Digitisation in Cvs

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The second panel discussion, as part of the Apollo-CV Awards 2017, focused on the growing use of electronics in CVs.

Panelists (L to R)

Kaaushik Madhavan, Director, Automotive & Transportation, Frost & Sullivan.

Dattatreya Saste, Advisor & Technical Consultant, Ministry of Road Transport and Highways

A Sriniwas, Senior Vice President – Product Development & Technology, Automotive Division, Mahindra & Mahindra.

Ramashankar Pandey, Managing Director, Hella India Lighting. .

Bhushan Mhapralkar, Editor, Commercial Vehicle magazine.

Moderator

V G Ramakrishnan, Managing Director, Avanteum Advisors

Highlighting the OE perspective, Kaushik Madhavan, in response to V G Ramakrishnan’s question on industry movement towards digitisation, mentioned that much depends on the jump the OE industry is ready for when it comes to digitisation. “We will have initial regulations, hybridisation, etc., to play a key role in the digital sphere. Suppliers will also play a key role,” he averred. Drawing attention to the use of signboards by STUs in buses, and the setting up of a control room to monitor buses on the road, Kaushik expressed, “Fleet management services like DigiSense from Mahindra are reflective of the successful development of (digital) platforms.” “These,” he added,”can be used across vehicle segments.” Stressing upon the rising use of fleet management services to track movement and driver behaviour, Kaushik stated, “Driver has become an integral part of the entire CV ecosystem, and dgitisaion is helping him to realise better efficiency.” Kaushik also drew attention to how digitisation is aiding service compliance. “In 2014, in Europe, we were trying to understand what is going to happen with EuroVI. We asked the drivers about the truck getting complicated with SCR. We are now travelling on the same route, and the tone will be set for digitisation in CVs,” explained Kaushik. He did not forget to mention that the aggregator business model is picking up; leading to many looking at optimising loads.

A Sriniwas, from the product stand point, said that a lot of work will happen in India and the world over in the case of driver awareness. “Initiatives like driver training and monitoring will gain importance among other things,” he added. Sriniwas linked driver behaviour with digitisation in CVs by the means of sensors. He mentioined that trucks are today equipped with sensors, and the need is to use them to get data to be able to work out an intervention.

Rising electronics in CVs

Dattatreya Saste expressed that 25 years ago, as a convenor for deciding auto policies, he had estimated the electronic content to be about 30 per cent. “In cars, it has come to that level. In CVs it is expected to rise quickly,” he said. Stating that safety of women and night drivers ranks high on the agenda of the ministry, Saste opined, “When it comes to roads we are at a primitive stage.” “We are trying to create national registry for drivers. In the case of public transport, we are talking about multi-modal transport. While there is a need to upgrade enforcement, the ministry is co-ordinating; and is keen to dispel the confusion between the tasks carried out by the traffic police and other policing agencies,” he added. Stressing upon his ministry offering full support to digitisation, Saste averred that a big impetus will be laid on ‘Intelligent Transport System’ and vehicle electronics.

Ramashanker Pandey subtly changed the course of the discussion by expressing digitisation as not just about technology, but also about electrification, and the huge computing power the world has. “Commercial vehicles will be early adapters of it,” he added. Stating that companies are tackling challenges by working in isolation, and forming an impression that they have a good understanding of the customer, Pandey called for a need to collaborate. “It is not about product sale, but about the whole business model. Today, an OEM calls for a product, the payment for which will be done if he values it. The rules of the game will change, much like they have in the IT world and the mobile phone sector. Supplier collaboration will start from the product development stage and extend all the way to the release stage. Within five years, collaborative approach will assume importance. If one company wants to do everything on its own, digitisation will be a very costly affair,” he explained. Pandey touched upon a survey undertaken by his company lasting five years on safety. It turned into a revolution almost, and the takeaway was that safety will need to be driven not just by regulation, but by the industry collaborating. “It is a new game for us,” said Pandey.

The ecosystem

Speaking on the issue of industry buzz, and regulation driven digitisation, Bhushan drew attention to having driven three-to-four ‘digital’ CVs in 2016. “This was not the case earlier,” he said, pointing at the change taking place in the Indian CV industry. “We see a reflection of change in these vehicles,” he added. Stating that the comparison (in the case of digitisation) is drawn between a passenger vehicle and a CV, he averred, “the use of electronics in passenger vehicles and CVs is completely different. If passengers are looking at different outcomes from use of electronics, in CVs it is looked upon differently.” “In CVs,” he added, “electronics is enhancing comfort, safety and better operability.” Mentioned Pandey, “The glamour of electrics in a passenger vehicle is completely different. The rear view camera system, for example, that is needed in a mining truck is completely different from what a car driver will need on the road. The nature of digitisation is completely different, and the value and cost are also completely different.”

Responding to Ramakrishnan’s query on the issue of understanding the customer, Bhushan stated that dealers are going to play an important role. “The customer will need to come close to the OEM at the aftersales level as far as the lifecycle of the vehicle is concerned. The other part is fuel efficiency and comfort. Both these will add to safety. We are still at a regulatory level. The comfort part, which is so prominent in European trucks, is yet to set in. It is coming,” he added. Drawing attention to Intelligent Transport System (ITS) as a means to vehicle-to-vehicle communication , Kaushik Madhavan opined that vehicle to infrastructure communication is also important. “It is already happening in Europe. Volvo is already talking about platooning, which will play an important role in improving efficiency and productivity,” he added.

Digitisation driven multi-modal transport

Touching upon multi-modal transport, Kaushik Madhavan expressed that it will assume much relevance in India. “As Ramashankar said, the ownership patterns are changing .Why should a fleet operator with 10 tippers for example, stay stuck with 10 tippers for the rest of his life. Subscription based ownership patterns are changing. With multi-modal transport, somebody who has, a fleet manager, and a very good relationship with the end customer, should be able to choose the right transport at the right point and time,” added Madhavan. Stressing upon the change in ownership pattern, Madhavan said, “It will happen in India too. Not just at the vehicle level but also at the ownership level. There will be an ability to have different vehicles at different times, based on the requirement.” Opining that load optimisation, efficiency and production are already going up, Kaushik, in response to Ramakrishnan’s question on app.-based aggregators pushing utilisation up, said that aggregators will clearly say that investments are practically nil. “They have practically no assets to start with. Mind you, not just logistic operators who have 2000 to 2500 trucks but owners and drivers with just a single truck are benefitting. There is a wide opportunity for the entire spectrum,” he mentioned.

Regulations in the digital space

Stating that increase in utilisation and optimsation will lead to new challenges, Kaushik hinted at a move towards the airline industry-like regulatory practices. Said Sriniwas,”Such regulatory practices may not appear in the near future, but some business models would.” He drew attention to the use of sensors to collect data that can be analysed to understand the overall performance of the truck. “It will be able to have a long term relationship in terms of the overall maintenance of trucks. We could use it to deal with the operational efficiency, and pave the way for monetisation,” said Srinivas. “Some monetisation can happen with all the data analytics, and by giving some predictive information to the stakeholders. There is scope for improving the overall effeciency,” he added.

On MoRTH’ digitisation outlook, Dattatreya Saste expresed that the ministry will do whatever it takes as far as the fitness of vehicles is concerned. As far as the CV industry goes, Saste informed that they have developed a software for driver tests. “It is camera based, and transmitter-receiver based,” he added. Keen to replicate the software through a PPP model preferably, Saste averred, “Fitness of the driver is very important, and we are very keen as a government. We have to address safety of the people and the surroundings. We therefore have a mandate to come out with whatever electronic or digital support that is necessary. The registry should be able to ascertain if it is a vehicle problem, ownership problem or anything else.” Claiming that fuel efficiency in CVs will go up with digitisation, Bhushan averred that speeds are going up, and the rise in electronics will help to offer better comfort to the driver. “He will be attentive thus. Not just that, the industry clearly is moving to connected vehicles and offering driver assistance aids” he added. Said Kaushik, “For me the most important thing is to make the fleet operators aware of the advantages digitisation will offer.”

Ramashankar Pandey expressed that the LEDs in signalling lights will find a way into the head lights too. “Electronics is becoming cheaper,” he mentioned. Stating that electronics is finding a way into India with ‘Make in India’, Pandey opined, “If front LED lighting will be mid-term, in the long-term, the moment a truck is going outside there will be a digital clone ready. There will be predictive analysis, uptime will go up, driver cost will go up, and investment cost will go down.” “The ‘connected’ part of digitisation is fast cathing up. Load diagnostics can be captured; predictive maintenance is posible, and also an overall improvement in maintenance is possible. All this will have a definitive implication from the safety stand point, Srinivas mentioned.

