Driving optimism

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Q & A

Vinod Aggarwal,

MD & CEO, Volvo Eicher Commercial Vehicles Ltd (VECV).

Interview by: Anirudh Raheja

“We are optimistic about things soon returning to normal.”

Q. How has been the year till now for VECV?

A. The CV industry in FY2016-17 started off really well. The first quarter saw the industry clock bag good numbers. The second quarter turned out to be a bit slow. The month of October was better. CV sales were expected to make a comeback with good numbers in the third quarter. Due to demonetisation, the impact on the industry was immediate. Since small transporters and used truck business operates largely on cash, the impact of demonetisation was significant. Over a period of time, everyone will need to get used to using less cash. The industry will have to also align too. There was a sales impact in November and December 2016. A decline was registered against expected growth.

Q. What has been the impact of demonetisation on the CV industry?

A. If one looks at the growth swing, and the drop suffered by the CV industry, it is an estimated 25-30 per cent. Despite this, we are very optimistic. We are optimistic about things soon returning to normal. The transporter business is currently coming back to normal; most of the transporters have adjusted to using less cash. Due to reduction in consumption however, the overall economic activity has come down. This has impacted the CV industry. It will hopefully pick up soon and the CV industry will make a faster comeback. I don’t think it will take six months for the CV industry to return to normal. The government will also come up with more and more reforms, which may allow expenditure boosts.

Q. What about the impact of demonetisation on construction and mining truck segments?

A. Even in November and December 2016, construction and mining truck sales posted good growth. In the first nine months, construction and mining trucks grew 31 per cent. The drop in sales has been observed in the haulage segment. One of the reasons is the movement of industry higher tonnage trucks. This would not only increase the overall capacity, it will also reduce the number of trucks required for the movement of same quantity of goods. Two years back the 37-tonne segment did not even exist. Today, it does. This segment has seen healthy numbers this year.

Q. What was instrumental for the growth of construction and mining truck segments?

A. Investment in infrastructure. I think, the focus on infrastructure investment should continue. The government can spend more so that the overall economy becomes better. The Ministry of Road Transport and Highways has been bullish on building highways. It is a good sign. The fiscal deficit of Government of India looks to be within the range. This clearly indicates that the government is having a good control over its revenues. Based on it, there is a reason to believe that public spending will increase. The other major positive factor is the southward movement of interest rates. Increase in bank deposits and control on inflation has made it possible.

Q. LCV segment did not see good growth. Did demonetisation prove to be a double whammy?

A. I would say that demonetisation impacted this segment the most. Since this segment includes a lot of small fleet operators, it was badly affected due to demonetisation. LCVs and MCVs find use in rural areas. The rural economy was badly impacted due to demonetisation. The 5 to 15-tonne truck market is far from the peak growth period of FY2011-12. It was 105,000 units. Last year, the figures hovered around 72,000 units. This year, the growth is between 10 to 12 per cent. Due to demonetisation, growth dropped significantly in November and December 2016. The LCV segment is currently growing by just two per cent. This indicates that there is much to recover.

Q. When do you think, the industry can bridge or exceed the peak FY2011-12 figures?

A. In the heavy-duty truck segment, we had expected the numbers to come back. We may see peak levels of FY2011-12 being bridged or exceeded in FY2017-18.

Q. Stricter BSIV emission standards are around the corner. What technological and pricing changes do you foresee?

A. The advent of BSIV emission norms will turn the engines electronic. Keeping such developments in focus, we are continually bringing in new platforms. Costs will increase no doubt. Pre-buying of vehicles is expected to gain steam across segments in this last quarter of FY2016-17. The extent of it will need to be seen. It can affect the sales in the following quarter. The cost is likely to go up by seven to 10 per cent depending on the model.

Q. How important is the quality of fuel for BSIV emission compliant CVs?

A. The quality of fuel is important. As one goes higher up in emission control, the engines become more and more sensitive. As the industry progresses to BSIV emission standards, both the technologies, EGR and SCR will be used in CVs. It will depend upon the manufacturer.

Q. Which according to you will be the growth areas in FY2016-17?

A. If you look at VECV, the company has grown in all the segments. In the 5 to 15-tonne truck market, VECV continues to be one of the strong players with a 33 per cent market share. In the heavy duty truck segment of 16-tonnes and above, VECV has grown its market share to five per cent from the sub four per cent market share last year. VECV was not present in the 4.9-tonne segment earlier. In a short span of time, a presence in the segment was achieved. VECV now sells over 200 units per month. In the domestic market, Eicher grew at 12 per cent in the first nine months. This was against the industry declining by one per cent. In the bus segment, VECV grew at a rate of 16 per cent. Its market share in buses shot up to 16.5 per cent from 16 per cent last year. In the first nine months, the company sold 8,500 buses when compared to 7,300 units sold last year. VECV continues to be strong in the school and road permit (staff) buses. The company is currently executing good amount of bus orders from State Transport Undertakings (STUs).

Q. How is the VEPT engine plant supporting growth at VECV?

A. We are already exporting EuroVI base engines towards addressing Volvo Group’s European needs in the medium duty truck range, which is equivalent to India’s heavy duty truck range. We are also meeting the EuroIII and EuroIV needs of other Asian countries. The technology has also been adopted in our EuroIII and EuroIV compliant Pro 6000 and Pro 8000 series trucks, which are also make our heavy-duty range. As India progresses towards BSVI emission norms with a set deadline for 2020, the industry has to follow too. Copy paste of technology designed for Europe will not happen as India has different duty cycles. Us, having hands on EuroVI engines will definitely help. It will give us an edge. As far as the capacity is concerned, the VEPT plant at Pithampur in a single shift, is currently manufacturing 50,000 engines. The capacity can be scalabled up to 1,00,000 units annually as and when required.

Q. Hybrid and electric vehicles are gaining prominence in India. What are your thoughts?

A. In-line with the initiative of the Government of India, we are working on new technologies. We will be ready with a fully-electric bus this year.

Q. What benefits will GST offer to the CV industry?

A. It (GST) is a very forward looking reform. We are looking forward to its implementation. It will bring in a lot of efficiency in our distribution model. It will also cut down a lot of waste. Instead of operating from depots in every state in the country, we could simply operate from hubs built across four to five regions. GST can also reduce the cascading impact of taxes and there may be some benefit for the transporters. I think, they will be able to take credit for the GST which is paid on vehicle purchase. We will also be able to bring in more efficiencies in our buying process as the entire supply chain will become more efficient, and will be devoid of the cascading impact of taxes. I don’t think there will be impact on sales in Q4 of 2016-17 on account of GST as BSIV emission norms will come in April 2017. There is still some time before GST is implemented.

