayan and the 650 Twins by renowned custom houses in Asia-Pacific.

To focus on younger audiences, an excellent initiative - "Style Your Own" - was launched. Style Your Own is an inaugural student design competition through which Royal Enfield collaborated with a number of prestigious universities and design institutions across Europe to creatively engage with the next generation of designers, engineers, illustrators, tastemakers and motorcycle enthusiasts.

In order to further strengthen brand awareness in the US, Royal Enfield partnered with "American Flat Track (AFT)".

Opening of a slide school in collaboration with Moto Anatomy has provided Royal Enfield with an opportunity to showcase its motorcycles to the enthusiasts and grow the sport of motorcycling. Royal Enfield debuted the Twins motorcycle in 2020 to compete in the AFT races. The team Moto Anatomy X Royal Enfield ended the year on a high note after taking podium position in the third race at the AFT season Finale at Daytona Race-Track.

Every year Royal Enfield organises ‘Cause Rides which helps create a positive impact on the communities by providing an opportunity to riders to explore and understand the landscapes and culture of these destinations. Considering the health and safety of riders and communities at utmost importance, your Company refrained from organising ‘Cause Rides on the larger scale during 2020-21. However, your Company intends to conduct such rides in the years to come.

Larger Footprints Driving Customer Reach

Expansion of the retail and service network in key geographies significantly improved accessibility of Royal Enfield motorcycles and enhanced brand visibility. Across regions, your Company continued to strengthen the network by securing a number of successful conversions of bigger and quality dealers. This was supplemented by an assertive drive to set up more Royal Enfield exclusive stores and further enhance the holistic brand experience for the end customer. Your Company increased its exclusive store count from 77 in 2019-20 to 132 in 2020-21 and Multi-Brand Outlets (MBOs) to over 630.

In the Asia Pacific region (APAC), the overall footprint of Royal Enfield grew to 123 retail touch points with major expansion undertaken in Thailand and Australia. Along with expansion of footprint within the region, your Company also forayed into Japan and Cambodia markets during the year. Japan is a critical two-wheeler market with high potential for old school, classic-styled motorcycles. Similarly, Cambodia is one of the most sought-after motorcycling destinations in the world.

In APAC, rental business model also plays an important role in managing the ‘Usership before Ownership facet. Hence your Company has tied up with leading rental partners to provide the motorcycle enthusiasts with an opportunity to explore the region as well as experience the Royal Enfield motorcycles.

The Americas region performed very well in 2020-21 and has a great potential for Royal Enfield. The regional team worked on expanding the retail network and ended the year with around 50 exclusive stores and over 180 MBOs. Your Company launched its first assembly facility outside of India through its partner in Argentina in September 2020. The facility immediately started operations and has been catering to the entire demand of the country. Royal Enfield entered the Mexico market in July 2020 and expanded the exclusive store network to 7 outlets after considering prospects.

European region is one of the largest markets for Royal Enfield outside of India and has been delivering well. The region also has the largest distribution network with about 420 retail outlets including 36 company exclusive stores. Your Company added stores in almost all the major markets of the UK, France, Germany and Italy during the year.

Winning over Consumers and Earning New accolades

The 650 Twin motorcycles - the Interceptor 650 and the Continental GT 650 - continued to build on their strong audience base and gained further traction across all markets. Himalayan also maintained its strong demand momentum and recorded the highest ever export volume in 2020-21. The new Meteor 350 was launched in a couple of key markets in the later part of the year and received excellent response from the customers and enthusiasts.

Royal Enfields market share in the middleweight motorcycle segment in Asia-Pacific improved from 4.5% in 2019-20 to 5.7% in 2020-21. A standout performance in Australia, New Zealand and Korea resulted in over 10% market share in the middleweight segment. In 2020, Royal Enfield achieved market share of 3-6% in the middleweight segment in the US, the UK, Europe, Colombia and Argentina, propelled by the 650 Twins and Himalayan. Launch of 650 Twins in Brazil, one of the worlds largest two-wheeler markets, is also helping Royal Enfield grow its market share. The Twin motorcycles have been highly appreciated for their aesthetics, authenticity to era and their performance and provide a very accessible and attractive proposition for riders of all ages and experience.

Since the launch of the 650 Twins in September 2018, these motorcycles have been receiving continual praise, accolades and positive reviews from experts and customers alike. The Interceptor 650 managed to defend its prestigious crown in the UK for ‘MCNs Best Retro Bike of the Year for 2020

(joining a very esteemed class of motorcycles that have managed to win back-to-back titles) as well as became the UKs highest selling ‘Naked Motorcycle for the calendar year 20202. It also had consecutive wins in Thailand and Australia by receiving the ‘Best Modern Classic in Middle Weight and ‘Best Retro awards in a row. In the year of launch in Brazil, the Interceptor 650 won the Gold medal of Classic/Retro segments awards of 2020.