CV industry growth in 2017

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The first of the two panel discussions, as part of the Apollo-CV Awards 2017, focused on the growth of CV industry in 2017.

Panelists (L to R)

Ravi Chawla, Managing Director, Gulf Oil Lubricants India.

A Sreerama Rao, Executive Vice President – Sales, Marketing & Aftermarket, Volvo Trucks.

Nalin Mehta, Managing Director and Chief Executive Officer, Mahindra Trucks and Buses.

Rajinder Singh Sachdeva, Executive VP and Head Technology, Volvo Eicher Commercial Vehicles.

T Venkatraman, Senior Vice President – Global Bus, Ashok Leyland.

Moderator

V G Ramakrishnan, Managing Director, Avanteum Advisors

Responding to V G Ramakrishnan’s question on CV market having reached the 2011 level with 592,000 unit sales and good support from bus segments, Nalin Mehta expressed that commercial vehicle sales will grow as the (Indian) economy grows. “The big ticket growth in bus business,” he said, “came from STUs and translated into a growth of 153 per cent this year, statistically speaking.” Mehta emphasised on three factors – capitalising on JNNURM scheme, working on agendas using PPP approach, and getting independent operators to ply, that led to growth fuelled by STUs. Pointing at a shift taking place from LCVs to ICVs, he stated, “The delay or extension of bus body code implementation created an element of uncertainty. Manufacturers were not certain of how quickly it would be implemented, and if they will be ready. Bus body builder, a formidable part of the business today, were behind it. The Ministry of Road Transport & Highways (MoRTH) has been working towards a common mandate. If there is no clear legislation about sleeper bus code or about long haul buses, the growth volume is going to be more or less flat.”

Market shift

Diverting attention to trucks, A Sreerama Rao stated that the number of trucks required by customers has gone down on the basis of the on-road information his company has gathered over the last seven years. Expressing that a new model was always found to be more productive, Rao averred, “Transformation is also taking place in haulage trucks. A movement is taking place from double-axle trucks to multi-axle trucks. The (sales) numbers may not reveal the actual picture, the fact is, the industry is becoming more productive. It is moving towards higher productivity, and the horse power (on trucks offered) is going up across manufacturers.” Terming this as a positive trend, Rao mentioned that there was no need to worry if the absolute numbers were not growing.

Adding a new perspective, Rajinder Singh Sachdeva said that the CV industry is ready with BSIV emission compliant CVs. “Manufacturers are looking at common-rail technology, and the cost difference is hardly 10 per cent,” he said. Underlining the fact that there’s no choice there, Sachdeva said that 50 per cent of the Indian cities are already BSIV emission compliant. Some customers, he averred, were buying (BSIV compliant) vehicles whereas others were buying vehicles in cities that were still at the BSIII emission compliance stage. “In this quarter we are seeing pre-buying as CV buyers look at avoiding the cost difference they will have to account for from April 01, 2017. Post April 01, 2017, they will have no option. How GST will influence demand will depend on how the macro parameters pan out. The first quarter of FY2017-18 will be post pre-buying. It will bring into account, the fact that the CV industry never works on the right capacity,” he added. One remark of Sachdeva that caught the attention of the audience was the CV industry being either under capacity or over capacity. “Until March 31, 2017, we will be working under capacity. Demand is more than supply. From April 01, 2017, the manufacturing capacity will go up,” he said.

Factors that influence the CV industry

About factors influencing CV industry growth, Rajinder Singh Sachdeva mentioned that the first quarter of FY2017-18 will be confusing. The second quarter, he said, will have the GST cause confusion. “It is difficult to predict if anything like demonetisation or similar such initiative will arise in the third and fourth quarter,” he added. It is parameters like these, and not BSIV implementation, that will most impact, he stated. From the perspective of a oil manufacturer, Ravi Chawla remarked that they are working closely with OEMs, and that half the oils sold in India currently account for diesel engine oils. Mentioning that the industry here follows the European standards, Chawla said, “The arrival of larger trucks is driving a change in terms of the service intervals, and the way oil change happens. With GST, LCVs will play a larger role; they have different service requirements unlike the larger trucks that call for longer drain intervals. We will have to modify our approach,” he added.

“BSVI is a big challenge, and will call for lubricants to change,” said Chawla. He drew attention to BSIV oils already available in the market while stating that they are working closely with OEMs by keeping in mind the Indian requirements. “The need,” he mentioned, “will be to maintain the service standards such that the OEMs and truckers are able to fulfill their promises.” Touching upon SCR and AdBlue, Chawla expressed that the challenge was in the availability of AdBlue. It was necessary for the trucks to use it, he said. Stressing upon the use of AdBlue rather than water, Chawla explained that distribution, service and quality will matter the most. “That is something that we are working on as one of the two companies manufacturing AdBlue locally,” he added.

Segment shifts

Describing segment shifts as the writing on the wall for many years, Nalin Mehta expressed that there will be a need for transport were the country to produce goods. “A shift is taking place towards higher tonnage trucks; trucks that are bigger and more efficient,” he said. Stressing upon the need to calculate the number of trucks against billion-tonne kilometers, which is growing, Mehta averred, “Blips like pre-buying are occurring this year. With the impact of BSIV likely to be high, and compelling customers to pre-buy, the first quarter of FY2017-18 could well be expected to be dry.” “This would not stop the CV industry from growing however,” he added. Pointing towards better highways, rising consumption, growing economy, rising rural consumption and growing income levels, Mehta said, “With GST, the hub and spoke transportation model will assume a better form. As movement towards higher tonnage takes place, secondary transportation will shift to lower tonnage.” “With growth in the last few years not very encouraging, the co-relation between GDP and billion tonne kilometers, plotted over a long period of time, will be close to one,” he added. Stating that waterways and railways would compete with road transportation, Mehta mentioned that road transportation would continue to grow, and despite the blips and segment shifts.

Pointing at a clear shift to ICVs from medium-duty vehicles, T Venkatraman, on the subject of buses said that it was influenced by a rise in last mile connectivity and feeder operations. “People need to move. As cities grow, private operators and STUs, it is evident, are going for smaller buses. The ICV business for STUs has gone beyond 10 per cent in the last one year over the sub-five per cent earlier,” he added. Confident of the trend continuing, Venkatraman mentioned, “The need of the hour is to ensure interconnected roads and networks that would support last mile connectivity. There is a challenge of routing, and that of understanding the layouts.” Stressing on the need to work together, for the industry and the government, Venkatraman said that there is a need to build roads and networks with a common agenda; to invest in plans that are sustainable and fulfill the objectives. On the question of types of buses the industry should build, Venkatraman said, “The need is to work in the direction of building buses that address the issues of safety, passenger comfort, emissions, and an ability to get people to leave their cars behind.” Drawing attention to people travelling on bus rooftops, he mentioned that the bus body building industry and manufacturers have to set up a product that is relevant.

Digitisation and its influence on growth

Speaking about digitisation, and how it will influence CV industry growth, Rajinder Singh Sachdeva drew attention to the cost implications. “Safety aspects and digitisation will drive costs,” he said. Stating that the cost increase in the case of a six-cylinder BSVI engine will be to the tune of Rs.300,000, Sachdeva added, “It would involve setting up of a chemical factory on the vehicle.” Pointing at the challenge of putting up a chemical factory on smaller, intra-city CVs, Sachdeva explained that the cost increase will be close to the level of a hybrid solution. “A 34-seater electric bus costs Rs.1.5 crore, and a hybrid bus costs Rs.40 to Rs.50 lakh. The inclusion of BSVI technology will push costs closer to hybrid and electric levels,” he added. Explaining that the cost increase for a 8-litre engine will be Rs.400,000, Sachdeva emphasised that a significant shift was in progress. And, especially with regulatory factors like AC, truck code and trailer code accounted for. Sreerama Rao expressed that customers are ready to accept the significant shift in technology. “Volvo CV drivers have come to love the AMT technology introduced two years ago,” he added. Rao cited an example where customers are waiting to sit with them; to understand how the data can be taken off the truck using telematics, and how it will help them to get more out of their trucks. “The increase in features,” averred Rao, “is helping customers conduct their business efficiently.”