Q. Return on investment plays an important role. How will the move up to BSIV affect this?

A. Costs are definitely becoming a challenge in connection with rising regulatory implementations. Manufacturers have no choice but to pass on the costs to the consumers. Efficiency and productivity improvements have to continue. It is they that will continue to drive the costs down. In the case of ownership cost, the initial acquisition cost of the vehicle has an impact of only around 20 per cent. The impact of fuel cost is in the region of 45 per cent to 50 per cent. If the acquisition cost goes up by 10 per cent, the customer may be still able to gain on a net basis if productivity and fuel efficiency cost goes down by around the same per centage. We thus have to focus on driving modernisation and improve productivity. Even though the acquisition cost increases, it should not pinch the customer.

Trendline

If you look at VECV, the company has grown in all the segments.

Inventing growth

 

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Q & A

Ravi Pisharody,

Executive Director – Commercial Vehicles, Tata Motors

Interview by: Ashish Bhatia

“LCVs command close to 50 per cent market share, and LCVs and ICVs command 50 per cent market share (including buses). This ratio is not sustainable.”

Q. How would you gauge the performance of Tata Motors across CV segments?

A. Tata Motors continues to perform well in the four-tonne Light Commercial Vehicle (LCV) segment. Upon realising that there was a yawning gap between a three-wheeler cargo vehicle and a pick-up truck, we introduced the Ace. It did well for a long time. Our competition was slow to react. When they did, their vehicles failed to succeed. Everytime a competitor introduced a product, our market share dropped from 90 per cent to 70-75 per cent. The superiority of Ace compared to the competition enabled us to get back to 80 per cent market share. Our competitors have changed the nature of battle. A conventional pick-up was re-priced at almost the level of Tata Ace. If one could buy a Ace at four-lakh rupees, a pick-up truck with few features taken out could be had at four and a half lakh rupees. It was an unfair battle. We did not want to discount the Ace, or offer a lower price. We therefore had to make do with the situation. LCV market share was lost as the Ace buyer found an equivalent in a vehicle at a rather comparable price point.

Q. Have you been able to identify the need gaps in segments?

A. The space between Small Commercial Vehicles (SCVs) and pick-ups has blurred. When we introduced the Super AceMint, a competitor introduced a similar vehicle, blurring any chance of differentiation. The Ace Mega we introduced 12 months ago, from a Gross Vehicle Weight (GVW) point of view, classifies as a pick-up. It does so with tonnage-wise application. We have been able to increase our market share with the Ace Mega significantly. The pick-up and the LCV segments are the largest segments worldwide. In India, it is however yet to attain that stature. Light and Intermediate Commercial Vehicles (ICVs) command 21 per cent market share, and pick-ups and SCVs command 70 per cent market share globally. In India, this is not the case. LCVs command close to 50 per cent market share, and LCVs and ICVs command 50 per cent market share (including buses). This ratio is not sustainable. We anticipate LCVs to grow at a faster rate because of the impetus on infrastructural growth. This space is still evolving. What has been happening for the last two years is not the final outcome. Among the Ace Mega and Tata xenon, the Xenon is being offered at a rather aggressive price point. The Xenon price point is closer to the range of Rs.6.5 lakh and seven lakh rupees. With the advent of BSIV emission norms, prices will go up by a mere Rs.15,000. The Ace Mega, Super Ace and the Xenon Yodha we have just introduced will help us to encompass the entire pick-up segment. With the Ace Mega and Super Ace qualifying for the title of a pick-up truck, we have the distinction of being the only player to have three different type of vehicles in the same segment, and at similar price points.

Q. Has demonetisation affected CV growth. If it has, then how long will it take to attain the desired levels once again?

A. When you look at CVs, M&HCV market is cyclical. When the market goes down, it is really about postponement. There is a certain fleet replacement cycle which gets pushed back and then the market comes back fiercely. There is no other segment barring two-wheelers which did not have a rough time due to demonetisation. There is no other segment which goes down by 25-30 per cent the way M&HCVs do. But it also bounces back by 20-25 per cent. So we have had two periods; June to August and September to December with slow growth. We believe that the base is relatively low, and that is paving the way for a comeback. November took everyone by shock; very few people were prepared for it. Even till the middle of December the prospects were looking weak. But the last few days have given us confidence. If you look at the reported numbers it’s only six to eight per cent lower than the previous year. Over November, the situation is better. Gradually, with the cash-limits easing, the system is falling in place. What is giving us comfort is that customers were seen taking decision in the later half of Decemeber 2016 which they had postponed earlier. While the product pipeline was strong, the actual purchase was taking way too long.

Q. With BSIV emission norms and GST expected to roll-out in April 2017, how do you see the fourth quarter of FY2016-17 (Q4)?

A. With buying postponement, we are looking at a fairly strong January to March quarter (Q4 FY2016-17). The infrastructure segment is doing very well. Construction tippers continue to demonstrate a 20-25 per cent growth. Growth in this segment is expected to continue at the same rate. The government’s stated intent is being practiced, and infrastructure is improving. Road projects are picking up and other projects like ports and power are also taking off. Construction companies are conducting inquiries for tippers. Doubts were being aired about GST rates last year. It was hard to find a reason for the June to August (Q2 FY2016-17) slowdown barring the speculation that GST rate would be at 18 per cent for the auto industry. This essentially meant that it would better to buy post GST. It is now almost clear that GST pricing will be very close to the current pricing. If small cars are announced at 28 per cent it could be considered as the default rate for the rest of the auto industry. It is becoming quite clear now that in terms of pure taxation, GST will not be of much benefit to the industry. There is bound to be that small blip due to the transition from BSIII to BSIV, which is expected to result in lower demand in the first quarter (Q1 FY2017-18) as a result of higher pre-buying in Q4 FY2016-17. Post that, both from an economic stand point and a reform point of view, the effects of demonetisation would have settled down by then. Logistics is heavily weighed down by issues in terms of trouble at various border cross points, at ‘Octroi’ posts, and at the time of loading and unloading among others. The entire logistics value chain stands to gain. This is what buyers would also look for. Both in the case of HCVs and LCVs, it is a case of witnessing a lower base. These two segments have been under pressure to perform for a long time. They are turning around. M&HCVs, in FY2015-16 almost pulled us to the last peak. In FY2016-17 it has a lower base. It is expected to grow. While demand post GST settles down, second half of next year (FY2017-18) and the period beyond will be good irrespective of the base we build upon.