In Thailand, Himalayan won the ‘Best Touring Light Weight motorcycle award for the second consecutive year, presented by the Grand Prix group. In Brazil, Himalayan won the Gold medal of Trail / Big Trail segment awards of 2020 at the Moto

Premium magazine. Within a few months of its launch in Thailand, Meteor 350 secured the "Best Modern Classic over 250cc" award.

These achievements by Royal Enfield motorcycles are a very strong endorsement of your Companys testing, development and quality process, as well as the popularity and customers confidence in the brand.

Exploring New Markets

As part of a differentiated approach to build brand awareness in the new markets, your Company is focussing on countries which have a high influx of tourists and engaging with reputed organisations offering motorcycling tours and rental solutions.

The Company strongly believes that this approach will help motorcycle enthusiasts from across the world experience Royal Enfield for longer durations across exotic destinations and return with positive memories of their trip and of the brand. The approach should also help build aspiration for the brand among the local population in these countries enabling Royal Enfield to set up a retail network over a period of time.

Despite all the constraints that your Company faced this year, the Royal Enfield brand is becoming stronger and more relevant to customers across the world. The network is expanding with better quality dealers and the confidence is growing that the brand will continue to gain market share in the global middleweight motorcycle segment.

Financial Review

The year 2020-21 began with a pandemic induced lockdown in India and other countries. A swift recovery in demand along with measures taken by your Company to adapt to the new working environment, supported overall performance of the company. After a complete washout in the first quarter due to shutdown of business activities followed by constraints, both demand and production picked up very well in the later part of the year. Overall volume of Royal Enfield declined by 13% to 6,09,403 motorcycles in 2020-21. Your Companys revenue from operations declined only 5% to Rs. 8,720 crores in 2020-21 from Rs. 9,154 crores in 2019-20. Realisation improved on account of price hikes taken, primarily to offset the significant increase in input costs due to regulation driven transition to the new BS VI emission norm and an exceptional rise in commodity prices. A robust performance by accessory and apparel business also helped the overall revenue of the company. Revenue from India business decreased 5% to Rs. 7,873 crores in 2020-21 from Rs. 8,323 crores in 2019-20. An excellent performance in export markets resulted in a 2% increase in revenue to Rs. 847 crores from international business in such a difficult time.

In a bid to grow its non-motorcycle segment share, your Company undertook a slew of initiatives across after-sales, accessories, apparel and solutions businesses. Introduction of Service-on-Wheels, launch of Make-it-Yours, expansion of accessory and apparel range and retail distribution are steps in the right direction to enhance customer experience. A great acceptance and rising penetration of all such initiatives has underpinned a healthy performance of the non-motorcycle business. Total revenue from spares and services, apparel and accessories remained flat at Rs. 1,091 crores in 2020-21 despite the pandemic led disruption to the demand.

Earnings before Interest, Tax, Depreciation and Amortisation ("EBITDA") of your Company decreased by 18% to Rs. 1,781 crores in 2020-21 from Rs. 2,180 crores in 2019-20. A decline in revenue and significant increase in input costs impacted the profitability. EBITDA margin also decreased to 20.4% in 2020- 21 from 23.8% in 2019-20. Sharp increase in commodity prices, especially precious metals, loss of operating leverage on account of lower volume and COVID-19 caused expenses weighed on the margin. Successive pricing actions by your Company helped offset the impact on profitability to an extent.

Your Companys financial position remains robust with total cash and cash equivalents, and investments (other than in subsidiaries and Joint Ventures) of Rs. 7,806 crores. It generated a healthy cash flow from operations at Rs. 1,714 crores and also provided support to its vendors and dealers in their tight liquidity condition. Your Company continued to invest in its product development activities and setting up operation facilities along with a special focus on growing its digital capabilities. The total capital investment for the year stood at Rs. 555 crores.

Key Financial Ratios

In accordance with SEBI (Listing and Disclosure Requirements 2018) (Amendment) Regulation, 2018, a company is required to give details of significant changes (change of 25% or more as compared to the immediate previous financial year). Your Company has decided to report following key financial ratios:

Particulars uoM standalone Consolidated
2020-21 2019-20

2020-212019-20

Inventory Times 8.2 9.2 7.3 8.6
Turnover ratio
Current Ratio Times 3.6 3.4 3.4 3.2
Operating % 15.6 20.1 15.3 19.7
Profit
Net Profit % 15.4 21.0 15.4 20.0
Margin
Return on % 15.1 24.8 12.9 19.5
Net Worth
Debtors Times 3.6 6.0 6.2 9.5
Turnover Ratio

Ratios where there has been a significant change from 2019-20 to 2020-21:

Net profit margin was impacted by a 13% decline in sales volume and increase in input costs mainly material costs. Consequently the margin reduced to 15.4% in 2020-21 from 21.0% in 2019-20 on a standalone basis. Return on Net Worth also decreased to 15.1% in 2020-21 from 24.8% in 2019-20 due to lower net profits compared to the previous year.

