Project Phantom

Private & Confidential. For internal use only. Copyright Hero Electric 2023.
Executive Summary
Market
 India moves on 2 wheels; largest 2W
market in the world with annual sales of
~16 mn units in FY23; expected to cross
25 mn unit sales annually by FY251
 Most 2Ws (>65% in FY23) sold in India
belong to the mass market category i.e.,
ex-showroom price of < INR 100K per
unit
Issues for e2W industry in India
 Abrupt increase import duties without
any local supply chain in place to
substitute imports
 Policy uncertainty on localization and
withholding of overdue subsidies
 Maximum impact on Hero Electric as it
has been the market leader since
inception
Opportunity to partake in the transition of the largest 2W market in the world
1. Source: India Two-Wheeler Market Share, Size, Growth – IMARC Group report
The Hero Brand
 Hero is the strongest 2W brand in India and
the largest in the world by sales volumes
 Hero Electric had emerged as the largest EV
brand (by sales volumes and revenue) in
India for 14 years since inception in 2009
 Hero Electric has 649 touchpoints (including
498 dealers) across the country, the highest
for any electric 2W brand in India
The bounce back plan
 Raise sufficient capital and resolve logjam with
the Govt. to steady the ship by the end of FY24
 Increase production and sales to reach
breakeven again
 Enhance capacity by making the required capex
after raising sufficient capital
 Regain Top 5 position in India by FY28
2
Industry Structure
 Most industries in India are oligopolies with
top 4-5 brands controlling >90% market
share
 In ICE based 2W space - Hero, Honda, Bajaj
and TVS control >85% of the market
 Hero Electric is expected to be among the
top 5 e2W brands in India again even after
ICE incumbents enter EV space
Benefits from the proposed JV
 Multiple synergies for both partners from
the JV including access to cutting-edge tech,
new product designs, etc.
 Kawasaki gains access to the largest segment
in the Indian e2W market
 The JV gets access to the best of both worlds
including large markets and best practices
 High ROI and cost savings for Kawasaki
 Indian Two-Wheeler Industry

15.9 mn ~65% 14 out of USD 1.3 3.3% peak

market share for
units
market share for
affordable two-
top 20 bn subsidy electric 2W in
most polluted outlay by govt. India. Achieved in
in FY23 wheelers in FY23
cities are in India under FAME-II June 2022

The largest 2W market Most two-wheelers in Air pollution is a major Significant thrust by the The Govt. set a target
in the world. Grew by India are bought for challenge for most Indian Govt. on for 30% electric 2W
17% in FY2023. Pre- utility. Scooters Indian cities and a focus adoption of electric sales by 2030. Hero
Covid high of 21 mn accounted for 57% of all area for the Govt. India mobility. Subsidization Electric had 1% share of
unit sales in FY19 2W sales in FY23 has committed to by Govt. increased sales total 2W sales in August
reduce emissions by volumes for EVs in India 2022
45% (from 2005 levels)
by 2030

Largest 2W market in the world in transition towards electrification

3
 Why Electric 2Ws for India
Route Vehicle Price Ease of OEM
Vehicle Category Vehicle Purpose Remarks
Predictability Utilization Differential Charging Investments

Private
2 Wheelers
Multiple factors favouring early
Commercial
adoption
3 Wheelers Commercial

Private Key Unfavourable factor is a lack of

Cars charging infrastructure and heavier
Commercial batteries

Intra – City bus

SCV Multiple challenges including load

Other Commercial
requirements, expensive batteries and
Vehicles
LCV charging infrastructure

MH & HCV
Source : 1. EY Report – Electrifying India: Building blocks for a
Sustainable Ecosystem, May 2018
Favourable No Adverse Impact Unfavourable

Scooters are lighter Less powerful & cheaper Home charging possibilities reduce Fewer hindrances to adoption
batteries needed dependence on charging infrastructure

Hero Electric 2Ws are affordable, and easy to operate and maintain
4
About Hero Electric
Dominant #1 player since 2009, Grew revenue from INR
113 Cr (USD 18 mn) in 2018 to INR 1,000 Cr+ (USD 122
mn) in FY23

Raised just INR 400 Cr (USD 49 mn) of outside capital

so far; among the most capital efficient in the sector

Has 649 touchpoints (including 498 dealers) across

the country, the highest for any electric 2W brand in
India

Current capacity to produce 300k units per annum;

up from ~60k in 2018. Produces and sells only utility
based affordable two-wheelers

Fully localized supply chains, current and future

products completely compliant with MHI norms to
avail subsidies under the FAME-II scheme