Q. Any particular tipper category tonnage-wise that you see is performing better?

A. When it comes to tippers, the customers are all corporate companies like JP infrastructure, Ramky infrastructure, and others They buy tippers as per their business need and sell them as per their business needs. The main segment is 180 hp, 25-tonne tippers. This is a multipurpose tipper that can be used for mining and light construction. The deep and heavy mining tipper sub-segment amounts to niche business and is small. That’s the Prima tipper type. The main segment is 25-tonne and 16-tonne. In some places like North-East and Jammu and Kashmir, because of its manoeuvrability, a two-axle tipper should do well.

Q. How do you see GST impacting growth in the second half of FY2017-18?

A. There was uncertainty about GST rate. It was thought to be 18 per cent. CV taxation as of current is 31 to 32 per cent with excise duty and Value Added Tax (VAT) put together. Tax rate of 18 per cent would translate into a big dip. We were worried and so were our customers. If it would so happen, our second half of this year would have got wiped off. Nobody would buy our products. Such a rate would not be feasible. It would mean a lot of losses for everyone. The government is sticking to 28-30 per cent. In terms of pricing, it would not cause any ripple. From a system administration standpoint, vehicles which move on national highways will benefit. The operators have to show their papers at every border crossing. They have to pay multiple ‘Octroi’ charges. While tolls will still continue, those are all predictable amounts. We expect the efficiency of the system to be far more superior going forward. If a trip took seven days to complete earlier, it would now take one or two days less if things go well.

Q. Do you look at pre-buying because of BSIV and GST? Its effect on the performance next fiscal?

A. We had a very strong October. I would have been equivocal and said that we are going to see a bumper January to March period. The fact is, demonetisation has happened. We are talking at a time when we have had two difficult months. I have said previously that with old vehicles, customers were coming back. The extent of pre-buying will determine the performance in the period between April and June. If pre-buying turns out to be strong, then the period between April and June will be weaker. This is however a M&HCV phenomenon. In buses, SCVs and LCVs, price increase is hardly in the range of Rs.15,000 and Rs.20,000. Most metros are already buying BSIV emission compliant buses from us. So this pre-buying and post-buying is not a phenomenon except for M&HCVs. Looking at December sales figures, we are doing very well in buses. STU buying is coming back and a lot of tenders are being floated as we speak. About three to four big tenders are in the offing. Our growth in December is 59 per cent as far as buses go. It has been the case for the last three months. It is after a long time that we have buses coming into a space it deserves but not supported by the Indian economy. If you look at countries like China, the bus to M&HCV ratio is very respectable. In India, the ratio is 1:5.

Q. Would GST increase the efficiency of vendors, amounting in significant price benefit that can be passed to the CV buyer?

A. It will depend upon other pressure points like commodity, which in the last one or two months has been showing an upward trend. This is after a very benign period of two to three years. But definitely a lower vertical capital, if our clients were transporting goods. If their working capital comes down they will save on interest costs. Transporters will be able to move around faster. Overall the interest cost will reduce. End customers stand to benefit in that case.

Q. Elaborate upon the product pipeline that has been built for 2017?

A. From our side you will see a number of critical CV launches. What you call a new product, it is difficult to predict. I would say in terms of completely new powertrain or cab there will be at least 15 launches. But if you take variants, all added together with export markets the number crosses 200 easily. ‘Xenon Yodha’ is the first launch for 2017. In SCVs, we will launch products in Ace Zip and Ace Mega space. One big innovation will be the extra deck length across the Ace, Mega and the Zip making it a very versatile portfolio. If I look at ‘Signa’ for instance, it has just moved into 49-tonnes. The Signa’s cabin is going to pervade the entire range. The cabin comes at an Rs.25,000 premium on an Rs.20 lakh product. Along with advanced features like on-board telematics, the customer gets suspended seats, a new dashboard and an all new cabin at mainstream price points. If there was a view that the ‘Prima’ was highly priced, it may well be the case, we don’t want to compromise on that. The ‘Signa’ comes into mainstream with features almost deluxe in nature. The ‘Ultra’ platform while it has been in buses for the last eighteen months, is not visible because the bus gets covered by the bus body. Almost 50 per cent of the buses are on the ‘Ultra’ platform today. ‘Ultra’ HCVs is where you will get to see the cabin. I think that is going to really take-off next year. If one or two products have come in ‘Ultra’ HCVs, the next year will see a lot more including ICVs being launched. In the 14 to 15 tonne segment where there is a market gap, we will come up with a product in the next three-to-four months. So from a market standpoint, we are bullish.

Q. How would you differentiate between the Xenon Yodha and the earlier model?

A. In Xenon Yodha, we have significantly better features than what the competition has to offer. We carried out extensive research to understand customer requirements. This led to differentiators like performance, reliability and operating economics. From performance point of view, the new range features a comparatively powerful engine, and facilitates better acceleration and grade-ability. The pick-up truck can carry heavier loads. It can carry them faster and quicker to the destination. In terms of reliability, we have incorporated a reliable and improved frame. The axles are more rugged and particularly suited to Indian roads. The heavy-duty clutch adds to the life of the vehicle aggregates. In terms of operating economics, the powerful engine and higher torque lead to a better driveline, and ensure superior fuel efficiency. This reworks the cost economics entirely. We have retained the modern styling of the earlier Xenon. The Xenon Yodha offers both, a higher ground clearance and an improved fuel economy. The loading capacity is much higher in terms of both, the deck length and the width of the load body. Compared to a contemporary vehicle, it gives you an additional 20-25 per cent load carrying capacity. Whether its milk cans, poultry, or vegetables, higher number of trays can be stacked in the Yodha. The Xenon Yodha pick-up truck thus offers a pay load carrying capacity of 1.25-tonne as against the one-tonne capacity the Xenon offered earlier model offered.

Q. How many units of Xenon Yodha do yo hope to sell and produce?

A. Capacity is not an issue. All our factory lines have become very versatile. The line for Prima at Jamshedpur was a dedicated line when production began. Today, the same line can make 25-tonne and 31-tonne CVs. At Pune, we have a lot of versatility between LCV and pick-up lines. Capacity therefore is not an issue. We will start with about 1000 units of Xenon Yodha per month.