Your Company exports to over 60 countries, which contribute about 10% to the total sales. A large part of this sales is on credit. Debtors Turnover ratio decreased to 3.6 in 2020-21 from 6.0 in 2019-20 on a standalone basis due to a slightly lower credit sales and increase in average debtors.

OPERATIONS REVIEW

Production Management in Pandemic

The year began with nationwide lockdown amid the pandemic situation which led to suspension of operations at manufacturing facilities and offices. Resumption of production activities after the lockdown was enabled through proper coordination with the company staff and government authorities while ensuring complete safety of employees and all immediate stakeholders. Special arrangements for transport and stay at hostel facilities near the plants were made for staff to secure their safety outside the workplace.

Engaging with government authorities for permissions and adhering to safety protocols issued by health departments, your Company restarted operations at its manufacturing plants and offices. An all-round effort to safeguard interest of the workforce while ensuring minimal disruption to the business resulted in a gradual ramp-up of production activities.

On the logistics front, particularly for shipments to overseas destinations, availability of containers, congestion at ports, frequency of shipping lines etc. posed challenges to the industry. Your Company handled these constraints by taking both short-term and long-term measures including restructuring of contracts, expansion of service provider base, rerouting of despatches with a combination of feeder and mother vessels. The right measures resulted in accomplishing export business plans and supporting global aspirations of your Company.

Your Company acknowledges global climate change as a major environmental concern. It has prioritised its efforts in reducing energy and water use, waste generation, and GHG emissions associated with its manufacturing facilities to mitigate the negative effects and ensure a sustainable future. In addition, your Company is also looking at extending its initiatives to its value chain partners including suppliers, dealers, consumers as well as end of vehicle life management.

To this effect all of its manufacturing facilities are ‘Zero Liquid Discharge plants, two of which have been certified as water positive. Your Companys energy savings initiatives have resulted in a 15% increase in savings over the last year. It has successfully completed renewable energy installations and intends to enhance the capacity year-on-year. In addition to this, your Company became signatory to the ‘WASH Pledge across all operations during the year.

Setting up Facilities to Support New Initiatives

Launch of Meteor 350 on a new platform was successfully received by customers and community alike. Bringing in a new platform to life without causing disruption to the production of existing products, was achieved through a great collaboration between the manufacturing and product strategy teams.

With an intent to maximise overall production, the team engaged in meticulous planning to deliver a smooth ramp-up of production of Meteor from its testing stage by creating exclusive initial capacity. With addition of some exclusive equipment in fabrication and vehicle assembly, the line was made ready to produce the all-new Meteor 350.

In order to support the first-of-its-kind personalisation initiative ‘MiY, a complete back end system was created and integrated with the enterprise system. The team coordinated with various feeder shops and set up one-of-its-kind stores for storing all exclusive parts from the shops. Once the system triggered a production schedule for a booking under MiY, feeding and assembling of the right part to the right motorcycle was completed through a well-designed network. The entire system is made robust enough to cater to hundreds of thousands of unique bookings under MiY across the product portfolio.

With a focus on expanding global presence, your Company has started setting up Completely Knocked Down (CKD) facilities in key export markets. To enable CKD operations in Argentina and other countries (Thailand, Brazil, Colombia), it is necessary to establish robust backend facilities in India. The facilities include an assembly line for production of a motorcycle kit and a separate facility for its packing. In addition to this, a lot of checks and balances have to be introduced in the processes and IT systems to ensure accuracy and safety in handling and shipping of parts to multiple countries. The backend facilities are common for supporting the assembly operations across the geographies. Last year, a front end assembly facility was established in Argentina. Your Company achieved a great feat by successfully starting the operations in pandemic time through an entirely digital coordination.

As your Company strives to become the industry leader in customer satisfaction, actions have been directed to provide timely service and ensure spare parts availability across the network. At Oragadam, a centralised spare parts warehouse is set up with advanced infrastructure such as high rise racks with shuttle pallets, automated conveyors with computer aided scanning and labelling, sorting and staging. The facility increased daily productivity 3-fold and helped in successfully implementing the replenishment model, enabling wider reach yet leaner inventory of spare parts at all locations of the channel partners.

Strong Product Development Capabilities with Focus on Technology

COVID-related restrictions impacted product development activities during the year. The lockdown situation across the UK and India caused a shutdown of your Companys technical centres in these countries in the months of April and May. This resulted in a halt in physical testing of motorcycles, engines and components and also affected the work of designers and engineers who had limited access to the necessary tools.

Royal Enfield started production of the Meteor 350 in September, which showcased an all-new 350cc single cylinder engine. Although the engine is relatively simple in configuration - air-oil cooled and two valves - it is completely new and designed to the highest modern standards for emissions and driveability. Likewise, the vehicle, despite a ‘retro appearance, is an all-new thoroughly modern design that competes with the best in the world in terms of user satisfaction.