The most seasoned and dominant player in the Indian electric 2W market
MHI – Ministry of Heavy Industries, India
5
 Issues plaguing the Indian Electric 2W industry (1/2)
While there has been a significant push by the Government for adoption of electric 2Ws primarily through the FAME-II subsidy outlay, there are multiple issues
owing to unstable policy environment in India
Abrupt increase in import custom duty
• Custom duties on Completely Knocked Down (CKD) kits increased from 11% to 16% in 2020
• Custom duties on batteries and chargers increased from 5.5% to 16.5% in 2021
• Resulted in reduction in gross margins by ~10% for the nascent sector as there was no local supply chain to substitute imports

Lack of local supply chains

• Absence of local supply chains increased import dependence of the sector until very recently when the Govt. announced SOPs for
localization
• Even now, the battery cells, which constitute ~30% of cost of electric 2W are imported, which doesn’t allow for complete localization

Policy uncertainty on localization norms

• Despite complying with MHI guidelines, several electric 2W OEMs are being denied subsidies and are barred from the FAME-II scheme,
on the grounds of non-achievement of required localization
• This has resulted in significant working capital stress for the sector, putting into jeopardy the very sustainability of many OEMs

Delayed/Withheld payment of subsidies

• The Govt. has withheld subsidies of INR 1,200 Cr. (USD 146 mn), excluding interest for over 18 months, overdue to eligible OEMs
• This has resulted in significant financial stress on most players in the Indian electric 2W sector, translating to significantly lower than
expected growth

Uncertainty of policy environment has been the biggest hindering factor

6
 Issues plaguing the Indian Electric 2W industry (2/2)
Electric 2W monthly sales volumes1
120,000 Impact of withholding of subsidies seen from Apr’23. One off bump in sales in
May’23 owing to announcement of reduction in subsidies from 1st June’23

80,000

40,000

-
Apr-20 Aug-20 Dec-20 Apr-21 Aug-21 Dec-21 Apr-22 Aug-22 Dec-22 Apr-23

Electric 2W industry volumes vs Govt. targets Investments in electric 2W industry in India (INR Cr.)2
3,780
Actual industry volumes Govt.target volumes
Impact of withholding
1,159,000 3
overdue subsidies 2,625
Impact of Covid-19 and
728,018 780,000 increase in custom duties 1,874
548,000
140,000
252,554 272,759 641
44,799 203 312
FY21 FY22 FY23 YTD July'23 FY19 FY20 FY21 FY22 FY23 YTD July 23

Impact of the unstable policy environment evident in volumes and investments

1. Source: SMEV data
2. Source: Private Circle data 7
3. This includes INR 2,485 crore raised by Ola Electric in May 2023
Specific impact on Hero Electric (1/3)
~USD 146 mn
FAME-II subsidies due to
the Indian electric 2W
sector, withheld by MHI
~USD 69 mn
Working capital gap at
Hero Electric owing to
withholding of subsidies
3 new models
Launched recently that
are completely
compliant with MHI
localization norms
Hero Electric being the market leader, is significantly impacted
This situation is as on July 31, 2023
• Hero Electric is the market leader; as a result, has the largest share i.e., INR 554 Cr (USD 68 mn) of overdue
subsidies withheld by the Govt.
• These subsidies have already been passed on to end consumers
• As a result of the blocked working capital, the company was unable to build up inventory since Oct’22
leading to a significant decline in sales
• Inability to generate revenues has resulted in increased payables past the due dates
• As a result, CRISIL downgraded Hero Electric credit ratings
• Long Term Rating: B/Watch Negative (Downgraded from BBB/Stable)
• Short Term Rating: A4/Watch Negative (Downgraded from A3+)
• Bank credit lines dependent on these ratings have been impacted, reducing drawing power for Hero Electric
• This also resulted in demand from banks for the debt utilized portion of USD 44 mn, out of which USD 23 mn
has been paid already
• All old and existing products, for which subsidies have been passed on to the customers, had been approved
by MHI to avail subsidies under the FAME-II scheme
• All new products are 100% compliant to MHI localization norms. Yet they haven’t been approved by MHI
owing to the ongoing issues
8
 Specific impact on Hero Electric (2/3)
Month-wise Hero Electric sales volumes and market share1 (by sales volumes)
16,000 Sustained impact of withholding of subsidies 100%
by the Govt.