Q. How are exports helping Tata Motors to offset domestic volatility?

A. Pick-ups continue to be the largest segment globally. In India, it is the M&HCVs segment that is the largest. Exports are doing very well; over the last two years especially. We are targeting exports growth in the region of 20-25 per cent in FY2016-17. Over a two year period the growth has been 45 per cent. There is a need to remember that even the global markets are seeing ups and downs. If we have been able to grow by that per centage, it is because we have a basket of countries. If we were depending say only on Africa or the Middle-East, it would have been challenging. The Middle-East has been affected by the downturn of crude-oil. The currency situation in Africa has changed. In some markets the local currency in comparison to the US Dollar has depreciated by almost 50 per cent in two years. But then we have markets like South Asia and ASEAN countries, which are giving us good benefit. In another two years it could be that these markets could be in trouble and West Asia and Africa are doing better. So we are on a good track as far as exports go. The Xenon is already an export vehicle. With the Yodha too, we will be looking at exports. Given that it is a right-hand drive model, it looks suited for the SAARC nations.

Q.How do you look at tightening emission levels and their effect on CVs?

A. Manufacturers have already started to move towards BSVI emission norms. We have a Euro6 product in Australia. It is the only market where we have a Euro6 product. It is a Xenon pick-up. It is a completely different product, and gives us an early practice to be prepared for the upcoming deadline of BSVI by 2020.

Q. Are LCVS and SCVs likely to benefit from lower interest rates on offer from the banks?

A. From a CV perspective, the lower interest rate is important to bring in fresh investment into the economy. CV forms the backbone of a good economy. For some time, investment in capital goods has dried down, so it will definitely trigger investment. Lower lending rates are definitely a positive sign. The only thing we would like to see, and particularly in the case of SCVs and pick-ups is customer appraisal. Customer appraisal has become very tough. People who were getting loans based on their profile four-five years ago were finding it difficult to down pay. Down-payment was as low as five to ten per cent when the Tata Ace was introduced. In recent times, down payment has risen to 20-25 per cent. Lower interest rates will help because monthly installments will go down. We would like to see a further reduction in down payment because that will give a flip to SCVs and pick-ups. For M&HCV it is not a factor, it is the interest rate that will make the difference. It is bound to have a far reaching effect given our network of NBFCs, public sector and ‘Gramin’ banks in rural areas.

Q. What is the likely investment for FY2016-17?

A. We are investing in the range of Rs.1500 crore to Rs.2000 crore. The emphasis albeit changes. Sometimes we look at completely new products and on other occasions, it is the investment on emission. These days BSIV is taking a lot of investment. In the next three years, you will see BSVI starting to take a lot of investment. But we have always been in that region.

Trendline

The space between Small Commercial Vehicles (SCVs) and pick-ups has blurred. When we introduced the Super AceMint, a competitor introduced a similar vehicle, blurring any chance of differentiation.

Globe-trotting

Mr.-Anuj-Kathuria,-President---Global-Trucks,-Ashok-Leyland-Ltd

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.

Reinventing CVs

Nalin Mehta

Nalin Mehta,

Managing Director & CEO, Mahindra Trucks and Buses Limited

Interview by: Bhushan Mhapralkar

Q. What led to the creation of the Blazo?

A. We saw a clear indication that different applications required different fuelling cycles. We had a common-rail diesel engine with us. We were using it in a 40-tonne tractor-trailer. We were certain that to move to BSIV, we had to move to common-rail technology. Customer demand was to have flexibility. It could be such that he would travel without load. Even some of the very good transporters may run 20 per cent of the operation without load. Applications like tankers often return empty. There are different road conditions and load conditions. Car carriers are about volumes. There are those that load more; the ODC requirement for example. We thought of leveraging the electronic engine to cater to different requirements in the same product line. We had a 170 hp and 202 hp mechanical engine. We decided to address different preferences in one product line. We created drive cycles, which were appropriate to various applications. The challenge was to switch from one cycle to the other without causing trouble. Vehicle should not be stopped, and cycles changed on the fly. The driver should be able to press ‘Turbo’ mode when he encounters a gradient. He should press ‘Light’ mode when running empty. It took us one and a half year to optimise the engine. We tested the engine by installing it in some of our customer trucks. The outside world did not know that this was a multi-mode truck. Once we were confident we decided to launch the product.

Q. Apart from the engine, what other changes does the Blazo carry?

A. We light weighted the truck as it would improve the payload. We optimised the rear axle ratio. We specifically looked at two or three applications. We created a model for concrete mixer and a tipper. We reduced the wheelbase of our tractor (prime mover) to help our customers meet the new regulations for car carriers. We launched a 49-tonne tractor. We worked on the look of the truck. We worked on the air flow. The Blazo not only looks different, it also behaves differently. We did extensive fuel efficiency trials under the observation of CIRT and auditor E&Y. The Blazo was bench marked against competition trucks for fuel efficiency. The results gave us the strength to offer a guarantee.

Q. What was the prime customer requirement that was incorporated in the Blazo?

A. Roughly, 50 per cent of the cost an operator incurs is on fuel. The prime requirement was to provide fuel efficiency in different working conditions. Earlier the trucks were efficient in one particular condition. We felt the need to give flexibility to the transporter to improve turnaround time. If he is carrying perishable goods, or goods under refrigeration with the use of a slave engine, the need would be for quicker travel. He could choose to drive completely in ‘Turbo’ mode. Addressing such requirements of the customers, we felt, would give us a lead over others.

Q. Who helped you with the digitisation of engine?

A. Bosch did an excellent job of helping us to achieve the right calibration. It helped us with the three drive cycles as per our needs. We had collected a lot of road-load data. They (Bosch) did an excellent job of calibration for us. Senior Mahindra engineers drove the truck day and night to calibrate the vehicle. They drove around two-lakh kilometers. Since we took some of our customers in confidence and changed the engines in their trucks to the electronic multi-mode engine, we had a few thousand trucks running with the technology the Blazo offers even before it was launched.

Q. Did you work on NVH?

A. The electronic engine has translated into less vibrations. We did not do much in the direction of sealing even though we carried out some general improvements. We carried out ‘running’ improvements in the wiring harness, the propeller shaft, the chassis, the suspension, etc. We took much effort in making the Digital Information System (DIS). The fuel efficiency indication on the DIS is plus or minus two per cent. DIS can provide 5-7 per cent error. We did not want it to be such off the mark. The customer can depend on our DIS.

Q. The Blazo is not a single truck, but a range. What was the thinking behind it?

A. The Blazo stands for multi-mode. We would want people to remember the Blazo for its multi-mode. The ‘Fuelsmart’ technology of the Blazo (that offers three modes – turbo, heavy and light) is a Mahindra brand. We could continue with the ‘Fuelsmart’ thought process. ‘Fuelsmart’ technology is common to some of the Mahindra small commercial vehicles like the Maxximo, which has an Eco mode. We saw that the customer wants to differentiate technology, and not the GVW. The Blazo is a flagship offering.