Manufacturing shift

Ruling out the challenge of manufacturing shift, Sreerama Rao said that there is a long way to go when it comes to understanding the business of the customer, and what will make value for him. “The interface between the industrial system and customers is where there is a scope for improvement,” he added. In respone to Ramakrishnan’s query on hybrids, Mehta averred that costs are going up, and the gap between conventionally powered CVs and hybrids is reducing. “To arrive at a time frame would be dangerous. The situation today is such that it will happen faster than anticipated. The progression is geometric. Little things are adding up to make a big chunk,” he mentioned. In view of the proliferation of hybrids and electrics, Chawla stated that the oil industry will have to adapt; that such vehicles also need lubrication. He added, “The trend (for hybrid and electric vehicles) is not going to be very high in the next 15-20 years it looks like. The space to charge, the cost of battery packs, battery space on the vehicle are some of the challenges that will need to be dealt with. Tests are on, and such vehicles will proliferate to an extent. It is a challenge, and we have to be ready.”

The future

In response to a question by Ramakrishnan on CV industry growth over the next four quarters, and the next two-to-three years, Ravi Chawla expressed that demonetisation may have led to a slight drop, consumption is up once again. “CV oil demand fell by 25 per cent and picked up momentum once again in January 2017,” he added. Defining the trajectory as positive, Chawla stated that segment shifts in CVs will take place, and the hub and spoke model will redefine itself. Expressed Sachdeva, that the industry overall will be one-to-two per cent plus this year as compared to the year before. “The first quarter of FY2017-18 will witness under buying as people wait for GST to play out. Second quarter will be lost in confusion. Even if the industry achieves a single digit growth will be good,” he added. Echoing Sachdeva’s sentiments, Venkatraman mentioned, “The momentum to make hybrid and electric CVs viable is necessary, and despite the presence of FAME scheme and getting potential players to set up protos.” According to Venkatraman, next year will see a rise in momentum of hybrid and electric CVs.” STUs, he said, are looking to retrofit. In his concluding remarks, Mehta stressed upon the continuation of movement to higher tonnage CVs, and towards lower tonne per kilometer in terms of cost. “If GST would lead to a postponement in purchase,” he said, “the good part is the scrappage policy, which will kick off a different ball game in terms of replacement demand.” “Growth in ICVs and tractor-trailers will follow a clear distinction between highway movement and secondary transportation. Consolidation in freight will happen. SCVs will play a tertiary role as rural demand goes up. There will be a movement toward higher tonnage in every CV segment,” signed off Mehta.

Trading Cvs

Specialising in vehicle transactions, Shriram Automall India Limited is expanding its operations on the back of good growth.

Story & Photos by: Ashish Bhatia

Shriram Automall India Limited (SAMIL), a 100 per cent subsidiary of Shriram Transport Finance Company (STFC), has turned six. Providing a platform to purchase and sale pre-owned vehicles, CVs and equipment, especially through organised and transparent bidding platforms, the company is looking at expanding its operations. Conducting ‘physical’, ‘online’, ‘one-stop classified’ and ‘private treaty’ transactions towards the purchase and sell of pre-owned vehicles, the company, to mark six years of its fruitful journey held 60 bidding events simultaneously recently. The bidding events were held on one single day, and across all the centres the company has in the country. In what could be termed as a display of high level of synchronisation, bidding events were simultaneously held at Shriram Automall’s centres in Andhra Pradesh, Tamil Nadu, Karnataka, Maharashtra, Madhya Pradesh, Kerala, Odisha, Haryana, Bihar and Uttar Pradesh. Claimed SAMIL sources that over 5000 vehicles and equipment were auctioned on that day. These were valued at over Rs.100 crore. Auctions at SAMIL are a part of a systematic process that calls for interested people to register with them. Only those who have registered are allowed to participate. Commissioning the 66th mall at Agra to commemorate six years of the successful journey, SAMIL is working towards expanding its reach by introducing a mobile app, ‘MySAMIL’. Making it to the ‘Limca Book of Records’ as the ‘largest platform for acquisition and disposal of pre-owned vehicles and equipment’, and for ‘conducting highest number of physical bidding events in a single day’, SAMIL, according to Sameer Malhotra, Chief Executive Officer, Shriram Automall, has in a short span of time become the most trusted brand for all leading OEMs, banks, NBFCS, transporters, leasing and rental companies, vehicle aggregators, dealers, contractors and individuals. It is a brand that they look up to, to dispose their pre-owned commercial vehicles, construction equipment, farm equipment, passenger vehicles, three-wheelers and even two-wheelers.

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Transactions

A visit to SAMIL’s centre at Panvel revealed that there were 155 vehicles listed for auction. Over 152 bidders registered for the event. Over 80 vehicles went on the block, and were successfully traded. The total transaction value according to SAMIL sources was in excess of Rupees-two crore. For all the centres combined, SAMIL transacted vehicles and equipment worth Rs.50 crore in that day. A new high for a single day business transaction according to Malhotra. Braving the harsh weather, and rising temperatures, indicating the onset of summer, Goldy of Ulhasnagar-based Shiv Shakti Transport, came to the event to buy a good used truck to add to his fleet of 12 trucks. Claiming to be a regular visitor, Goldy said that the number of CVs auctioned at the event, whenever it was held, were good. While SAMIL sources claimed that the auction is held twice every month, Goldy expressed, “ The maths behind an eight year old Tata truck would be an opportunity to save to the tune of Rs.18 lakh on a truck.” This truck, at the previous event, did not sale, he mentioned. If Goldy could have the truck for Rupees-six lakhs, financed 100 per cent by STFC, against a price of Rs.24 lakh for a new truck, it would amount to a good deal of saving. There would be little liability in the short term. Drawing attention to the lucrative nature of pre-owned vehicles, Goldy averred, “A price depreciation of Rupees-two lakh kicks in every year. A brand new truck thus amounts to a loss of Rupees-one lakh on its valuation the moment it is bought.” “In the case of this truck, I can invest in repairs to get to a good running condition if the need be,” he added.

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Milind Chauhan operates a tourist car company called Amit Travels, and is based at Dahisar in Mumbai. He came to the auction to buy a tourist passenger car with the intention to earn a good profit by reselling it to a rural buyer in the short term. Chauhan kept a close eye on the condition of cars being auctioned, aware of the fact that a worn out battery or a need for major repair would lead to a big cut in his intention of earning a profit from a resale. Mentioned Chauhan, that it is often that the seller hasn’t done the mandatory ‘fitness passing’ of the vehicle, and would result in an amount of expenses for the buyer. “If you are careful, and aware of what to look for, you could end up with a good deal.”

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Bidding process

Of the four distinct channels used to bid at SAMIL – physical bidding, online bidding, private treaty and through a one-stop classified kiosk, it is the physical bidding channel that garners 90 per cent of the business according to Umesh Govind Revankar, Managing Director & Chief Executive Officer, STFC. “Over 90 per cent of the business comes through the ‘physical channel’. The ‘kiosks’ haven’t added much to the volumes, and we are slowly looking towards tapping the mobile segment, he averred. The mobile application is said to facilitate participation in live bidding events, submission of proxy bid for vehicles, digital payment options, customer registration and uploading of KYC documents apart from notifying the customers of the latest developments in the company. “In Classifieds, we haven’t really invested too much. It is a medium that needs substantial investment, both in terms of technology, upgradation and up-keep,” he mentioned. Revankar averred that his company is looking at diverting its profits towards technology addition going forward. In ‘private treaty’, SAMIL negotiates deals as a mediator, between the buyer and the seller. This channel is exclusive to big ticket clients, and accounts for few select transactions for the company. The ‘physical’ bidding process highlighted a medium that facilitates seamless transactions. Especially when one considers the value additions like easy finance, refurbishment, valuation, documentation, and insurance.

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Stating that there is an urgency to replace an existing vehicle with a more efficient one as fuel prices are rising, Revankar opined, “The need for efficient vehicles is creating a demand for used vehicle transactions.” SAMIL, in the next financial year (FY2017-18) is looking at 30 per cent top-line growth. In the long-term, the company is looking at doubling the number of centres from the current 64 to over 150. To do so in a sustainable manner, and with good revenue to support healthy growth, the company is looking at a franchise model.

Umesh Govind Revankar, Managing Director & Chief Executive Officer, STFC

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Q. The year 2017 marks Shriram Automall’s sixth anniversary. How has the journey been?

A. The plan initially was to give our customers a reasonable choice to buy a vehicle at a fair price. We are a used vehicle finance company in the form of Shriram Transport Finance (STF) afterall. This would improve our valuation expertise. And, this is how we discovered the actual used market price even though we had the valuation expertise for used vehicles. For the customer it was a matter of choice; for us, it amounted to a learning opportunity. Truck buyers physically inspect the vehicle before buying it. This led to the formation of this business actually. We started with trucks and then diversified into passenger vehicles. We have to our credit the auction of two-wheelers too. We have also done some gold auctions apart from being present in properties (real estate) as well. Credit of this achievement should go to the relationships we have fostered over the years. We began working closely with corporate clients to sell their repossessed vehicles. Corporate banks wanted other services. This led us to enter into other areas of business. As far as the customer is concerned, we still have around 50 per cent of the business turnover coming from vehicles. Customers walk in a day or two prior to the auction, and park their vehicle in a bid to get a fair price. They are unable to get a fair price when they deal with a broker or a dealer. It is often that they are not aware of the fair price. Our platform helps them, to get a good price. The customer can change his vehicle, increase or decrease the price by gauging the pulse of the customers at the auction. We have around five lakh bidders. Many of these could be one time buyers. They come to the auction, buy and sell. We thus have sellers as well as buyers coming to us.

