Hero Electric_Teaser_PPT_14th Sept 2023.pptx

This is a presentation relating to Electric Vehicle Industry. The presentation is about Hero Electric Vehicles Private Limited.

1. Private & Confidential. For internal use only. Copyright Hero Electric 2023.

2. 2 Executive Summary Opportunity to partake in the transition of the largest 2W market in the world The Hero Brand Benefits from investment Industry Structure The bounce back plan Market Issues for e2W industry in India India moves on 2 wheels; largest 2W market in the world with annual sales of ~16 mn . units in FY23; expected to convert significantly to E2W in 5-7 Years Most 2Ws (>65% in FY23) sold in India belong to the mass market category i.e., ex-showroom price of < INR 120K per unit Hero Electric is the strongest E2W brand in India with over 600K customer base. Hero Electric had been the largest EV brand (by sales volumes and revenue) in India till 2021-22. Hero Electric has 850+ dealer network across the country, the highest for any electric 2W brand in India 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 have a significant market share even after ICE incumbents enter EV space Sharp reduction in subsidies from June 2023 may temporarily reduce the growth of E2W industry against 30% conversion to E2W by FY 27 as targeted by NITI Aayog . Policy uncertainty on localization and withholding of overdue subsidies. FAME III uncertain. 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 by end of FY25. Invest in R&D, technology and marketing to have a strong position in Mid to long term thru Cutting-edge tech, new product designs, etc. Business plan is agnostic of subsidy and does not take into account any upside. The first company to break even in E2W market in India by end of FY25. Possibility of global footprint by re- entering the overseas markets Business is right for an IPO in 3-4 years Source: India Two-Wheeler Market Share, Size, Growth – IMARC Group report

3. 3 Indian Two-Wheeler Industry The largest 2W market in the world. Grew by 17% in FY2023. Pre-Covid high of 21 mn unit sales in FY19 Most two-wheelers in India are bought for utility. Scooters accounted for 57% of all 2W sales in FY23 Air pollution is a major challenge for most Indian cities and a focus area for the Govt. India has committed to reduce emissions by 45% (from 2005 levels) by 2030 Significant thrust by the Indian Govt. on adoption of electric mobility may continue thru PLI, ACC, charging Infrastructure and such other interventions. The Govt. set a target for 30.% electric 2W sales by 2027. 15.9 mn units in FY23 ~65% market share for affordable two-wheelers in FY23 14 out of top 20 most polluted cities are in India USD 1.3 bn subsidy outlay by govt. under FAME-II 5% peak market share for electric 2W in India. Achieved in June 2022 Largest 2W market in the world in transition towards electrification

4. 4 Why Electric 2Ws for India Hero Electric 2Ws are affordable, and easy to operate and maintain Vehicle Category Vehicle Purpose Route Predictability Vehicle Utilization Price Differential Ease of Charging OEM Investments Remarks 2 Wheelers Private Multiple factors favouring early adoption Commercial 3 Wheelers Commercial Cars Private Key Unfavourable factor is a lack of charging infrastructure and heavier batteries Commercial Other Commercial Vehicles Intra – City bus Multiple challenges including load requirements, expensive batteries and charging infrastructure SCV LCV MH & HCV Scooters are lighter Less powerful & cheaper batteries needed Home charging possibilities reduce dependence on charging infrastructure Fewer hindrances to adoption Favourable No Adverse Impact Unfavourable Source : 1. EY Report – Electrifying India: Building blocks for a Sustainable Ecosystem, May 2018

5. 5 About Hero Electric The most seasoned and pioneer player in the Indian electric 2W market Raised just INR 400 Cr. (USD 49 mn .) of outside capital so far; among the most capital efficient in the sector Current capacity to produce 300k units per annum; up from ~60k in 2018. Dominant #1 player till 2021, Grew revenue from INR 1.1 bn. (USD 18 mn .) in 2018 to INR 10 bn+ (USD 122 mn .) in FY23 Fully localized supply chains, current and future products completely compliant with MHI norms. Has 850+ touchpoints across the country, the highest for any electric 2W brand in India MHI – Ministry of Heavy Industries, India

6. 6 Issues plaguing the Indian Electric 2W industry recently Uncertainty of policy environment has been the biggest hindering factor 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 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 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

7. 7 Source: SMEV data Source: Private Circle data This includes INR 2,485 crore raised by Ola Electric in May 2023 Impact of withholding overdue subsidies Impact of Covid-19 and increase in custom duties 3 Visible impact of unstable policy environment in volumes and investments

8. 8 Specific impact on Hero Electric (1/3) Hero Electric being the market leader till 2021-22, is significantly impacted Hero Electric being the market leader till 2021-22; 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 ~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 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: D/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 This situation is as on July 31, 2023