Q. What about the Traxo, Torro and Truxo?

A. They will remain, and get phased out with BSIV implementation.

Q. So, the Blazo is BSIV compliant?

A. For BSIV emission compliance, we will have to add some after treatment. We will add it. Otherwise the Blazo is BSIV ready. We are the only organisation with 2000 trucks that has everything that a BSIV compliant truck will have. They are already running. Our competition will still have to prove their electronic engine in the market. We have a proven electronic engine in the market, which will only need an after treatment and some re-calibration.

Q. How costly is the Blazo over the older truck range?

A. The electronic engine is expensive. It gives superior value, and better fuel efficiency under different conditions. The cost difference is approximately a lakh and a half rupees.

Q. How do you plan to deal with the recent directive on AC truck cabins?

A. The intent to improve driver comfort is welcome. It comes at a time when BSIV development is on. BSVI implementation is also coming up by 2020. Nowhere in the world is an AC cabin mandated. Heating is mandated, but not AC. With 60-70 per cent of the sales amounting to cowl chassis, AC regulation would have done well to have come with the truck code. Fitting an AC on a cowl will be highly challenging. We are offering HVAC in our heavy trucks. The point is, is the industry at large ready? The second question is, what about the cowl chassis? At the supplier end, the supplier base will have to be alerted; will need to be made aware of. The driver needs an AC, long-haul trucks especially. The AC mandate could have been implemented in phases.

Q. Demonetisation has been challenging for transporters. How do see the road ahead for operators?

A. The first to hit the transport industry was the cash crunch. As good managers, transporters have managed. People are not spending money. Demand has gone down. I think, it is a temporary phase. Cash is short, and because of the lack of spending, consumption has come down. Transport industry has been hit. As a (CV) buyer, I would postpone my purchase. I will only purchase what is essential.

Q. Will pre-buying be affected?

A. Pre-buying will happen. There is a lot of time left; there are four months left. Typically pre-buying would have happened only in March; at the last minute.

Q. How many Blazos have you sold?

A. Blazo accounts for about 35 per cent of the trucks we sell. We have a fixed price policy on the Blazo. There’s a list price and a transaction price. The transaction price is fixed.

Q. What future do you foresee for the CV industry?

A. I have always said that if the country will grow, CV industry will also grow. If you produce, you have to transport. Policies in this have a limited role to play. The need is to transport. Road transport will continue to play a role in the growth of the country. If one believes in the India story, then he or she has to believe in the CV story. GST may change the structure of transportation, but it will not hamper the growth of the CV industry. India is a growing economy, and the CV industry will have a good future. GST will re-define the hub and spoke model. ICVs will play a bigger role. Consumption in rural areas will influence the role of ICVs. Spending on nutrition (perishable goods) will influence the scope of ICVs. As the economy grows, people movement will increase. India is a vast country. Railway cannot reach everywhere. The need for buses will be there. There will need to move much population in semi-urban and rural areas. ICVs – we are investing in a world-class ICV, will play an important role. This will be especially the case as consumption in the interior areas will increase.

Q. For ICVs, are you looking at trucks and buses? You already produce buses on LCV platform.

A. Our strategy will be to do buses where the same technology and chassis, with minor modifications can be used. We may look at producing longer and bigger buses on the ICV chassis. We are not going into multi-axle buses, or luxury buses. It is about different scale and technology. We are going into buses that are an extension of our current range. Once we do this, will we think. The ICVs we are working on will be completely new. The lineage will show. There is a lot of learning we have from the HCV range. There is a lot of learning we have from our current LCV range. That has been incorporated. We will field a new range of LCVs along with the ICV range. We will have a full range from 3- or 3.5-tonne up to 16-tonne. We will also have a MCV range. We would look at unveiling the new CVs in two and a half years.

Q. Would you be investing in new engines?

A. For ICV, we need new engines. We are going in for a 3.5-litre engine. This engine could be useful in other Mahindra products too. We are package protecting our range for BSVI and beyond. For the LCV range, you would see a new chassis, and a new driveline. The new LCV range will be definitely better than the current range that we offer. Despite being an aged product, our LCV has been highly successful. We command eight-to-nine per cent market share in the LCV segment. We are reasonably well entrenched in buses. With the ICV chassis, we will be able to offer a wider range of buses. We may not be a full range bus player, we will have a wider range for certain.

Q. What growth is Mahindra Trucks and Buses looking at?

A. We are hovering at around 3.5 per cent market share. I will be happy if we double our market share in two to two and a half years. We could look at further doubling our market share in another three years. It would amount to brilliant success even if we get close to these targets.

Q. Where others seem to find it tough, you have kept on going?

A. Our strength is that we are geographically well spread. We are well-spread segment wise. We are also well-spread product wise. It is not that we are doing extraordinarily well in tractor-trailors and terribly badly in some other segments. We have been growing our market share in a balanced way in the segments we are in. We are steadily growing our market share. We are steadily growing in all geographies. Our strength lies in the good spread we have managed to build, in terms of geographies, segments and products.

Q. A tough market that is attracting the attention of global players, what future do you see for the Indian CV market?

A. What happened in one particular decade in the car market will happen in the next ten years to the truck market. Global players will come in; there will be brand wars. There will be digitisation, and more. There is no stopping that since India is a promising market.

A. Many global CV players are looking at India as an export hub?

A. There are ways to look at it. One is a fully built truck. Such a product has got some logistical issues. So, one would look at neighbouring countries for export. A little further out, and it could be the African markets. It is necessary to see how different is the truck in those markets. The amount of work necessary to meet the market requirements. SAARC is more or less the same truck. Some parts of Africa are likely to require the same truck. We are at the moment concentrating a lot on the domestic market. We are selling substantially well in the SAARC markets; nine per cent of the HCVs we build are exported to these markets. In the case of LCVs, 14 to 15 per cent of them are exported to the SAARC markets. We are looking at Africa as a continent. We currently have right-hand drive configuration with us.

Q. Would you be looking at a local assembly operation for Africa foray?

A. It is too early to comment at this juncture. Our current priority is to grow in the domestic market, and to be a complete range player. We don’t want to divert our energy at this moment. There is a lot of engineering work to be done for India. Foray into Africa or the Middle East markets will call for more engineering. We will gradually venture out, but to comment on it at this moment will be premature.