Q. How has the used vehicle and industrial equipment segment evolved in your opinion?

A. We are increasingly seeing participation from manufacturers. Imagine a transition from BSIII to BSIV, and there are some vehicles which they will not be able to sell. They have to find a way to sell these vehicles. It also happens that some manufacturers resort to placing their existing inventory for sale. There are those that encourage their dealers for buying and selling. Dealers accumulate old vehicles, and take part in our auction. We thus have customers that include manufacturers, banks, other companies, dealers and individual truck operators. Our preference is to sell to the customer directly. We prefer a B2C business model over a B2B business model. The intention behind this is to be able to finance the customer and build a relation with him. The challenge is in documentation. Whatever vehicles we try to gather from individuals or corporates, we organise their documents for a smooth title transfer. Not everyone does this. Some corporates and banks pose a big challenge for us due to the lack of proper documents. We always prefer a vehicle with documents, and are thus able to fund the buyer as per his requirement.

Q. What are the key milestones the company has achieved?

A. A key milestone for us was when we partnered with banks in the second year of our operation. We signed up with one or two banks. Now, almost all banks have a relationship with us. The participation of almost all the banks makes us an ideal platform. We are able to cater to the needs of banks, individuals or institutions. We are, in terms of numbers, having a quarterly revenue of Rs.150 crore from the Automall. That is the top-line. We are making a profit. This year, the profit margin will be around Rupees-eight to Rs.10 crore. Net profit was not something that we consciously targeted. Our aim was to increase the revenue of the company. The figure of Rs.150 crore would be a good milestone therefore. We should soon be able to double it. The growth that we expect from Automall is 40 per cent on the top line. The bottom line can vary depending on the challenges, including the varying operational expenses. We would like to incur more expenses now on the business. Our investment here after will be into technology. The aim is to make people participate through their mobile phones. They would not be required to be physically present at the auction. The customer will be able to see the live stream of the auction, and participate. He could alternatively visit any of our branches to view the live-stream and participate. In six months, we should be able to make this possible.

Q. What are the key focus areas in terms of finance that you are looking at?

A. We never looked at this business as financial in nature. The basic idea was, and is to support customers; to help them buy the right vehicle at the right price. We have achieved that. As I said, we expect the top-line to grow at a rate of 30 to 40 per cent annually. We will additionally look at increasing the number of centres. We have 64 centres as of now. We would like to take them to 150. We have been operating on properties that we have leased. We would now want to convert to a franchise model.

Q. How has the strategy to diversify from just selling used commercial vehicles panned out?

A. We are happy with the progress we have done. We have established a significant rural presence. This has helped us to finance tractors and vehicles aimed at rural markets. We added passenger vehicles due to the coming of cab aggregator business models like Ola and Uber. The presence in different segments of used vehicles has helped us to cater to the differing needs of our customers.

Q. What is the contribution from each segment that you operate in; from Shriram Transport Finance Company, and from Shriram Automall?

A. Commercial vehicles still dominate. The share from transportation (small and big trucks combined) is about 70 per cent. From passenger vehicles, it is about 25 per cent. From farm equipment, it is around five per cent. As far as the Automall business goes, passenger vehicles contribute 35-40 per cent. We expect passenger vehicles to contribute more than 50 per cent going forward.

Q. What was the effect of demonetisation on your business?

A. We are recovering from the effect of demonetisation. Transactions saw a 30 per cent decline in the third quarter of the current financial year. We are expecting the business to bounce back this quarter. The business of used vehicle has always been cash intensive. People found it difficult to participate. We are yet to understand the impact of Rs.3,00,000 cash transaction limit put by the government. We have to really understand that particular aspect. Once we understand it, we will be able to tell you how things will pan out. As far as the fourth quarter of the current financial year is concerned, it is looking good. We are hoping to end this financial year with good earnings.

Q. What is the short to medium-term and medium to long-term plan for growth?

A. In the medium-term, we should be able to grow 30 per cent on our top-line. That is in the next financial year (FY2017-18). In the long run, we expect technology to play a major role. We will add classified and mobile applications. It will be directly proportional to the money we invest in technology and its implementation. We are bullish on that front. We expect to grow very fast in the next three to four years. The last quarter of this financial year is expected to display demand on the back of pre-buying. From April 2017, BSIV emission regulations will come into force. The implementation of regulations will negatively impact the demand in the first quarter of FY2017-18. The second quarter of the next financial year will be uncertain due to the implementation of Goods and Services Tax (GST). The next six months may not be good for new vehicles. Demand for used vehicles is likely to be high. Demand for Rabbi crop in April-May will be high. This is likely to induce demand from the rural sector. Depending on the monsoon, post the October 2017 quarter, demand from all segments including CVs and tractors is expected to be strong.

Q. How are different channels contributing to increase Shriram Automall’s revenue?

A. The physical channel contributes 90 per cent of the business. The ‘kiosks’ haven’t added much to the volumes. We are slowly looking to tap the mobile segment. In Classifieds, we haven’t really invested much. It is a medium that needs substantial investments, both in terms of technology upgradation and up-keep. We would like to divert our profits towards adding technology.

Q. What regions are you looking at to expand Shriram Automall network?

A. We have been strong in the western region. It is the northern and eastern region where we want to strengthen our presence.

Q. How do you look at the participation of banks and NBFCs?

A. Banks have been supportive of used vehicle equipment business segment. NBFCs are not, barring a few. This could be because they feel that that we are competing with them in terms of financing. Over a period of time, they, I am certain, will see the advantages.

Q. With regulations like fuel emission norms, CAFE, Bharat NCAP and the scrappage policy, do you see a disruption in CV sales?

A. These factors will only enhance the demand for used vehicles. There is an urgency to change the vehicle and move up to an efficient one. Fuel prices are going up. Regulatory factors will create demand to sell old CVs and buy new ones. In either case, finance needs will go up. This will help us. We would like to give a helping hand to the customer. In terms of scrappage, as of now no legislation exists. Except Delhi there is no other state that has banned 10 year old CVs. The cap is at 15 years. The government will have to compensate the people owning the asset in case of the scrappage scheme. Till such time re-registration of vehicles will hold us in good stead.

Q. What are the key trends from the global used vehicle markets that will find their way to India?

A. India being a very unique country, one cannot replicate trends from other markets blindly. I have tried to understand the Chinese used vehicle market. Even that market is not moving in a structured manner when it comes to commercial vehicles. However it still remains the only country in my opinion that we can learn from. Markets like USA and Europe are way different. Their entire ecosystem is different. India has more individual owners and small fleet operators. Entrepreneurship spirit is high here. People wanting to own a business is high here.

Bullish about growth

As a full-range player in bus air-conditioning, Sphere Thermal Systems is keen to make inroads into new markets.

Story by: Bhushan Mhapralkar

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Sphere Thermal Systems was established in 2011. Specialising in bus air-conditioning systems among other related activities, the company, in five years of its existence has grown to a level where it can claim to have found a firm footing in its field of operation. It is one of the three verticals of the Sphere Group according to Pramod Verma, Vice President, Sphere Thermal Systems Private Limited. The other two verticals are central air-conditioning vertical and refrigeration products vertical, which specialises in cold rooms, cold storages, transport refrigeration and more. Into the insulation of reefer trucks as well, Sphere Thermal Systems is chalking out plans to enter into the field of refrigeration machines as well. Describing Sphere Thermal Systems as a specialist in transport air-conditioning, Verma avers, “It is the next most powerful vertical out of the three verticals we have.” “The most powerful vertical is central air-conditioning vertical,” he adds.

The central air-conditioning vertical undertakes building air-conditioning projects. In terms of growth, Verma mentions, it is the transport air-conditioning that should be given the honour. “In the last five years it has clocked the most growth even though the base is small when compared to the central air-conditioning vertical,” he adds.

