Anuj Kathuria, President, Global Trucks, Ashok Leyland Ltd.
Interview by: Ashish Bhatia
Q. After acquiring the Nissan stake, what is the strategy going forward?
A. Information about Nissan and other joint ventures is out in the public domain. As far as our global business of trucks and buses is concerned, we have now started an international office at Dubai. It will be a hub for our international operations. We have identified our target markets internationally, and continue to work towards enhancing our offerings there. We would develop satellite manufacturing plants in some of these markets to establish a local presence. It will also help in the easing of tariffs and the duty structure. A decision will be taken on a case-to-case basis. We are in advanced stages of development in places like Bangladesh. Again it is not an investment Ashok Leyland is making solely on its own. We are open to investments from another dealer or through a joint venture.
Q. What about regulations? They are tightening up in India too?
A. As far as BSIV is concerned, we are ready. There is nothing that we need to be worried about. As far as the customer is concerned, we expect the volumes to go down. Today the environment is so volatile, that saying anything doesn’t mean much because we don’t know which way the market is going to swing. The general expectation is that there will be a pre-buying demand. It may get dampened by demonetisation. However, to what extent, remains to be seen. We hope that this is a temporary phase, and will get over soon.
Q. What role does a subsidiary like Albonair GmbH play in the wake of tightening emission regulations?
A. Albonair is a 100 per cent subsidiary, and we are working with it on both BSIV and BSVI emission regulations. They have the systems, and are supplying them to global Original Equipment Manufacturers (OEMs). It is a huge added benefit as we get to experience the systems before other Indian OEMs could. We had showcased a Euro6 product at Auto Expo 2016. The transition poses a huge challenge since no country globally has gone from BSIV to BSVI in a three year span. It takes 10 years generally. It’s not just about OEMs, but also about tier-1 suppliers getting ready; about the overall infrastructure. BSVI will completely change the vehicle and the way it looks. For BSVI, different countries have adopted different ways. In Europe and US, they had their own solutions. Here, it will most probably be a combination of EGR or SCR plus a DPF, Diesel Oxidation Catalyst (DOC) and Total Organic Carbon emission (TOC), etc. In western countries, the trend is to use technology that is both, sophisticated and expensive. A lot of precious and rare metals are used in catalysts. In India, we will have to figure out a better way. We have been doing that in the past. We have started work on BSVI and we are working on a solution that meets the Indian requirements in terms of both performance and cost. The major challenge will be the development of network to support the vehicle in the aftermarket. I see it both as a challenge, and an opportunity. We would need to educate the entire chain, and right down to the customer and the driver. Much would depend on external factors like availability of upgraded fuel.
Q. Given the EBITDA margins of second quarter FY2016-17 (Q2), how do you look at your product portfolio?
A. Last quarter was good. We have been having a good run over the last seven to eight quarters where we have reported double digit EBITDA margins. It is supported by a right product mix. We are not just going after the market share. We are offering the best product to the customer and ensuring that he also gets what he wants. For us its a delicate balance between how much market share we go after and what margins we must maintain. Also, the working capital needs to be maintained. Otherwise the interest cost and other costs would go beyond control. It is a cautious approach towards attaining growth that is both profitable and sustainable.
Q. How do you see the third quarter (Q3)?
A. Very difficult to say. We are getting a mixed response so far. Where the transactions have been more or less cashless, customers are not affected. Where transactions have a substantial cash component, customers have been affected. So, its a mix bag. By the end of the month we will get to know whether the impact lasts for the short term or prolongs further. Definitely the next two months (November and December 2016) will show the impact. Everybody has become cautious. If one person is deferring his decision, others may follow. Dealers are not comfortable with adding stocks. We will have to wait for further clarity to emerge. Withdrawal from the current account has been hiked to Rs. 50,000. Banks are however not able to service that limit due to cash crunch. Diesel purchase with old notes, and toll exemption adds to the convenience. It however doesn’t cover the operator requirements, which are 10 times the limit prescribed.
Q. Globally, which are the key market segments Ashok Leyland is targetting?
A. Globally we are number four in buses. In trucks we are number 14. Our vision is to be in the top 10 in trucks, and top five in buses. In buses, we are already there. In the case of trucks, we need to focus on volumes. We should be able to get there over the next four to five years. Again it has to be both, sustainable and profitable. Since the domestic market is cyclical, we need to ensure that we have a good presence in the export markets. We have therefore identified clusters. One is the SAARC countries where we enjoy a major presence. The other is GCC, West-Africa and East-Africa. In ASEAN countries we see a lot of potential for LCVs too. Globally, there is an emerging trend in the tipper and tractor segment for higher horsepower engines. The new engines we are working on will be closer to 300 hp rather than the prevailing 230 hp mark. We are anticipating a requirement for 400 hp and higher power engines, especially for applications like deep mining and 49-tonne tractors. It is a segment that will emerge over the next couple of years, and is in line with what is happening in the international markets. Power-to-weight ratio is bound to move closer to international levels in India.
Q. What are the truck and bus models you are banking upon for domestic and international thrust?
A. In international markets we have a good presence in buses. For buses in the Middle East we have a plant in Ras al-Khaimah (RAK). We have almost the entire market to ourselves there. We have another bus which is designed, manufactured and developed for that market called the ‘Oyster’. In India, we have launched the ‘Sunshine’ school bus. In trucks, we have the ‘Captain’ platform. Prior to it we launched the ‘Boss’ platform. These two are contemporary platforms, which are meeting international performance standards. The results are evident in the market share gained over the last couple of years. We showcased ‘Guru’ at the Auto Expo. It will enter the market soon. These are ways and means of giving products to the customers to ensure profitability, a fact that the customer acknowledges.