Q. Are you looking at tapping into new developments like LNG and other alternate fuel mediums?

A. We will work towards electric buses. We demonstrated a hydrogen bus. We have the Mahindra Reva electric vehicle business in the Group. We have the capability to do electric vehicles. Here we are essentially talking about drive motors and battery packs. In bigger vehicles, battery packs are modular. We will be there in electric buses. Since they make an expensive proposition, they will be for the future. What I would like to state is that we are ready, and moving in that direction. It is difficult to judge how far this future lies. It depends on how the government will subsidise, or if the country is ready for it. The customer should be ready to pay for it. It will depend on how expensive pollution will become. It is difficult to be able to judge how the market will pan out. The environmental issue is serious, and we all owe the responsibility to curb pollution. It is necessary to research the extent of pollution caused by automobiles. There’s also the issue of traffic management. There may be a need to look at how much are the automobiles emitting, and if this can be eliminated by managing the traffic. A study is necessary to understand if CVs that are not loading or unloading should be allowed into a city. GST could also change the pollution scenario. To be precise, it is a complex issue. As an engineer, I feel that environment is an issue that needs to be tackled. However, it is not simple. It is not just one aspect, but a multitude of aspects. In the case of fuel, there could be an adulteration issue. There could be an issue with the quality of fuel we produce, with the distribution of fuel, with traffic management, driving habits, etc.

Q. With the Blazo you have been training drivers. Do you plan to establish a driver training institute?

A. There are two aspects to driver training. One is to create a new pool of drivers out of those who don’t know to drive. Second, is to create drivers out of those who have been driving by improving their driving habits. As of now, we are tackling the second aspect where there is a driver, and how do we make him a better driver. This is irrespective of whether it is for the Blazo. We conducted driver training for ex-army drivers. These drivers are not well verse with frugal ways of driving. They are trained for driving over rough terrains. These drivers need to be taught civilian bye laws. Over an army truck driver, a civilian truck driver has to deal with the situation on the road differently. We hold a five day program for training the drivers. We hold training programs when the army welfare society engages us. The driver training concerning the Blazo is about using the multi-mode. For the customer, the first few trips we are doing. We make certain that his fleet of drivers are trained. We sit with the driver and show him which mode to use when. As the Blazo penetration goes up, the need for driver training will decrease. A transporter will have his Blazo driver train the other drivers. Drivers don’t know their rights. A driver is often told of his duties, but never about his rights. We have stabilised the Mahindra transport awards. We have brought out some interesting elements like the ‘Mahindra Saarthi Abhiyan’ where-in we are providing scholarship for the driver’s daughter. The awards look at the transport industry. Through the awards we discover excellence. Consider the case of women truck driver Yogita Raghuvanshi. We are very happy to have given her a Mahindra truck. We also tie up drivers who come to own a truck with operators. We will earn from this industry, and therefore feel the need to forge long standing relationships. We see a need to build a win-win relationship.

Deciphering Cvs

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Eiichi Seto, Managing Director & CEO, SML Isuzu Ltd.

Interview by: Anirudh Raheja

Q. What is your view on the Bus Code, and its implementation?

A. Bus body code is a good regulation for the industry which has been dominated by unorganised bus body builders for long. They are still not ready to accept the new regulations. We are however ready to meet the new challenges. The Bus Code is primarily for vehicle and passenger safety, both of which are important. The government needs to be appreciated for implementing the Bus Code.

Q. About your bus portfolio; any new products that you will be launching soon?

A. We will be soon showcasing three new products. These would include the Ecomax minibus for school, staff and tourist application. The Executive LX model is based on the S7 platform. The Ecomax will compete with Force Traveller. The Executive LX will aim at luxury and staff transportation. We have also introduced a new front fascia for trucks and standard bus models as an interim solution to improve the product image. We will soon start operation of a brand new pre-treatment and cathodic electro-deposition coating line for cabin and cowl at our paint shop based on Japanese technology. This will enhance anti-rust capability of our products. We have also introduced a new paint line at the bus body plant. This would help us to enhance the bus building capacity; that of S7 buses especially. We will be also increasing the production of Isuzu buses to 400 units per month.

Q. With so much activity underway at SML Isuzu, how do you rate the performance of the company?

A. The planned Rs.220 crore capex is still on. It is being implemented in a phased manner. In the last one year, we sold 8320 units of buses, which marks a 20 per cent rise over last year. Truck sales increased by 33 per cent. While bus sales have recovered, growth has largely come from trucks. With the view of growth, we are expanding our capacities by 25 per cent to 2000 units from the current 1500 units per month per shift. Our target is to achieve 7200 units for the second half of the year, and to achieve a total of 15,300 units for the year. We recently organised our dealer meet to understand the ground reality. The dealer meet was also held to understand the current market position. This would help us to analyse demand forecast of the bus market, and the sales prospect in the second half of this year.

Q. How is SML Isuzu gearing up for the upcoming emission regulations?

A. The demand for commercial vehicles in India is huge. Global players are expanding their operations in India. This will entail more competition. The BSIV vehicles will come with a price rise. There will be another, and substantial price rise when BSVI emission compliant vehicles are introduced. The motivation for operators to upgrade their fleet is likely to take a hit. There is a need to understand at this point, that the after-treatment devices for BSVI emission compliant vehicles are very costly. They could cost more than the engine. A matter of concern is the fuel. Also of concern is the urea fluid necessary to carry out SCR. If not of the prescribed quality, the vehicle will refuse to run. A huge infrastructure will be required to make available the prescribed quality of Adblue urea solution for BSVI emission compliant vehicles. The good thing is, the component suppliers in India will get a chance to expand their horizons and develop competitive product portfolio for BSVI emission compliant vehicles.

Q. What is the supplier involvement that you are witnessing?

A. The development of BSIV emission compliant vehicles is providing component suppliers a chance to upgrade themselves, to localise products, and to keep the costs down. We have already geared up for BSIV emission compliance. Pan-India implementation of BSIV emission norms has been pending for nearly five years now. Availability of fuel is still a big question, and remains unanswered. It depends heavily upon the government, which mainly owns the oil companies. For BSVI emission norms, a lot of products need to be imported from Europe. It is good that many component

and device suppliers are localising them.

Q. What about the short lead time to BSVI emission norms from BSIV emission norms?

A. We need to improve our environmental standards, there is no doubt. The time to move to BSVI emission norms from BSIV emission norm is however short. It therefore seems too ambitious. Isuzu already has technologies similar to EuroVI in Japan. The basic technology is available. It is however not localised for India. The big question is not the basic technology. Basic technology is already available. The question is fuel. The other is regarding the after-treatment devices like SCR and DPF, which nobody in India may be able to make by the set deadline of 2020. Meeting the deadline will call for importing. For suppliers it is very difficult to trust the government at this moment. Localisation of related products was delayed because BSIV emission norms took five years to be implemented. The same thing can happen for BSVI emission norms. Importing is against the ‘make in India’ concept. A big concern is the testing of vehicles. We will need to use new fuel to validate the vehicle. It is necessary that the validation is done by BSVI fuel made locally. The fuel has to be commercially available. If the fuel is different from what is made in Europe, it could pose a big challenge. A vehicle has to be tested for over a million kms across all seasons. This will take two years almost. I don’t think that the government will be able to provide BSVI fuel by 2018 for such periods of testing. To meet the 2020 deadline looks difficult.