Looking at a bright future

The transport air-conditioning vertical offers air-conditioners in the range of 5kW to 49kW. With this, the company, claims Verma, covers practically every industry segment as of current. The air-conditioners the company offers cover a comprehensive range of vans and buses, starting with ambulances and going all the way up to city buses. The range covers up to 14 m buses, explains Verma. A new addition to the conventional product range, the company is also offering an electric air-conditioner for hybrid. buses. In its quest to address the changing requirements of the market, Sphere Thermal Systems has entered into technical agreements with a few companies. One of the companies is a Chinese air-con specialist Guchen. It is in association with this company that Sphere Thermal Systems is offering an electric roof-top air-conditioner for hybrid and electric buses. The EZDS-05 roof mounted unit is suitable for application in all-electric buses, tramways and trolley buses. It can be electrically or battery operated, and includes a hermetic scroll compressor of Shanghai Hitachi make. Using R407c refrigerant, the air-conditioner unit has 26000 kcal per hour cooling capacity. It also has a 24000 kcal per hour heating capacity, and consumes 8 kW power. Opines Sandeep Singh, General Manager – Sales, that they are ready for the future. “The future we understand is going to be environment-friendly and pollution-free, he adds. The electric roof mounted air-conditioner is the latest addition to our product range,” states Verma.

Claiming to have grown close to 400 per cent from the date of inception, Singh expresses that the bus air-conditioning market is 20000 to 25000 units per annum. Five years ago, he mentions, the market size for bus air-conditioners was between 12000 to 14000 units. Every non-AC bus that we see translates into a potential customer for us, Verma opines. According to him, this is just the beginning. With the perception about air-conditioning changing – from being a luxury to being a commodity, the potential is huge. Explains Verma, that air-conditioning has come to play a role at every stage of the day in a person’s life; at home, in the car, at the office, and in an air-conditioned bus he or she travels in. The number of air-conditioned buses is increasing according to Verma. The number in every state is however still 10 per cent of the overall bus parc. The potential for air-conditioned buses to grow is multi-fold therefore. If the government policies are expected to be a bit more favourable, a development worth noting is the rise in air-conditioned buses at state transport undertakings. These are found in 2×2, 3×2 and sleeper configurations. In the case of private operators, it is the school bus segment that is accounting for rapid growth. They are perhaps the fastest growing when it comes to buses. According to Singh, the demand for air-conditioning in staff, institutional and tourist bus segment is rapidly growing. “The future we see is bright,” he adds.

Catering to OEs and aftermarket players

Sphere Thermal Systems cater to a mix of OE and aftermarket players. The per centage of aftermarket players is high. Supporting the company in its endeavour to grow are the two other verticals, which offer products like seats, roof hatches, etc., for buses. The company also caters to the needs of OEMs through their tier 1 vendors. Stress is laid on getting the products certified by ARAI. The bus air-conditioner range of the company comprises 10 models of variable capacity. The company, says Verma, will soon launch four to five new bus ACs. The ACs that Sphere Thermal Systems offers to, are 100 per cent indigenised. They are designed and developed for India, and engineered to operate in India’s tropical conditions. A majority of the components Sphere uses in the manufacture of its bus air-conditioners are sourced locally. Only some parts like compressors, which are not made in India, are imported. Says Singh, that they believe in ‘Make in India’, and are keen to provide employment opportunities to the people in the country. Pointing at the latest, electric air-con for hybrid and electric buses, Verma avers that the arrangement is of technical transfer. The air-con will be eventually made here, in India, he adds. For the electric bus air-con to take off, a challenge for the company would be to seek a certain viability in terms of cost and volume. As far as the rest of the bus air-con range is concerned, there are challenges that the company has been tackling.

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Challenges and opportunities

Typically challenges that Sphere Thermal Systems faces include convincing buyers to opt for AC buses. A good amount of tenders that STUs are floating, says Verma, include conventional non-AC buses on a large scale. The ratio of air-conditioned buses with most STUs, claims Singh, is 15 per cent. The challenge in front of a company like theirs is to convince bus buyers, big and small, to opt for AC buses; to retrofit ACs and earn more. “It will be interesting to note that the earning of an STU has increased by running AC city or inter-city buses by a good margin,” states Verma. “Our emphasis is on offering a value-for-money product. With no joint venture or loyalty payment to take care of, Sphere has been offering products at highly competitive costs,” he adds. According to Singh, the company commands 7-8 per cent of the bus air-conditioning market share in India. Singh adds that his company has already over achieved the target for the current year in comparison to what was envisaged. Without revealing the figure, Verma says, their aim this year is to double the turnover. About opportunities, Verma avers that a customer looks at three things – price, quality of the product and service. “Since inception we have been banking on these three pillars. We have created a service network first,” adds Verma. This did keep the company confined to a few regions in the country. Plans are being drawn to expand to newer geographies without sacrificing the practice to set up a service network before launching the products. Sphere has a presence in almost all tier 1 cities in India. Sphere also has a service network in Sri Lanka, Bangladesh, UAE and Qatar. The company, in the exports markets undertakes conversion jobs. Thus non-AC buses are converted to AC buses. The potential of converting non AC buses in UAE and Qatar is high, says Singh. A law in this regard has been passed, he adds. Verma states that he sees an opportunity in Tata Motors setting up a local assembly unit at Bangladesh.

In the domestic market, Verma is confident of a good innings since many aftermarket bus body builders have invested in bus body code accreditation. Most big bus body builders have got the accreditation for bus body code from ARAI or ICAT states Verma. Efforts to invade the OE market are underway. Sphere Thermal Systems plans to add one or two OEs to their client list this year. Verma and Singh are well aware of the market shift, and the role OEMs are expected to play as the unorganised players in the bus industry find the going tough. Verma is certain about the bus industry in India moving towards a fully-built bus rather than get a body built from a local body builder. Eventually it will be factory-built buses, he says. OE business is essential for survival therefore, he adds. To bus fleet operators, Sphere offers annual maintenance contract. Their engineer is posted at the depot in case of large customer fleet. A client who has deployed more than 10 ACs of the company qualifies for an engineer to be posted at his depot. The company commissioned a service centre at Mundra port recently. It would cater to the 30-35 buses out of the fleet of buses that operates there, which have been fitted with Sphere ACs. The service centre, according to Singh, is being looked upon as a profit centre, and will cater to not just their company units but those of other brands as well. Service, he claims, would be offered at a very reasonable cost. Planning to commission service centres in South India, including Bangalore, the company, according to Verma, will continue to seek growth on the basis of the support it would offer to its customers. Well aware that South India is the strongest bus AC market in India, Verma avers that they currently sell good numbers in Gujarat and Rajasthan. With people in South India preferring to undertake bus journeys; over night journeys especially, Verma is hoping that their entry into South India will bring good growth. It is a highly competitive market for certain, but Verma is confident of making inroads based on the company’s philosophy of offering good service, good price and good quality.

Banking on engineering solutions

With a focus on automotive electronics, RLE International is keen to provide end-to-end engineering solutions to the Indian auto industry.

Story by: Bhargav TS

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Overath (Germany)-based RLE International GmbH set up a fully owned subsidiary in India, RLE India Private Limited., in 2005 at Bangalore to act as an offshore delivery center for the Group’s global projects, and to offer the Group’s global competencies in a best value model to the Indian OEMs and Tier 1 suppliers. Offering automotive development and industry specific engineering services apart from consultation, RLE, in India, is banking upon its ability to help optimise cost through end-to-end engineering solutions that leverage the global capabilities of the Group it belongs to. With an experience spanning over three decades, the company is stressing upon showcasing its design expertise in the automotive field.

Value for money proposition

Highlighting the prospect of ‘local cost’, the company, with offices at Bangalore and Chennai, specalises in Body in White (BIW), interior, exterior, system integration, powertrain and chassis, Computer Aided Engineering (CAE) and data migration. Keen to expand its business in India by entering into new avenue streams, the company is setting up Centers of Excellence (CoE) in core automotive engineering fields. According to Robert P Rupa, Managing Director and COO, RLE International, the vertical integration of commodities have many challenges to deal with. “There are certain complexities at one end and deliverables at the other, “ he adds. Sticking to the deliverables by employing attributes like light weighting, the company, which caters to CV clients among others, is leveraging the platforms that it has developed for India to drive its global aspirations. Hinting at frugal engineering, Rupa avers, that cost consciousness in all areas of technical inputs does not make sense since it does not work up to the desired level. He adds, “We lay emphasis on leveraging cost but only in certain niche areas. What we deliver, highlights our ability to provide value for money and best-in-class engineering excellence. The products that we engineer, our clients use them globally. To be precise, our engineering inputs find a way into the global markets.”