The Meteor 350 has been exceptionally well received and won several best motorcycle awards. This is a testament not only to the quality control processes in place in the manufacturing plants, but also to the high standards of design and validation applied throughout the development of the motorcycle. The new world-class and state-of-the-art facilities at both the technical centres are contributors to this success.

Your Company has been working on continuous improvement of its development capability, revising and updating testing standards based on learnings from recent projects, and has established a design engineering knowledge base to ensure that the lessons learned are captured and made accessible to all design engineers. The analysis team has been developing automated systems for performing finite element analyses as well as using high power cloud-based computing to reduce the time taken to perform the simulations. Initial sets of results are quite encouraging with an achievement of significant reduction in time to perform chassis durability simulations, for example. This allows the team to perform these analyses more frequently, resulting in a higher level of confidence in the design before committing to tool initiation. To capitalise further on automation benefits, work is continuing on a wider range of analyses.

Supply Chain Management

Supply chain partners of your Company rose up to the occasion and contributed significantly to resumption of supplies and services post lifting of COVID-led lockdown.

Despite restrictions in various containment zones and problems around migrant workforce movement, the partners made a swift recovery in their operations while adhering to ‘the new normal work practices and safety regulations. This was achieved through real-time collaborative connections and interactions by your Company with supply partners to manage the daily production effectively. The support received in these testing times reflects the strong relationship your Company has built with its supply partners and service providers.

The team handled difficulties in availability of raw materials, electronic components, logistics services, import restrictions etc. through effective planning and execution. The impact of a steep increase in prices of noble metals on material cost was managed through focussed engineering efforts by your

Company along with supply partners who also absorbed new process technologies.

"Shoki Ryudo Kanri" (SRK) process has become a way of life in all-new products and upgrades launched by your Company. The digital launch of the all-new, ground-up Meteor 350 and successful ramp-up of its production in 2020-21 is a testimony to the rigour with which supply partners adopted the SRK process which has resulted in remarkable product quality and riding experience to the customers, at par with international standards.

Your Company is committed to continue to collaborate with its supply partners and service providers on delivering many new products with new technologies and taking initiatives on early supplier involvement, sustainability, customer service, logistics network re-engineering, digitisation, in order to align with your

Companys long-term growth plans.

In line with its sustainability commitment, your Company also assesses its suppliers on social and environmental performance criteria, apart from quality assessments. It focusses on local procurement and green packaging to reduce emissions and other adverse environmental impacts through its supply chain. Till date, it has assessed over 300 suppliers on its supplier assessment criteria including Tier-2 suppliers. Your Company believes that it will emerge stronger and better in terms of responsible supply chain initiatives in the years to come.

Product Quality

In your Companys constant pursuit of being number one in customer satisfaction, varied initiatives were taken in different areas from the perspective of quality during the year. In an endeavour to relentlessly deliver even in the pandemic time,

Royal Enfield maintained its rigour to reach out to domestic and international dealers and collect feedback straight from the customers to identify opportunities for further improvement in the product quality.

Setting up systems such as ‘Customer Satisfaction Motorcycle

Evaluation System resulted in improving customer experience through analysing and enhancing ride and comfort aspects. In order to ensure quick response on quality improvement actions, digitisation initiatives were undertaken to reduce cycle time for analysis and resolution. All features and characteristics of the motorcycles were carefully evaluated to deliver the best-in-class build quality. As a result, the newly launched Meteor 350 was crowned with many laurels including the most prestigious Indian automotive awards "The Indian Motorcycle of the Year 2021 (IMOTY)". The motorcycle has further raised internal quality benchmarks.

Your Company was upgraded from a Quality Management

System certification to an Integrated Management System certification in Safety, Health, Environment & Quality (SHE-Q). This certification validates that your Company conforms to the highest quality standards and its commitment towards providing a safe and conducive working environment to its employees. It has helped in increasing employee performance and customer satisfaction through continual improvement.

Various innovative ideas enabled your Company to improve the reliability of the product by continuous focus on eliminating perennial failures on all the processes. For example, no incident has been reported on the persisting problem of fuel tank leakage since June 2019.

In view of global expansion with many new products in the offering, your Company will continue to strive to deliver on global quality standards for a better customer experience.

BRAND BUILDING, CUSTOMER EXPERIENCE AND ENGAGEMENT

Focus on Customer Safety and Convenience

2020-21 was a year unlike any other. A year when brand and customer engagement underwent significant changes. Royal Enfield, as a brand and marketing organisation, focussed on customer convenience and safety as its key priorities. Your Company undertook a host of initiatives to ensure a quality, safe and seamless experience for customers across channels and platforms, powered by a robust digital ecosystem and an integrated in-store experience. A wide range of safety measures were also introduced with an aim to ensure the well-being of employees, vendors, partners and dealers ecosystems across markets and regions.