Q. Wouldn’t it be difficult for suppliers to localise if there is no fuel available? How are you addressing supplier concerns?

A. It has been talked about for long in the industry. We are always discussing with our suppliers. We are discussing with them to make the vehicle compact and light in weight. After I joined SML Isuzu, supplier meets have been a regular feature. There is a meet scheduled for next month. At these meets, we communicate what we are going to do. We understand what the suppliers expect from us. They also get an opportunity to understand what our expectations from them in terms of quality, cost and delivery are. A lot of movement in the LCV business has occurred as ecommerce companies have picked up pace in India. I see a major change in costing due to the implementation of GST. Companies incur a lot of cost in the logistics. GST will also change the way products are distributed.

Q. STUs are procuring buses. What do you think of this trend?

A. STUs have begun working on the public-private partnership model. Growth can be had with this model too. Most STUs have their own bus body business. Redundancy will happen now that the Bus Code has been implemented. They are not hiring new people, and since they have a huge stock, they cannot stop abruptly. The STU business will slowly shift to private markets for both, inter- and intra-city buses. Fleet replacement has been on the cards, and once the norms to replace 10 to 15-year old buses comes into play, there will be a market shift. The number of buses will not shrink; buses will be bought by STUs or by their partners. On the contrary, numbers will increase, and the ownership pattern will differ. Government has also announced various rural connectivity schemes for Rajasthan, Madhya Pradesh and Gujarat whereby we will have smaller buses coming in from smaller centres to bigger district centers. Such movement will also see our class of buses being inducted into STUs which

other wise was only limited to bigger buses.

Q. Is the permit system limiting the growth of buses?

A. I don’t think so. For example, school buses fall under the Type IV of CMVR regulations for buses, and the permit-system is not limiting their demand. The safety of children travelling in the school bus is very important. At many places, autorickshaws are being used for school commitments. Delhi Government seems committed to prohibit old vehicles. Such a move can fuel growth moving forward.

Q. What is your opinion about alternate fuel CVs?

A. For CNG, we have a very good footprint in Delhi NCR where duty has to be paid for entry of diesel powered vehicles. Since it is regulated, CNG powered buses and those that are a part of the LCV segment are showing good growth. Demand for M&HCVs is not picking up pace yet as far CNG is concerned. Fuel availability is an issue. For electric vehicles, we are studying the ecosystem. It is not that easy. Cost and availability of batteries is a major factor apart from the non-availability of supporting infrastructure like charging stations. Our promoter Sumitomo in Japan, from where I have come, has a lot of experience in this segment. It has the biggest electric vehicle charging station network in Japan. Even then, there are limitations that we know of; mainly due to distance. In India, electricity is largely generated using coal. For school buses, there may be a good chance. People are showing interest.

Q. What changes will the implementation of GST bring?

A. For the car segment, GST rate has been fixed at around 18 per cent, but nothing is clear as far as the commercial vehicle segment is concerned. If it is fixed at 28 per cent, then it will be a big difference over 18 per cent for cars. At 28 per cent if one were to consider, there will be no big difference in the tax rate. With BSIV emission norms expected to be implemented from April 2017, overall vehicle cost will increase by almost Rupee-one lakh per vehicle, inclusive of taxes. A spike in demand is expected before the implementation of BSIV emission norms. In the case of GST, if the rate is kept at 18 per cent for commercial vehicles, then the price increase caused by BSIV emission norms will be absorbed. Hoping that this happens, many people will be willing to wait till April 2017 to upgrade their fleet.

Trendline

The development of BSIV emission compliant vehicles is providing component suppliers a chance to upgrade themselves, to localise products, and keep costs down.

Building buses

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B Anil Baliga, Executive Vice President  – Bus & Application,  VE Commercial Vehicles Ltd.

Interview by: Bhushan Mhapralkar

Q. The Pithampur plant is running at full capacity. How does that augur for buses?

A. We have geared up for a production run of 5500 numbers. We are doing about 6000 to 6100 units. We will be expanding the capacity to take the figure to around 7000 units. We will also be hiking capacity at our bus plant, which is about 25 km from the Pithampur plant. We make bus chassis at the Pithampur plant.

Q. How has been Volvo Eicher’s performance in the bus segment?

A. We have been doing well in the school and staff bus segments. We have been the market leaders in school buses for the last ten years. The staff segment, we have managed to built, and have a 29 per cent share of. Our share of the tourist bus segment and the road permit segment is 10 to 11 per cent. We want to take this share up to 28 per cent. That is the next growth story that we are looking at. Our share in the school and staff bus segment is almost at the level of 28 to 30 per cent.

Q. Aren’t the current permit structures limiting the growth of buses?

A. The (bus industry) is something like a hotel industry. You can’t do without it, and still need it. It does not get affected significantly by the economic downturn. You will find a lot of players jumping into buses. Not that they have a lot of love and affection for it, they are here because it provides great support during the downturn.

Q. Many players have not been able to enter the bus segment. Is it a tough industry to crack?

A. People at Volvo say that if you haven’t got buses you do not know how difficult it is to sell them. Buses as body with chassis are a complex phenomenon. There is a need to look at the chassis part, and the body part. Cumulatively it has to deliver. It is easy to make a truck. To make a bus calls for twice the effort. The challenge lies in meeting the parameters of the customer; the comfort parameters – seating comfort, ride comfort, NVH, etc. The bus should deliver on fuel efficiency. The operating conditions of buses are highly different. A school bus, for example, travels 150 km at different speeds than a route permit bus does. A route permit bus travels at 90kmph until it stops and regains the same speed. Route permit operators ask for quicker acceleration, which changes their fuel consumption pattern significantly. The efficiency pattern changes significantly under such operating conditions. Tyre wear and brake wear are some of the issues that gather significance. Subjected to overloading, the road conditions at times are not good. At 90kmph, a route permit has got its own set of issues, and has to be designed accordingly. In the case of a staff bus, the requirement is for low noise levels. Each bus is so distinct from each other, that the chassis at times differs a good deal. Drivetrain is different. Demand for air-conditioned bus is rising. These buses call for more horsepower. Where 90kW used to suffice, the demand is now for 110kW. Some even want higher output – 120 hp, 130 hp, 140 hp, and more. The market dynamics are changing quickly, and the marketplace is fiercely competitive. The players are grasping for breath.