Q. Tell us about the set-up in the international markets?
A. Plans to set up some satellite plants are in advanced stages of discussion. Bangladesh would be getting ready by early next year. Kenya would follow next. With the success of RAK behind us, this is a very good business model to follow. We will deploy it in other markets too. However the specifics remain to be aligned with the local demand.
Q. How much growth revenue are you targeting from global operations?
A. The emphasis is on growing the international business from its current level (10 to 12 per cent) of the overall volumes to atleast one third of our overall business.
Q. Which are the key commercial vehicle segments where you see growth coming?
A. The tractor-trailer segment is primarily driven by cement movement. October was very good; it was one of the better months for us in the segment. Cement movement is however driven by infrastructural development and will continue to do well. Another potential segment is the container movement; to and from the port. Despite its slow run in the first half of the year it is showing good potential. Tippers have shown immense growth potential too. The Total Industry Volume (TIV) growth in tippers has been 60 per cent, and we have gained market share. The challenge is on the multi-axle vehicles where it has fallen. TIV is down 22 per cent. It has neutralised growth in tipper and Intermediate Commercial Vehicle (ICV) segments. The overall growth in TIV was flat in first seven months of this fiscal. We grew by three per cent. We have gained one per cent market share over last year.
Q. How are you gearing up for growth in FY2018-19?
A. BSIV and GST are expected to come into effect in FY2017-18. The need will be to first familiarise with these new developments. The first six to nine months will be challenging for the industry. We don’t even know when GST will roll out as of now. Only after it is implemented will things start settling down. As far as commercial vehicles are concerned, with certain other policies on scrappage of old vehicles, and continued focus on infrastructure apart from building 100 smart cities, the market I feel, will come back to good levels. Today, a large part of the fleet on road is more than 15 years old. There are people with 1000 vehicles in their fleet and these have been retained since the initial purchase. In such operators, we see a huge opportunity. It again depends on the timing.
How do you anticipate price impact across the domestic and export product segments because of GST?
The (GST) rates announced do not make for cheaper vehicles. In some cases prices may increase. There is no benefit that will come to us. If the rates are going to be capped at 28 per cent, rates are 27 per cent currently. Commercial viability is unchanged. Operating costs would come down as a result of better turnaround times and higher efficiency. One perspective is that the requirement of vehicles will come down. The other perspective is that because efficiency will go up, more freight will move by road and over longer distances. Today you don’t move your goods to the best market because of unforseen delays. Perishable goods simply don’t move to the best market. If that happens, the distances of commute may increase. Another area of growth could be inter-city transportation.
Q. How do you differentiate from competition with market share down to 32 per cent from 39 per cent?
A. Differentiation cannot only be done on the basis of the product. Product is a differentiator, but it is the relationship and connect with the customer that matters. When we meet customers, we look at how we can increase their profitability. How can we free up their time so that they can focus on their customers. We are working closely with our customers to give them the product that they want and not the product that we have. We are working on improving the reliability of our vehicles. So, we are offering a complete package and not just the product. We were the first ones to start a containerised workshop. If 50 to 60 tippers are operational on-site, we are deploying our own container workshop there. It stays on-site till the operations continue. We have also come out with novel concepts like workshop on wheels.
Q. How do you look at Light Commercial Vehicles (LCVs) growth?
A. The demand will come back. It always lags Medium and Heavy Commercial Vehicles (M&HCVs). I feel the headroom over there is huge. The last couple of years of downtrend did not help. It will surely pickup going forward.
Q. Do you see your growth projections being impacted with dedicated freight corridors likely to come up by FY2020-21?
A. There are talks about waterways and other rail corridors coming up. In roadway transportation, the biggest advantage is point to point transport which other modes of transport won’t be able to replicate. With cargo specifically suited to a particular mode of transport, it is not that 100 per cent of cargo has to be moved by road. The quantum of cargo to be moved is huge, and I feel, India has a long way to go. With the population we have, the volumes will only increase.
Q. What synergies are you looking at between your defence products and commercial vehicle products?
A. Defence is a very specialised field. Being an organisation we will look at synergies. There will be modules that would be available on the truck platform that will be used there as well. Customisation is however done by the defence team in close co-ordination with the defence heads. We have 6×6 and 8×8 platforms. If a rear axle on a tipper suits a defence vehicle, we will use it. It however has to be developed keeping the specific requirements in mind.
Q. You won the Deming prize at Pantnagar. What next?
A. The (Pantnagar) plant touched its maximum operations capacity only last year. We attained the milestone of 50,000 vehicles for the year in March 2016. The plant is going to be the mainstay. The Deming prize adds to the conviction of doing well. All our new products, the Captain, Boss, and Guru are being manufactured there. We will cotinue to invest in the plant depending on the requirement. As of now we are finding ways to maximise utilisation at other plants. The Pantnagar plant caters to the domestic market, mainly the northern and the eastern zones. The growth in these regions is a testimony of the respective plant’s contribution. Growth in East has gone up to 25 per cent over single digit figures attained previously.
Q. There is a buzz around Liquified Natural Gas (LNG) CVs. What is your take on it?
A. LNG as a technology in the Indian context is in its early stages. We were the first to get CNG so we have never really been averse to getting new technology into the market. But it has to be a viable business case. As of now the clarity of it being a prospect alternative fuel is yet to emerge. Earlier CNG was being pushed for by the government and the industry but all of a sudden it is losing popularity as a fuel. In the case of LNG trucks, unless it is a pan India preposition, it wouldn’t make for commericial viability. It also depends on how the crude prices, the dollar-rupee conversion rate, etc., define the acceptability of diesel as a fuel. If that happens people will stop looking at alternative fuels. As the next best alternative to diesel, LNG certainly has the potential. It has worked in smaller countries, and on smaller routes.