80%
12,000 Impact of transition from Covid-19 led Covid-19 led
Lead Acid based to Li-Ion lockdown supply-chain
based vehicles impact disruption impact
60%

8,000

40%

4,000
20%

- 0%
Jun-17 Dec-17 Jun-18 Dec-18 Jun-19 Dec-19 Jun-20 Dec-20 Jun-21 Dec-21 Jun-22 Dec-22 Jun-23

Hero Electric sales volumes (LHS) Hero Electric market share (RHS)

Withholding of subsidies have had a sustained impact on Hero Electric

1. Source: SMEV data
9
Specific impact on Hero Electric (3/3)
Hero Electric FY23 (INR Cr.) Hero Electric sales volumes (units)
2,611

260,000

1,020

Revenue PBT (104)

(230)
Budget Actual

Hero Electric Q1-FY24 (INR Cr.)

100,395
114

28
10,878
1,782
Revenue PBT
FY23 Q1-FY24
(37) (29)
Budget Actual
Budget Actual

Hero Electric has significantly underachieved vs its budget in FY23 and Q1-FY24
10
Salvaging the situation and bouncing back (1/4)
Infusion of USD 69 mn to sustain operations until March 2024
1 USD 25 mn in equity from GII by Sep’23, USD 19 mn in debt by Nov’23 and USD 25 mn in equity by strategic partners by Dec’23
To resolve the logjam with the MHI to get back onto the FAME-II scheme and resume smooth operations

Clear old, overdue debts and payables

2 Old payables to the extent of USD 19 mn to be paid off, reduction in outstanding debt to USD 9 mn and settle old credit notes to
dealers of USD 24 mn

Scale up manufacturing and sales

3 Strong product pipeline and the largest e2w dealer network already in place
Minimum production and sales of 15,000 units per month from Jan’24 to be achieved

Be adequately funded to achieve budgeted growth plan until FY28

4 Raise USD 50 mn through PE route in FY25

Achieve sales volumes required for breakeven

5 EBITDA margin expected to be positive at monthly sales volumes of 20,000 units, and free cash generation from monthly sales
volumes of 30,000 units

Raise capital and resolve issues with MHI to get back on track
11
Salvaging the situation and bouncing back (2/4)
Ensure enhancement of credit ratings
6 Achieve long-term CRISIL credit rating of BBB and short-term credit rating of A3+ with stable outlook in FY25

Avail lowest cost finance from banks

7 Enhance working capital lines from banks to USD 50 mn in FY25
Avail long term loan for capex needs in FY25

Augment production capacity and invest in R&D

8 Increase annual production capacity to 2mn units by end of FY25. Further capital expenditure of USD 100 mn planned until 2030
Further investment of USD 70 mn in R&D and product development until 2030

Provide liquidity to investors

9 List on Indian bourses to provide potential exit opportunities to investors by the end of FY26

Regain market leadership position

10 Be among the top 5 electric two-wheeler OEMs in India once again by the end of FY28

Regain top 5 position by end of FY28

12
Salvaging the situation and bouncing back (3/4)
Financial Performance
(INR Mn) FY23 FY24E FY25E FY26E FY27E FY28E

E2W industry sales volumes (mn) 0.73 1.00 1.50 2.4 3.0 3.6
HE sales volumes (000’) 100 56 180 325 500 625
HE market share % 13.7% 5.6% 12% 13.5% 16.7% 17.4%

Operating Revenue 10,005 6,306 19,369 37,610 64,248 86,890

Gross Profit 1,344 613 2,652 6,312 11,541 16,131

Margin (%) 13.4% 9.7% 13.7% 16.8% 18.0% 18.6%

Operating EBITDA -672 -723 80 1,728 4,387 6,771

Margin (%) -6.7% -11.5% 0.4% 4.6% 6.8% 7.8%

EBITDA -1,141 -852 -59 1,589 4,249 6,632

Margin (%) -11.4% -13.5% -0.3% 4.2% 6.6% 7.6%

EBITDA breakeven expected by FY25

13
Salvaging the situation and bouncing back (4/4)
Cash Flow (abridged) FY24E FY25E FY26E FY27E FY28E
(INR Mn)
Operating activities -3,534 -1,674 820 3,094 5,351
Investing activities - -300 -500 -3,500 -3,700
Financing activities 4,605 -124 3,826 -1,481 -1,499
Net cash generated/(used) 1,069 -2,098 4,146 -1,887 152