Keeping in line with requirements of the new normal, Royal Enfield rolled out a wide array of offerings to make the customer journey with the brand more accessible and convenient - right from the pre-booking stage to purchase and servicing stage. Through several digital and online programmes and ‘At-your-doorstep services, the Company provided customers a seamless and hassle-free experience with the brand. Your Company also harnessed the evolving customer sentiment in preference of digital consumption by stepping up on community engagement with contextual campaigns across different platforms keeping pandemic and cultural sensitivities in mind. The Companys programmes over the last year have focussed on keeping the riding community engaged via authentic and purpose-driven content. Additionally, your Company created multiple avenues to drive brand consideration during and post the lockdown phase in the country.

Customer-Centric Initiatives - Many Firsts for the Brand

With a vision to accentuate customer experience, while ensuring maximum safety and convenience, your Company introduced Contactless Purchase and Service Experience initiatives. These included online discovery of the entire product portfolio, home test rides and online booking facility on the Royal Enfield website and later on, the app.

The customers were also given an option to connect with their closest local dealer and complete payment formalities through e-payment options available across Royal Enfield dealerships which was then followed by the option of home-delivery of the selected motorcycle. On the service front, the Company deployed Service on Wheels - an 800-strong fleet of mobile service-ready motorcycles accompanied by authorised Royal Enfield technicians who provide service at the customer doorstep while strictly adhering to all safety related guidelines.

As part of its digital push and consumer prioritisation, your Company launched the Royal Enfield Mobile App. Centred on engagement, utility and contactless digital experience, the RE App enables customers to access all of Royal Enfields motorcycling experiences and offerings at the touch of a screen. Right from exploring a motorcycle and viewing it with colour and accessory options in the App Configurator , a customer can book and pay for his or her customised Royal

Enfield motorcycle through the mobile application. Equipped with a Service Booking module, the App allows a customer to conveniently select his or her preferred location, date and time for the service, or even book a Service on Wheels from the convenience of his or her home. The Rides module allows a customer to curate a bespoke ride through and also invite other riders in the community to join the same ride or vice versa. The RE App received a tremendous response for customers and enthusiasts. There have been about 700K downloads since its launch, across Android and iOS devices.

Royal Enfield also debuted the Make it Yours (MiY) initiative last year that endeavours to nurture a culture of motorcycle customisation and personalisation. MiY is seamlessly integrated into the RE App allowing customers to select, customise and book their motorcycles directly through the

App. Enabled via an all-new 3-D Configurator, MiY provides customers access to thousands of possible combinations in personalisation options with choice of colourways, trims and graphics, as well as genuine motorcycle accessories, right at the time of motorcycle booking. MiY was also introduced on Royal Enfields wide range of apparel later last year as well. The response to MiY, like the RE App, has been very positive. On the Royal Enfield website, the configurator has been used by around 2.7 million people with a total of 20 million pageviews. More than 70% of the bookings of all MiY onboarded motorcycles are coming through the MiY Configurator.

Surge in Community Engagement and Accessibility

Royal Enfield has always embraced technology and diverse mediums - primarily digital - to elevate customer experiences across different touchpoints in their journey with the brand.

Your Company introduced programmes which enabled intenders as well as customers to experience the Royal Enfield brand from the comfort of their homes and at the touch of a button. The Company created evocative avenues, engaging campaigns, for its active, vibrant and 7.8 million+ strong online community to keep conversations going throughout its digital and social media platforms. The differentiated campaigns brought together a diverse yet inclusive Royal

Enfield community - from avid riders and aspirants to custom builders and motorcycling clubs- under a common umbrella and enabled them to bond on their common passion - Pure Motorcycling.

Your Companys digital first consumer engagement strategy (RE App launch, Trip Story, Build Your Own Legend and Art of Motorcycling etc. campaigns) coupled with high-decibel virtual launches (Meteor 350, new Himalayan) as well as fervent focus on personalization (MiY) was appreciated immensely by the customers and drove impactful output. The website visits more than doubled to 66 million in 2020-21 from 29 million in 2019-20. The share of search for Royal Enfield in 2020-21 stood at 29%, a 600 basis points increase as compared to the previous year. Reported as Indias 2nd most engaging brand only behind Netflix, Royal Enfield doubled its engagement rate for its campaigns to 8.5% in 2020-21 from 2019-20.

Active Marketing to Prime the Customers

Subsequent to building efficient and exciting digital mechanisms to deliver exceptional customer experiences, your Company introduced a range of retail programmes to explore potential opportunities with intenders. Keeping in mind the tight liquidity situation, the Company designed schemes such as extended warranties which were squarely aimed at relieving the pain points of customers. The financial reward focussed initiatives were taken and further amplified through strong and consistent messaging across social and digital channels which drove impressive results, right after majority of the Companys retail network was reopened post the lockdown.