Driving growth

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Strengthening its business relations with key Indian OEMs and tier suppliers, RLE is looking at 30 per cent growth year-on-year. Keen to scale up the business, the company, according to Darren Gowland, Group Vice President International Operations, RLE International, is aiming at becoming a leading player in two-to-three niche segments in India. “The aim is to be one of the top three players in the transportation segment by adding more OEM and Tier 1 customers. Considering the global standards, we have already added new service lines like automotive electronics, BIW and design using lightweight material to support the changing needs of our customers. Our goal is to grow further in India,” he adds.

Currently working on infotainment and driver assistance systems, RLE is confident that its clients will realise the benefits in the next two-to-three years. Superior to what is being currently offered, the company is confident that its infotainment and driver assistance technologies will attract the attention of OEMs. Says Gowland, that the government’s initiative on infrastructure should be lauded. “It will help towards an effective initiation of electronic feed to Indian vehicles,” he adds. Gowland is well aware of the rising electronic content in automobiles, and CVs especially. He opines, “Electronics is not the core area of RLE. It however amounts to a segment, which accounts for 10 per cent of the engineering work we do. In areas like powertrain ornamentation.” Pointing at the rising use of alternate fuel propulsion mediums, Robert expresses that markets have began seeking hybrid and electric vehicles. The need therefore is to keep redefining the strategy and bank on different approaches, he mentions.

With automotive OEMs the world over showing interest in the burgeoning Indian market, which apart from China, is the most promising in Asia, RLE is confident of growing. It is identifying the needs of OEMs and tier 1 suppliers. States Robert, “India is a very big market along-side China and OEMs are showing much inclination towards investing in this market. The technology usage in Europe and US has already reached a point where any new technology gets easily embraced. It is in India that electronics hasn’t penetrated to such an extent yet. There is thus a huge opportunity.” Even as the company looks at newer areas in the automotive field to seek growth as well as make a mark, the area where it has already made a mark is in body engineering. RLE does major work with automotive OEMs in body engineering. This involves engineering of body structure, doors, other exterior parts, interior parts, ergonomic engineering, and chassis work. There is a bit of powertrain integration into it too, says Robert. Employing aluminium and fibre composites in the body structure, plastics in the interior have become a standard. From concept to design, the company works with OEMs. It prototypes components. It is with minimum iterations that they pass through the testing phase, avers Gowland. In India, the company, it is clear, is keen to leverage its capabilities from the world over to achieve an edge over its competitors. Tapping into expertise across geographies, simulation is one area where the company does a good deal of work. It plays a vital role in engineering output.

Planning to make significant investment on skill development, and to set up several Centers of Excellence (CoE) in the next five years in India, RLE, says Robert, is well aware of varying technical inputs that are sought compared to the inputs sought in Europe, US and other advanced markets. “Both, the trends and regulations, have to be monitored. They form the basis for technical inputs. We contemplate much and develop vehicle design such that it will address the future needs of the Indian market,” adds Robert. In India, RLE is creating two growth engines in the form of product engineering and manufacturing engineering. The company is also planning to invest 10 per cent of its revenues annually towards expanding its business portfolio. The focus of the company in India is on building innovative solutions. Keen to work in areas like lean engineering, manufacturing engineering, automotive electronics, lightweight materials and vehicle safety, RLE, according to Gowland, is looking at supporting the R&D needs of OEMs and tier 1 suppliers. “Though OEMs have their R&D centres, it may not be possible to attend to all the intricates. Some tasks, including those that of re-engineering components, have to be outsourced. Companies like us have a role to play. With our design inputs and prototype success, OEMs could work on manufacturing and product development. We would work on aluminium and fibre composites to realise weight reduction in automobiles, and help to restructure vehicles that meet the often contradictory needs”, adds Gowland. RLE, mentions Robert, is working closely with suppliers and OEMs as they look at making inroads into India. He adds, “The talent pool in India supersedes that of other countries. When we entered India, the aim was to merely to be an offshore delivery centre catering to some of our global customers. Over the years, the market has proven itself to be much more promising than we had expected it to be. It is one of the high-performing markets today, which caters to the best customers. For our global customers we develop and manage commodities and total vehicle projects. Right from the design stage to production stage. We are on our way to becominge one of the market leaders in India within the next five to eight years. The market is challenging but we have the right expertise, the right experience and the right investment strategy to grow further.”

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Global expertise tailored for India

Bringing global expertise, RLE, in India, offers its clients an ability to support them through ‘managed staffing solution’. This was specifically engineered to support the client’s in-house engineering requirements, and ensures low Total-Cost-of-Ownership (TCO). With facelifts, revisions and new models expected to be out at shorter intervals, RLE is expanding its service portfolio to address the changing needs of the clients. According to Vijay Machigad, Managing Director, RLE India, the company, in the next few years, is aiming to grow multifold in terms of revenue as well as in terms of service portfolio, business footprint and customer relations.” RLE has planned an investment of Euro 100 million towards skill development and acquisition of future capabilities. This is expected to provide a shot in the arm for company’s quality enhancement initiatives. Concludes Machigad, “RLE India’s key focus is on quality. The highly cost competitive Indian market poses a huge challenge. We are therefore keen to employ strategies that have helped us to build a strong relationship with our clients the world over in India. This will also help us to deliver higher value.”

Chinese tyre imports

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The onslaught of Chinese CV tyres is hurting the domestic tyre industry.

Story by: Anirudh Raheja

Inderjeet Singh Bawa from Ludhiana is contemplating replacing the worn out tyres of his 4×2 Ashok Leyland Comet Gold 1613 truck. The existing set of tyres has clocked almost 70,000kms (69,974kms to be precise). Bawa is scouting various options; he is worried about the expenses involved in the purchase of a new set of tyres, what with one tyre costing between Rs.18000 and Rs.20000. TCO is dear to Bawa like the numerous other truck operators, big and small. More so in an environment where freight rates are not showing signs of a good climb, and business is not particularly looking very promising. Compelled to keep the costs down, Bawa learns of Chinese tyres on offer from one of the many people in his field that he often talks to. Bawa is lured to check out these tyres because of the considerable price advantage they may offer over Indian-made tyres. It is cost that is the prime criteria that is providing Chinese tyres a foothold in the one-million Indian tyre market.

Challenges

Until almost half a decade ago, the demand and supply for natural rubber was on par. India was perhaps the only market in the world where the production of natural rubber, and production and consumption of tyres was balanced. The dependence on imports was negligible. However, Chinese tyres, over the past few years have altered the situation. Expresses Rajiv Budhraja, Director General, Automotive Tyres Manufacturers Association, “Only 40,000 tyres were imported every month until a few years ago. The monthly Chinese truck and bus tyre import figures have touched one and a half lakh units.” The import of one and a half lakh truck and bus tyres was clocked in June 2016, and is said to be growing at a brisk pace. For a price sensitive buyer like Bawa, Chinese tyres make an attractive option.

Known as the manufacturing hub of the world, China builds almost everything. It is also known to offer the best quality and the worst quality products.Says Budhraja, “Tier-one and tier-two tyre manufacturers are supplying high-end products (from China). Of much concern are the tier-three tyre suppliers that emerge like wild mushrooms. They may have reduced in numbers, down to 250 from 1000, they are however continuing to damage the Indian tyre industry. They are finding a way into the market with the help of small-time importers and exporters.” He adds,”What is worrying is that these are unknown brands; they are not competitively priced, nor do they have selling strategies on par with market standards. They evade taxes and duties, and cause a snowball effect on the domestic industry. The manufacturers are largely driven by the prospect of exports, and can make tyres of a particular brand name. This causes the volumes to spike up or fall in a short duration of time.”

Falling natural rubber production a concern

It is no secret that the tyre industry is raw material intensive. Close to 70 per cent of the raw material input costs in a tyre are that of rubber. Of this, close to 45 per cent is contributed by natural rubber. With the content of natural rubber high in CV tyres by up to 90 per cent when compared to passenger car tyres, the falling production of natural rubber is a matter of concern. In contrast, vehicle production in India has soared. It clocked 20 million units in 2015. With the procurement of natural rubber an area of concern, industry experts claim that it is necessary to take drastic steps so that rubber production goes hand-in-hand with the consumption requirement of the tyre industry. They draw attention to the time when rubber production was 1800 kg per hectare. In 2015, natural rubber production hovered around 5.6 lakh MT, down from 8.2 lakh MT in 2009. Natural rubber production declined by over 60 per cent within a span of three years post 2009. States Budhraja, that almost 90 per cent of the rubber produced in India is in Kerala. As pressure on land increased, land used to produce rubber was converted to purposes like tourism, which would ensure a higher yield. Adds Budhraja, that wages in Kerala are high and rubber, a long gestation period crop, in the face of other resources like rentals and gulf remittances, is facing the brunt. The gap between domestic production and consumption of rubber is widening.