9. 9 Specific impact on Hero Electric (2/3) Withholding of subsidies have had a sustained impact on Hero Electric Covid-19 led lockdown impact Impact of transition from Lead Acid based to Li-Ion based vehicles Covid-19 led supply-chain disruption impact Sustained impact of withholding of subsidies by the Govt. Source: SMEV data

10. 10 Specific impact on Hero Electric (3/3) Hero Electric has significantly underachieved vs its budget in FY23 and Q1-FY24

11. 11 Salvaging the situation and bouncing back (1/4) Raise capital and resolve issues with MHI to get back on track Infusion of INR 6 bn. to sustain operations until March 2024 INR 3 billion in equity from GII by Sep’23, INR 3 billion in debt by Oct’23 To resolve the logjam with the MHI to get back onto the FAME-II scheme and resume smooth operations 1 2 3 4 5 Clear old, overdue debts and payables Old payables to the extent of INR 2.5 bn. to be paid off, reduction in outstanding debt by 1.4 bn. and settle old credit notes to dealers Achieve sales volumes required for breakeven EBITDA margin expected to be positive by FY25, and free cash generation by FY26 Be adequately funded to achieve budgeted growth plan until FY28 Raise INR 6 bn. through PE route in FY26 and FY27 Scale up manufacturing and sales Strong product pipeline and the largest e2w dealer network already in place Minimum production and sales of 12,000 units per month from Apr’24 to be achieved

12. 12 Salvaging the situation and bouncing back (2/4) Regain top 5 position by end of FY28 Ensure enhancement of credit ratings Achieve long-term Investment grade CRISIL credit rating in FY25 6 7 8 9 10 Avail competitive cost finance from banks Avail fresh working capital lines from banks to INR 1 billion in FY26 Regain market leadership position Be among the top 5 electric two-wheeler OEMs in India once again by the end of FY28 Provide liquidity to investors List on Indian bourses to provide potential exit opportunities to investors by the end of FY26 Augment production capacity and invest in R&D Increase annual production capacity to 800k units by end of FY28. Further capital expenditure of INR 6 billion planned until FY28 Further investment of INR 1.4 billion in R&D until FY28

13. 13 Salvaging the situation and bouncing back (3/4) EBITDA breakeven expected by FY25 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%

14. 14 Salvaging the situation and bouncing back (4/4) Operating cash flow positive by FY26 Cash Flow (abridged) (INR Mn) FY24E FY25E FY26E FY27E FY28E 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) (INR Mn) FY23 FY24E FY25E FY26E FY27E FY28E 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

15. 15 Other key considerations Many potential benefits from an investment 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 competitors Insights and learnings from Hero Electric’s 15-year long journey in the Indian electric 2W market Will help develop EV solutions for middle income markets that are similar to India Will also help in incubating other similar nascent markets for electric two-wheelers Cost savings and high ROI 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 New product development Hero Electric’s long experience in manufacturing and sales of electric two-wheelers can help 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

16. 16 Hero is planning to raise USD 90-100 mn and bounce back Proposed Raise: USD 90-100 mn Hero Electric is looking to raise USD ~90-100 mn in a private placement in two rounds Primary proceeds from these transaction will be used to invest in new product research and development, new manufacturing facilities, working capital and marketing and branding / customer initiatives Transaction Background and Opportunity Overview Raise in Q2-Q3 FY24 Up to USD 40 mn Proposed equity r aise from new investors : USD 55-65mn From Current investors USD 20-25 mn From others USD 15-20 mn breakup Ongoing round Proposed future round Use of funds Highlights Note: For capacity expansion the total investment in PPE shall be USD ~75 mn , funded by the raise and internal accrual in from FY26 onwards

17. 17 Hero Electric – A Tale of Resilience Vintage of organization, strength of franchise, tenacity of character Pioneers of the electric 2W space in India – the earliest 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 1.1 bn. (USD 17 mn .) in FY18 to INR 1.83 bn. (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 2.3 bn. (USD 31 mn .) in FY20 to INR 3.2 bn. (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 3.2 bn. (USD 43 mn .) in FY21 to INR 8.6 bn. (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 10.2 bn. (USD 124 mn .) in FY23 from INR 8.6 bn. (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 ~85 bn. (USD 1 bn.) by FY28 despite the capricious business environment for electric 2Ws in India since inception

18. Over 618,930 Metric Tonnes of CO2 and other Greenhouse Gases saved. Equivalent to Planting 3.9 Million Trees. Over 538 Million Litres of Petrol saved by 600,000+ e-Bikes sold over 15 Years! E: [email protected] | W: heroelectric.in / heroelectricindia @ hero_electric / heroelectricindia