First Ever Digital Launch

2020 saw your Company undertake its first ever digital launch, that of an all-new, ground-up motorcycle in the cruiser segment, the Royal Enfield Meteor 350. First introduced in India in November, the motorcycle has since been launched virtually across Asia-Pacific and European markets where Royal Enfield has a presence.

The Meteor 350 adds another chapter to Royal Enfields legacy of producing cruisers loved by riders, and establishes the core proposition of cruising as a category. At the heart of the Meteor is a brand new air-oil cooled engine with overhead camshafts and a counterbalancer for a refined ride while retaining the character and feel of Royal Enfield Motorcycles.

A brand new chassis, comfortable cruising posture, a new and refined engine, tubeless tires, dual channel ABS, Tripper navigation (powered by Google) and USB charging, paired with Royal Enfields Make It Yours initiative - make Meteor 350 the only modern factory custom cruiser in the segment.

The digital launch of the motorcycle received a warm reception from consumers and intenders from across the country. November 2020 saw around 10 million website visits and a 24% increase in searches for Royal Enfield, with over

70 thousand enquiries for Meteor 350 coming within a month of the motorcycle launch. Additionally, the Meteor 350 has won numerous awards and accolades globally- including the prestigious Indian Motorcycle of the Year Award (2021) and the Best Modern Classic over 250cc award at the Thailand Bike of the Year Awards 2021 amongst others.

The consumer sentiment towards Royal Enfield continued to be positive and despite the pandemic induced scenario, your Company witnessed that the share of its online enquiry increased to over 2.5X and share of booking increased to over 5X given improvement in the conversion rate across the product portfolio as compared to 2019-20.

RISK MANAGEMENT FRAMEWORK

Royal Enfield continuously monitors its ecosystem and reviews risks associated with its business. The Company has a framework involving senior members of the management team. Key risks are identified and mitigation strategies are crafted accordingly. Some of the key risks identified and tracked by your Company are described below:

1. Coronavirus Disease (COVID-19)

Capital: Financial, Manufactured, Human and Social & Relationship

Material issue: Economic Performance, Manufacturing

Efficiency, Occupational Health & Safety, Responsible Supply

Chain, Customer Centricity and Community Engagement.

The COVID-19 pandemic severely impacted economies all over the world with India being no exception. Restrictions were imposed on movement of people and goods. Imposition of lockdowns across states and cities severely impacted availability of labour and disrupted supply chains. Operations were suspended and later curtailed on a periodic basis to comply with administrative directions.

Owing to the impact of the pandemic on disposable incomes of households and tightening of discretionary spending, there may be a short-term impact on sales volumes of the automobile industry, including those of your Company. Shutdown of operations and the subsequent restrictions on the business activities resulted in deferment of your Companys product launch plans. Customers were also reluctant to step out of their homes to visit a store and check out the product.

In an unprecedented time, your Company undertook innovative measures not only to drive demand but also to enhance customer experience. A strong product pipeline, distribution network expansion, digital campaigns for brand building, online platform for booking and initiatives to enhance customer experience are oriented towards growing the customer interest in the brand and its products. Digital launch of Meteor 350, a first ever in the companys history, expanded the overall reach and was received very well by the community. Ensuring safety and convenience of customers was of paramount importance. Your Company introduced initiatives to support test ride, delivery and services at the customer doorstep. Dealers, employees and workmen were supported appropriately during these times.

Your Company performed a detailed assessment of its liquidity position and the recoverability of assets as on the balance sheet date and concluded that based on the indicators of future economic conditions, the carrying value of the assets will be recovered. Your Company believes that it has fully considered the possible impact of all the known events arising from COVID-19 pandemic in its assessment. However, the impact assessment of COVID-19 is a continuing process. Your Company will continue to monitor any material changes to future economic conditions and the consequent impact on its business, if any.

2. Commodity Pricing and Availability

Capital: Financial, Manufactured, Natural, Social and Relationship

Material issue: Economic Performance, Manufacturing Efficiency, Responsible Supply Chain, Customer Centricity and Responsible use of Materials

There has been an increased pressure on commodity prices and availability especially with regard to the Platinum Group Metals (PGM). PGM are key materials in complying with the emission norms. Owing to their limited production and supply chain constraints, the Company has identified them as a material factor. Some of these commodities are imported and there can be additional impact due to adverse foreign exchange fluctuations.

The team managed the difficulties in availability of raw materials, electronic components, logistics services, import restrictions etc. through effective planning and execution.

The impact of a steep increase in prices of PGM on material cost was managed through focussed engineering efforts by your Company along with supply partners who also absorbed new process technologies. Your Company will continue to adopt mitigation strategies to limit the business impact of commodity pressure.