Balance sheet (abridged) FY23 FY24E FY25E FY26E FY27E FY28E

(INR Mn)
Shareholder’s funds 1,967 3,602 2,909 7,746 12,259 17,014
Borrowings 2,792 4,789 5,179 5,589 3,339 2,589
Total 4,759 8,391 8,088 13,335 15,598 19,603
Non-CA 757 637 817 1,149 4,145 6,717
Net Current Assets 4,002 7,754 7,271 12,186 11,453 12,886
Total 4,759 8,391 8,088 13,335 15,598 19,603

Operating cash flow positive by FY25

14
Significance of the Kawasaki Partnership
Synergies from the JV
Access to latest technology and best practices for the JV
• Access to cutting-edge technology and futuristic designs from the Kawasaki ecosystem in Japan
• Leapfrogging innovation to help launch new products that stand out in the market for quality, user experience and durability
• Streamlining of systems and processes, quality control methods and upgradation of skills

Unrivalled access for the JV to capabilities and the dealer network in India and overseas
• The company already has access to supply chains and the largest EV dealer network in India
• The combined strength of two formidable brands will give the JV an edge in global markets as well

China plus one strategy for Kawasaki

• Will assist Kawasaki’s plan to shift supply chain base from China to India, leveraging Hero Electric as a partner for development. This
will result in supply chain support for both petrol and electric motorcycles for global markets, while significantly reducing costs
• Combined strength of sourcing base bringing scale, technology and commercial advantages to both the partners

Small upfront investment with scope to acquire more stake for Kawasaki
• Initial investment estimated at USD 20 -30 mn from Kawasaki, with potential for further investments as the relationship matures
• Kawasaki had partnered at scale with Indian OEMs in the past and has already experienced the synergies

Substantial benefits for both the companies in the proposed JV

15
Other key considerations for Kawasaki
Access to the largest two-wheeler market in the world
• Opportunity to partake in the transition of the largest 2W market in the world
• The Indian electric two-wheeler market is also expected to become the largest in the world
• Access to the large sales and service network of Hero Electric, ahead of other Japanese competitors

Insights and learnings from Hero Electric’s 15-year long journey in the Indian electric 2W market
• Will help Kawasaki develop EV solutions for middle income markets that are similar to India
• Will also help Kawasaki in incubating other similar nascent markets for electric two-wheelers

Cost savings and high ROI for Kawasaki

• Access to a large pool of Hero Electric’s India specific, specialized talent at a much lower cost
• Lucrative return on investment in the medium term given the strength of Hero Electric in Indian markets
• Hero Electric’s infrastructure can serve as a low-cost base for manufacturing products for the home market (Japan)

New product development

• Hero Electric’s long experience in manufacturing and sales of electric two-wheelers can help Kawasaki in developing and launching
premium electric two-wheelers in India, while utilizing Hero Electric’s low-cost supply chain and vast dealer network
• Possibility of diversification into other EV product categories with combined strengths of both the partners

Many potential benefits for Kawasaki from the proposed partnership

16
 Hero Electric – A Tale of Resilience
• Pioneers of the electric 2W space in India – the earliest and largest electric 2W brand in existence (since 2008)

• Supported the industry (even vehicles of other brands) during the tumultuous 15-year vintage (with or without subsidy) of the
electric 2W industry in India despite no outside capital raised until 2018

• Grew revenues by 62% from INR 113 Cr. (USD 17 mn) in FY18 to INR 183 Cr. (USD 27 mn) in FY19 despite an almost complete
transition in the product portfolio from Lead-Acid battery based vehicles (lower priced) to lithium ion based vehicles (higher priced
by ~30%) in FY19

• Grew revenues by 36% from INR 233 Cr. (USD 31 mn) in FY20 to INR 316 Cr. (USD 43 mn) in FY21 despite almost zero sales in Q1-
FY21 due to a strict lockdown in India and significant disruptions throughout FY21 owing to the Covid-19 pandemic

• Grew revenues by ~2x from INR 316 Cr. (USD 43 mn) in FY21 to INR 860 Cr. (USD 115 mn) in FY22 crore despite almost zero sales in
Q1-FY22 owing to Covid-19 led supply chain disruptions for semiconductor chips

• Grew revenues by 22% to record highest ever revenue of INR 1,020 Cr. (USD 124 mn) in FY23 from INR 860 Cr. (USD 115 mn) in FY22
despite withholding of subsidies by the government and other regulatory issues for the entire electric 2W sector in FY23

• Expected to come out stronger (with newer models and no subsidy) to clock revenue of INR 6,000 Cr. (USD 732 mn) by FY25
despite the capricious business environment for electric 2Ws in India since inception

Vintage of organization, strength of franchise, tenacity of character

17
Thank You

18