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Unable to address demand

In 2011-12, the tyre industry posted a growth of eight per cent. It was expected of the tyre industry to keep growing; to perform well. In anticipation of this, investments of up to Rs.40,000 crores have been made till date, focussing largely on truck and bus radial segment. CV sales have unfortunately tapered. This has led to the building up of surplus capacity. While the tyre industry in India invested in capacity, a similar exercise in China was also carried out. China currently has a capacity, which is almost two and a half times more than what it needs. Facing anti-dumping duties in markets like US, Chinese tyre manufacturers started dumping tyres in India, and at a cost that does not even cover the raw material costs in India. “You can assess whether a tyre is coming at a fair price or not by ascertaining it on cost and construction based on the international cost of raw material,” says Budhraja.

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System complexities

A statement issued by Automotive Tyre Manufacturers’ Association (ATMA) mentions that the dumping of Chinese tyres in India is fuelled by high rubber prices in India. Rubber prices are claimed to be 20 per cent more than that in the international markets. An inverted duty structure in the rubber industry adds to the challenge, dampening industry growth prospects. Claims an industry source, that the custom duty on rubber is 25 per cent or Rs.30 per kg, whichever is lower. The basic duty on tyres, he adds, is however 10 per cent, which is even lower under various trade agreements. “You can import tyres from the ASEAN region, South Africa, South Korea, and even China at a rate that is lower than the basic rate of 10 per cent. This can further hover between zero and five per cent up to 8.6 per cent depending upon the trade agreement,” opines Budhraja. Thus a peculiar situation arises where the principal raw material, largely dependent on imports, is had at 25 per cent. Finished product can be imported into the country at a very low rate of duty. Adds Budhraja, “There are many uncertainties when it comes to import and export policies, which are subject to change at a short notice. The commitment for both, the export of finished products and import of raw material, are developed over a long-term. Restriction on import of rubber against advanced licence for a few months until March 31, 2016, play an important role in determining industry growth. Also, does the pre-import condition where the rubber has to be imported ahead of exports to qualify for the advance licence.”

Rising radialisation

Demand for radial tyres in CVs is on the rise. With radialisation level of 40 per cent, there is good potential for the CV radial tyre market to grow. Estimated to be growing at four to five per cent, the trend, says Budhraja, is expected to continue until 70 per cent radialisation is achieved. This, he adds, is expected to take place in the next three to four years. Barring some specific applications in mining and farm equipment, Budhraja is of the opinion that the shift to radials must happen. OEMs, he avers, are already playing an important role with the radialisation at 70 per cent levels currently. The need, emphasises Budhraja, is to reach 90 to 95 per cent at the OE end over the next three to four years. Bias tyres, he is certain, will not see the end of the road soon. Their sale may decline, and they may continue to face negative growth, their application in specific areas will continue. Points out Budhraja, that radial tyres are being pushed by OEMs on high-end models, which also make high growth segments. The need is to widen the scope of radial tyres to basic models, and to improve market penetration of radial tyres.

Market dilemma

The typical OE aftermarket ratio as far as CV tyres are concerned is 35:65. Despite the OE market being considerably smaller than the replacement market, tyre manufacturers seem to be keen to carve out a larger pie of that market. This is despite the fact, that returns are not as per the expectations. This however is not the reason why Chinese tyres are finding easier access to the Indian aftermarket, claims an industry source. They find takers, he adds, because of the cost at which they are offered. Says Budhraja, “Aftermarket potential is huge, however OE market makes big sense for tyre manufacturers. Even if 50 per cent of the OE fitment brings in replacement market demand, there is a lot for a tyre manufacturer to gain.” Hoping for emergence of strong demand from the rural sector, Budhraja avers, “We also have a lot of cross-state movement of food grains, which means great demand for CV segment. With an improvement in infrastructure, disposable income, and mobility, the tyre industry can look at good growth.”

Beyond carving out a place in the aftermarket, Chinese CV tyres are starting to affect the retreading business. A buyer can avail of a new tyre at a cost that is not significantly high, claims an industry source. He adds, with the current economy levels, it is quite likely that a CV tyre buyer will look for cost over many other parameters since for him a tyre is a tyre. Mentions Budhraja, “If the economy gains traction, we could see mid-single digit growth in the CV segment. India is a strong economy, and companies would not set up shop on the basis of exports alone. Even if exports amount to 20 per cent, a company would chalk out its plans according to the domestic market prospects.”

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Government role

The Goods and Services Tax (GST) Bill has been passed, and is expected to play a vital role in reducing the check posts and barriers. Local taxes are expected to go away, and with it, unwanted activities like baseless checks and harassment of CV drivers. The tyre industry, says Budhraja, is seeking correction in the inverted duty structure. “It is long overdue, and can be done in two ways. Either by reducing the duty on rubber to five to seven per cent, or by increasing the duty on a tyre to a rate closer than that of the rubber,” he adds. Tyre manufacturers have set up capacities at a certain cost. They are aware of the widening gap between rubber production and consumption. There is a growing demand from the industry for allowing the import gap on a Tariff Rate Quota (TRQ) where a fixed quantity of import can be allowed on a differential tariff similar to other commodities like palm oil and corn. “As the gap assessment is done by the government and not the industry, the assessment can be made by the rubber board (a commerce ministry arm) to ascertain the gap and allow differential rate to control costs,” says Budhraja. Government restrictions mean rubber can be imported only through the ports of Chennai and Nhava Sheva in Navi Mumbai. Tyre industry sources claim that tyre companies that have infrastructure away from these ports have to incur extra costs. It was easier earlier when they could get the rubber cleared from Inland container ports. It is expected of the government, concludes Budhraja, to speedily address the issues that are eroding the competitiveness of the tyre industry.

Commuter shuttle buses look up

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Bus shuttles are looking like yet another disruptive business model in the ever changing world of transportation.

Story by: Anirudh Raheja

App.-based transportation solutions are transforming the way people are travelling in India. Dictated by the use of technology, it is both easy, and challenging, to use app.-based platforms over various devices, including smartphones. The good part is, they save the task of having to step out on the kerb and flag down a taxi. If understanding the fare structure is a challenge, paying it is made easy by digital payment medias like Paytm. Even cab aggregators like Ola have come out with their own purse called ‘Ola Money’. It may not be viable for many yet to hail a cab however. It is not easy for Monica and Sambhavi either. The two stay at Noida and Faridabad respectively, and commute to Gurgaon for work. A cab makes a costly proposition for them. The lack of good last mile connectivity is making it tough for them to commute. It is therefore that the two are finding the concept of bus shuttle attractive. It was kick-started by Shuttle, and has seen the inclusion of Ola, Cityflo and Zipgo. The other app.-based cab aggregator, Uber is also claimed to be looking at entering this segment. According to Jaspal Singh, an analyst with Valoriser Consultants, there is a need for such a service. “There is a need to nurture it, and to let it bloom,” he adds. Singh points at the cab aggregator model, and how it has grown thus far.

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The need for shuttle bus

The number of daily commuters in India is estimated to be over three million. Most of them ride a bus very often. It is not surprising therefore that over 30 million bus rides are taking place in India everyday – through public transport buses and private transport buses. Promising last mile connectivity, the public transport buses offer a cheaper ride, courtesy the government subsidy. More disposable income is fuelling new modes of travel with emphasis on safety and comfort. The metros, monorails and BRTS services may offer safe and comfortable travel, they are however not able to address the last mile connectivity expectations of commuters to the hilt. States Singh, “Commuters are increasingly looking at a comfortable mode of transport. The need is to understand the demand and supply pattern, and also the travel pattern.” According to the research done by UITP, even though taxi fares in India are the cheapest when compared to 21 cities across the world, they are neither volume based, nor value-based. The scale of players that operate in this space is also low. This is resulting in lower per trip realisation. Cab aggregators are having to look for options to sustain. For instance, in Delhi, not more than 60,000 trips are carried out by cab aggregators. Privacy, air-conditioning are fine, but the cost is considerably higher than that of a bus ride. Identifying the opportunity – between aggregator cabs and various other modes of transport including buses, it was Shuttl who kick-started an aggregator-based shuttle bus segment. It built the app-based platform in 2015. Ola entered not much after. Available in Pune, Bangalore, Kolkata and Delhi NCR, according to industry sources, Ola Shuttle, aggregates tourist and chartered buses, and promises to take the hassle out of getting to work everyday with express routes and attractive features.