3. Availability of Financing

Capital: Financial, Manufactured and Social & Relationship

Material issue: Economic Performance, Manufacturing Efficiency and Customer Centricity

Access to financing is important to improve the overall affordability of a customer, a key catalyst for demand. A meaningful increase in prices by the two-wheeler industry on account of substantial increase in the input costs further prompted the need for financing. Moratorium caused lack of rotation of cash and stringent credit norms affected the availability of financing to the customers. In the first quarter, the financing penetration was reduced due to the tight liquidity situation. However, it later improved with the gradual recovery in business activities and return of cash in the system. Your Company witnessed a decrease in the share of motorcycle sales through financing to 46% in 2020-21 from 53% in 2019-20.

Your Company is constantly working towards improving access to financing for its customers. During the year, your Company coordinated with its financiers to organise finance campaigns and introduce new financial products with a focus on lower down payment, lower EMI and longer loan tenure which helped the customers manage their cash flow better. Expansion of network of financing partners by tying-up with other Non-Banking Financial Companies (NBFCs) also improved availability of financing for its customers especially in smaller cities and towns. The wider partner network also benefited customers through reduction in their cost of financing and improvement in the conversion rate.

Every year, the Global Risk Report published by the World Economic Forum (WEF) categorises global risks into likelihood and impact. In 2021, environmental and societal risks were among the highest likelihood and impact risks of the next ten years. Having said this, your Company understands the need to include climate change and sustainability risks as part of its formal risk assessment. This will help your Company in enhancing its preparedness and future-proofing its operations.

4. Environmental Regulations and Compliance

Capital: Manufactured, Financial, Natural

Material issue: Regularity Compliance, Climate Change, Energy & Emissions, Water Management, Waste Management and responsible use of materials.

Your Company is exposed to a continuously changing regulatory landscape related to legislation, rules, and policies that have an influence on its products and operational sites. The Company is ensuring that its operations conform to environmental laws to prevent any infringement of laws and regulations, which may result in considerable fines and penalties.

5. Climate Related

Capital: Manufactured, Financial, Natural and Intellectual

Material issue: Climate Change, Energy & Emissions and Innovation Management

Climate related risks include (not limited to) physical safety of operations due to natural disasters, Chronic risk of resource scarcity for operations & supply chain and extreme weather events. The Company ensures preparedness to build resilience against climate change induced impacts by committing to a low carbon economy. The Company strives to invest in design innovation, enhancement in resource (energy & water) efficiency in operations, scale up of renewable energy and disaster management plan covering floods

INTERNAL CONTROL SYSTEMS AND THEIR ADEQUACY

Your Company has deployed a robust Enterprise Resource Planning ("ERP") system based on SAP platform enabling a high degree of system-based checks and controls ensuring protection of its assets and interests. The governance risk and compliance framework further ensures that internal controls are effective and complied with. The internal auditor carries out internal audit of functions and processes in accordance with a schedule approved by the Audit Committee. The Audit Committee reviews the adequacy of resourcing, staffing and seniority of personnel in the internal audit team. The audit findings and managements resolution plans are reported on a quarterly basis to the Audit Committee by the internal auditor. The internal auditor of your Company also reports to the Audit Committee in respect of adequacy of internal control systems and weaknesses, if any. Furthermore, the statutory auditor reports on the adequacy and effectiveness of the internal financial controls in respect of financial reporting.

Your Company has a whistle blower policy / vigil mechanism providing avenues to all employees, vendors and dealers to report instances of fraud and wrongdoings while ensuring protection from victimisation and reprisals.

REINVENTING HUMAN RESOURCES - A NEW SCALE OF INNOVATION IN THE COVID ERA

As 2020 presented unprecedented times to businesses across the world, there was limited scope to do things the usual way.

The norms of ‘normal were fast changing and the timeframe to adapt was miniscule. At Human Resources, your Companys first priority was to take care of its stakeholders in the time of distress and get the business back on track.

Breaking boundaries at almost every level, your Company accounted for people safety, and empowered decision making across teams to help them move faster and align well with the changing environment. New working arrangements were put in place with detailed communication to facilitate a seamless transition and adoption of digital collaboration tools. Organisation-wide engagement showed record levels of improvement as teams drove innovations to engage and inspire employees, dealers and supply partners through digital means.

Operation ‘REStart was a strategic plan developed to manage operations post the lockdown. Working with local officials and state machinery, it was commendable to see the HR and Operations team get the manufacturing units restarted. In terms of COVID care, whether it be the specially curated COVID insurance plan, doctor consultations/hospital assistance or COVID vaccination support, your Company was able to create extraordinary relationships with its people and partners.

Royal Enfield has been building robust processes around staffing, talent management and capability enhancement by putting the right framework in place and imparting skills across varied roles. The objective remains to drive people towards contributing to the overall success of the organisation while continuously learning new skills. There has been a renewed focus on digital learning during the year and it has shown great progress in terms of online learning hours and range of programmes. Leadership Development programmes at various levels are being extended to create a future pipeline of leaders in the organisation. On the continuous improvement agenda, programmes like Kaizen and REImagine have been able to successfully involve and inspire the workforce to think beyond limits and make improvements across streams.

Your Company provides a range of monetary and non-monetary benefits to its employees that go beyond what is allowed by statute. Its commitment to provide every employee with a respectful and empowering work experience has culminated in one of the lowest turnover rates in the industry.

Implementation of a comprehensive Occupational Health and Safety (OHS) management system has ensured health, safety and well-being of all permanent and contract workers at the manufacturing facilities. Your Company also extends its safety priority to the external stakeholders dealing with a probability of being impacted by its business operations. The Oragadam plant reached 17 million safe manhours without any Lost Time Injuries (LTI).

As your Company sets foot on another year, it looks back with pride at its collective achievements, resilience and agility during the pandemic. Your Companys next steps would be to build further on this roadmap and continue to enhance people practices along with its innovation agenda while being ready for future challenges and opportunities.

INFORMATION TECHNOLOGY

Technology is a key pillar to support your Company achieve its vision of becoming a global motorcycling brand. With a focus on transforming it from a technology driven to a technology led organisation, your Company is investing in technology to make it a backbone for all the business activities. From a customer interface for his or her purchase or service requirement to a factory operation, everything is being digitally integrated to build a smooth and efficient system, deliver a superb customer experience.

Royal Enfield transitioned from its existing data centre based ‘Dealer Management System (DMS) to cloud based system ‘Microsoft Dynamics (MSD) in about 1,800 stores in India.

MSD is also being launched in international business locations with rolling it out in Thailand in 2020-21 and planning its next launch in Brazil. MSD provides a complete 360 degree monitoring of both the customer and vehicle. Integration of both the Customer Relationship Management ("CRM") and DMS modules into MSD helps manage the customer conversion funnel. Starting from lead generation and following it through enquiry, test ride, booking to delivering a motorcycle can be entirely monitored for better customer engagement. The tool also supports in recording all the after sales interactions with the customer and work carried out on the motorcycle. A database of customers with a record of all past engagements will be very useful in delivering complete customer satisfaction.

In its digital transformation journey, your Company is capitalising on its enterprise system for its new initiatives aimed at enhancing customer experience. Launch of RE App and a 3D configurator under the MiY initiative should drive the trend of customers shifting from traditional ways of buying to a completely new digital purchase journey. MiY enabled personalisation option with a range of choices and ease of navigation will promote the customer interest in the online platform. In order to support this digitisation, your Company launched the RE App on both the popular operating platforms - Android and iOS. RE App hosts multiple modules such as Booking, MiY, Service, Rides, Do-it-yourself, navigation through Tripper etc. to provide a frictionless experience to its customers and riding community for their different needs.

A full integration of the enterprise system from customer interface to production back end along with MiY will make the business operations more efficient. Receipt of online booking by the Company directly from the customers will eliminate the need for maintaining stock at the dealer end. Production will be linked to the customer booking. This new order-to-delivery process will help your Company shift from ‘Made to Stock to ‘Made to Order. Digital quality inspection will also be equally important to match the final product with the customer booking given every bike can be different under MIY. Digital intervention through the enterprise system SAP and Product Lifecycle Management (PLM) will ensure delivery of the right product to the right customer.

Another digital innovation is the Royal Enfield Mechanic App which was launched along with the Meteor 350. This aims to retool and upskill the entire mechanic ecosystem and authorised service centre network. The Mechanic App is a digitised platform that offers e-diagnostics for easier, faster and precise diagnosis and resolution of most service needs. It supports diagnosis of more than 50 issues in the Meteor 350 and Engine Management System (EMS) in 11 vernacular languages providing easy access to the mechanics across the country. By simply plugging in a dongle, riders can interface their motorcycle with the RE Mechanic App via a smartphone. The

App has been rolled out across all the Royal Enfield authorised workshops.

In order to support the enthusiasts in expressing their personality through Royal Enfield apparel and gear, your

Company upgraded its online apparel store to the new technology platform ‘Magento. The new website is mobile friendly and presents a modern user interface. The customers find it very engaging with a range of new interactive designs in offing. A 3D configurator on the platform allows customers to design and personalise their helmets and T-shirts.

Launch of various initiatives which are developed through use of advanced technology, is planned across the business segments. In the era of digitisation, your Company is committed to lead the global middleweight motorcycle segment with the deployment of technology at its core.

CAUTIONARY STATEMENT

Certain Statements in the Management Discussion and

Analysis describing your Companys view about the Industry, objectives and expectations, etc. may be considered as ‘forward-looking statements within the meaning of applicable laws and regulations. Actual results may differ substantially or materially from those expressed or implied in the statement. Your Companys operations may be affected by supply and demand situation, input prices and their availability, changes in Government regulations, tax laws and other factors such as Industrial relations and economic developments, etc. Investors should bear the above in mind.