Informal to formal

At a nascent stage, the aggregator model-based shuttle bus service could well lead to the market assuming a formal dye. Mentions Singh, “Even if 10 per cent of the commuter volume shifts towards bus aggregating platform, it is a big number for the industry. There is an informal market, and the need is for a formal structure.” Drawing attention to issues like heavy traffic and pollution, Singh avers, that the industry is finding it suitable to skip 12 m buses for smaller more agile bus forms like the Force Traveller. “If the preference for smaller buses is in response to the demand, the fact is, the industry is at a nascent stage,” he adds. Bigger buses are not passe; a shift to bigger buses is expected as the bus aggregator model picks up pace. As of current, the advantage of small and midi-buses like the Traveller, is turning out to be the most suitable since they serve the tourism industry during weekends and holidays, making it a sustainable business case. Such buses are finding favour with corporates too, and are known to ferry their staff on fixed routes. With bigger buses, such flexibility may not be always possible. As the aggregator-based bus shuttle model picks up pace, and turns a good deal formal, bigger buses will find a place for themselves.

Simplifying procedures

Shuttle services by Ola, Shuttle and Zipgo ran into rough weather last year at Gurgaon and Bangalore respectively. The reason for Ola and Shuttle service being suspended at Gurgaon was the seisure of over 20 shuttle buses by the Gurgaon RTO. The reason given was, the shuttle services cannot operate in the city as they don’t fall in the ambit of the Haryana Contract Carriage Permit Act 1988, 1993, 2001, 2004, and 2013. Zipgo’s all-women shuttle bus services also had to be stopped at Gurgaon. It is situations like these, claims an industry expert, that highlight the fact that the government and industry are not on the same page. There is a need to offer solutions, engineer checks and balances quickly, and simplify procedures, he adds. Facing regulatory challenges, shuttle bus aggregators are not ready to give up. They are continuing to invest in technology. The Near Audio Communication Protocol (NAP) for example, is Shuttl’s sound based boarding technology that uses sound to transfer the boarding details locally between two systems. Paving the way for ticket conductor less travel, the technology, according to Amit Singh, Co-founder, Shuttl, “uses sound to transfer the boarding details locally between two systems – the driver and the rider apps.” “The rider’s boarding details are sent to the bus driver’s smartphone through sound signals which is enabled by pressing the button on the app., and it does not require internet” informs Amit.He adds that NAP saves time, resources and adds to commuter comfort. Improving customer experience, technologies like NAP are also helping to quickly retrieve data as compared to the traditional methods of scanning the QR code or physically entering the boarding pass number. Since its launch last year, Shuttl has added over 400 buses. It has plans to expand its fleet, and become a pan-India player. Not much could be known about the other players. Despite repeated attempts Ola did not respond to the queries. Neither did Zipgo.

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Complexities

Like the cab aggregator model, the shuttle bus model too has its own set of complexities. One of the most prime is commuters preferring to travel only one way. This can lead to the bus waiting for them, hampering the experience of other commuters. Says Amit, “We operate on over 100 routes with daily ridership of 20,000 in the Delhi NCR region. After booking the ride, the commuter can track the bus real-time through our app. He or she knows exactly where the bus is, and how much time it will take to reach their pick-up point.” However, it does not always simply work out as expected. Delay does set in, and this has the risk of reflecting negatively on the service. Uber, after exiting China, is increasing its concentration in India. With quality of service at the core of the aggregator commuter bus model, it is logical of players like Uber to aim at offering more value. Avers Amit, “It is natural for us to think beyond bus rides.” “We have therefore invested in driver training,” he adds. Shuttl bus drivers are trained in behaviour skills and etiquettes according to Amit. They are trained to follow the traffic rules and avoid over speeding. Any deviation from the set guidelines, and they are subject to commensurate corrective action including fines. If this presents some idea of the complexities involved in the aggregator shuttle bus model, the stoppage of services by the Gurgaon authorities is perhaps the most evident. It adds a new dimension to the aggregator based bus commuter model. and what it is trying to achieve.

Lucrative business

A lucrative business opportunity, the aggregator shuttle bus model is. This, despite the various complexities associated. Like the cab aggregator model, technology and infrastructure are playing an important role. Witnessing the participation of private players, the model is calling upon the operators to balance out the cost of operation and revenue. Commuters are willing to pay more for comfort and convenience, turning the need to create a pull almost unnecessary. Avers Singh, “There’s no need to create a pull strategy. The need is to get operators on board.” He draws attention to technology-based platforms offering a minimum guarantee of Rupees one-lakh per bus per month as revenue. “The basic thought is to encourage operators to pool in their assets and wait till the volumes rise. Once volumes rise, bigger investments can be made,” he adds. This may sound similar to the path taken by cab aggregators, the fact is, upon realisation of payback potential, the operator will be more than willing to invest. Opines Singh, that he will also allocate more assets to the business. In order to induce a self-drive, aggregators are mulling over per trip incentive. According to Singh, this would be the next best thing. He expresses, “It is possible only when the tech-based platforms will offer bookings and charge money against every trip.” “Model adaptability will happen, the game will however continue to revolve around volumes,” he adds. Drawing attention to bus registrations decreasing year after year, Singh states that OEMs will come forward only when it makes business sense for them. “With bus code implementation, reforms will happen sooner than later. They will also drive standardisation,” he mentions. Shuttl is said to be in talks with Mahindra and Force Motors among others to procure customised buses, developed specifically for intra-city transportation. According to Deepanshu Malviya, Co-founder, Shuttl, “Focus is on buses that are suitable for commuting, and the need therefore is to have buses that are more conducive to intra-city travel.”

Permits, funds and awareness

Money is what drives the aggregator shuttle bus model. Shuttl, in a quest to make more money, is said to be drawing up plans to expand to newer markets like Mumbai and Bangalore. It is said to have raised USD 23 million in series A from Sequoia India, Lightspeed Ventures, and Times Internet Limited. Zipgo is claimed to have raised an undisclosed amount from Orios Venture Partners. Mumbai-based Cityflo has raised USD 750,000 from IDF ventures. Venture capitalists, on their part, look cautious. They look cautious about channelising money in such ventures. This, says Singh, has been the limiting factor. He draws attention to the fact that the cost of acquiring a bus is considerably higher than a cab. “Once a bus is bought, the capital gets locked, and there is a supply constraint. This results in the funds flow being less optimal,” he adds. Claims an industry expert, that there is a need for government policies to change. This is necessary to support the growth on new, non-traditional transportation business models, he adds. An impression is somehow had that government policies do not make it easy to do business.

For a bus rendering intra- and inter-city services, the need is for stage carriage permit and contract carriage permit. This is seeming to create ambiguity as the operator struggles to decide upon the right permit he needs to operate with. The Delhi aggregator scheme enables contract carriage to operate. As per the rules however, buses cannot pick-up commuters on the way unless they have pre-booked. According to Singh, operators are asserting that they operate between residential and commercial points and pick-up passengers in a two-to-three kilometer periphery. This, he adds, is beneficial since the operator can schedule his movement in the city, and co-exist with other transport modes. Inefficiencies can thus be eliminated, and also any chance of cannibalisation.

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Government role

There is no doubt that the demand for mobility is growing. The need is to develop supporting infrastructure, and maintain quality. Companies like Shuttl are working towards expanding their services to newer geographies in India. The prospect of invading new markets should be exciting for other players too. Success could be defined when the aggegator shuttle bus model grows in co-existence with other aggregator models and transportation solutions. Not only would this create a cohesive transport environment across the country, it will also make the life of India’s growing young population more productive and meaningful. Government support for such models is absolutely necessary. The need is for a transparent framework. The need is also for transport departments to have strategic cells that think about reforming the transport sector. They seem to be overloaded with permit issuing, licensing and vehicle registration responsibilities. After the aggregator policy took off in Delhi, many cities have followed in its footsteps. Contract carriage permit however seems to be an issue. With most commuters following a fixed route (to and fro), the need is to create a multi-modal channel that is efficient for masses, and is environment-friendly. This could be achieved through seamless integration. Different transport systems including cab aggregators, metros, monorails, buses, and suburban trains, are currently lacking integration. They are seemingly operating in isolation. The foremost need is to integrate. Mentions Jaspal Singh, “It is important to integrate; to ensure the requisite development and availability of physical and technological infrastructure. This will make commuting easy and enjoyable. Seamless integration of various modes will enable various transport models to sustain and grow. Issues like pollution and congestion will be tackled, and private and public transport efficiency will increase.” For Monica and Sambhavi, the commute to Gurgaon continues to be challenging. They are happy about the new aggegator shuttle bus model, and what it would offer them. It holds the promise of getting closer to offering them, and many other commuters like them, an effective last mile connectivity medium like no other.