Q. How do you look at the inter-city bus transport scenario?

A. In the lean period the occupancy level in an inter-city bus would be less than 60 per cent. The ones that are affected the most are the overnight coaches. Route permit buses and others continue. As soon as the economy goes down, the Volvo bus gets affected. Players like Neeta Travels struggled during the downturn.

Q. Does it make it tough for operators of Volvo buses to have a good ROI?

A. Mass market continues to be attractive. ROI is available in the Rs.40 lakh range.

Q. Does it make it lucrative for you where Volvo buses are unable to cut in?

A. Our sleeper coach we are targeting at the Rs.40-45 lakh range.

Q. Aren’t the sleeper coaches an ambiguous territory?

A. The sleeper coach (code) draft has come in. It should be out in the next two months.

Q. Is the socialist agenda relating to buses somewhere affecting their ability to bloom?

A. With the advent of ‘AMRUT’ scheme, the ‘JNNURM’ scheme has gone away. They have made it clear that the allocation for buses has to funded from smart city budgets. Even ‘AMRUT’ does not seem to be moving. Luckily, the STU numbers are going up. The ‘AMRUT’ scheme may not lead to the bus numbers going up, the STU numbers are going up. The needs of STUs are becoming higher. In the last one year, over 14000 STU tenders have been floated. Another tender of 3000 buses is on its way.

Q. What about the city bus undertakings?

A. City bus corporations are in a bad shape except for those like BMTC, which is doing well and getting money from other revenue sources like their malls. They have been efficient and smart. They have been smarter in using their money. 

Q. Do you have to educate buyers towards the buses they should buy?

A. From some of the STUs we end up learning from. They know what they want, the performance they want. It is interesting to do business with them. One does not mind giving them two extra features free of cost. Consider GSTC, and they are quite sharp. APSRTC is quite okay. There are others who do not know what they want. Nothing has moved in some states. In one state, nothing has moved for the last two and a half years because there’s no confidence that money will be recovered from the customers. We have a (firm) order for 1500 buses under JNNURM, which is still pending from that state. They have now called us for 528 numbers. For the last two years no private contractor has agreed to come and pick-up the contract. We met some contractors, and their problem is to get the customer to pay. There’s nothing that can be done if the customer does not want to pay. 

Q. Are you not looking at the inter-city rear engine bus market?

A. Indian CV manufacturers have been trying to make headway into the high-end rear engine coach market. They have not been successful however. They have made two to three manoeuvres, and will eventually succeed. They have the strength. Volvo is also aware that someday someone will get it right. They are also trying to come out with another range. 

Q. In the inter-city arena, how optimistic are you about sleeper coaches?

A. We are highly optimistic about sleeper coaches. Sleeper coaches are selling in huge numbers. I found it hard to imagine that Volvo gave a bodyshell and told the customer to fit it with sleeper coach hardware. Pressure is very high owing to the huge demand for sleeper coaches. We are selling more sleeper coaches than the conventional ones. Sleeper coaches are being registered. The only two states that have been stringent are Punjab and Delhi. The OEMs have had to change to meet the Bus Code. The private buses continue. 

Q. How far has the Bus Code penetrated?

A. Bus Code was to be implemented in April last year. They have implemented the dimensions in April (2016). A regulation has been issued a few days back that the Bus Code will be implemented in total from October 01. This shows that the government is clear. We are already helping coach builders. We have accredited them. We give him the design; there’s no Bus Code connection for him. We certify and guarantee that what he makes is as per the specifications. We are accountable.

Q. Are you driving in a new converter (body builder) culture?

A. Some converters have a strong engineering ability. Sometimes their engineering abilities are better than that of an OEM. Some of them are brilliant. Alma Motors, for example, is at the upper end. It is a converter who can convert; has an amount of engineering abilities. We worked with them for a long time. We have done Sri Lanka buses with them. Also, with JCBL.

Q.How many buses do you do?

A. In the peak season we do about 1300 buses a month. We make some 700 of them in our plant and the rest are made by the body builders.

Q. How do you look at the upcoming regulatory change; its effect on the ecosystem in terms of engineering, operation, ownership, etc.?

A. I think that we are grappling with electronics, and internally as well. With electronics reliability goes up, provided the system is designed well and managed well. Regarding the demand for higher uptime, we are already projecting 50000 km as the first target. Eventually it will have to move to 100,000 km.

Is there an amount of Volvo technology trickling into Eicher buses?

Yes, it is. Currently it is limited to engines. Whatever support we need, may it be manufacturing or any other specific requirement, we can avail from them. We discuss issues with them. They provide us with inputs. We closely coordinate with the Volvo bus business. We do their aftermarket work.

Q. How does Eicher maintain its own identity? Especially in the presence of Volvo brand?

A. We have a clear demarcation. We (Eicher) will sell below Rs. 5.5 million, and Volvo Buses will sell above Rs. 5.5 million. There’s a clear understanding that we will not exceed this value and they will not climb below this value. Our benchmark is Rs. 4.5 million, and that of Volvo is Rs. 6 million. Brands like UD are part of Volvo. 

Q. Will UD cannibalise Eicher high end products?

A. It is clearly segregated and demarcated. The presence of UD will only aid us to grow. 

Q. Are you planning any new product at the lower end of the spectrum?

A. You may see a five-tonne product. Talking about the top-end and the low-end, we have the pipeline full. Focus first and foremost will be on heavy-duty buses – sleeper coaches. AMRUT buses and route permit products. The route permit bus products will take our market share to 25 per cent by 2020. Our focus will be on front-engine bus. We are going to bring NVH on front-engine buses.

Q. Are you not looking at a rear-engine bus?

A. Volvo already has a rear-engine bus. We would like them to leverage that technology. Also, when we look at it from the STU perspective, they are very happy with a front-engine bus. There is a drop in fuel efficiency and the maintenance costs may be higher. Rear-engine placement calls for a bigger water pump and radiators, which have an effect on the performance. Fuel efficiency comes down, and an Indian bus operator is well aware of it. The drop is approximately one to 1.5 km per litre. STUs are aware of this, and they don’t find merit in buying a rear-engine bus unless its an inter-city coach that gets them a huge amount of load. Where private operators carry loads, the STUs don’t do it. They don’t gain by that. 

Q. Does ferrying of an amount of cargo make a good supplementary income source for operators?

A. To have 10 cu. m. of storage box on a front-engine bus makes for a tricky design manoeuvre. Our endeavour is to come up with a front-engine bus that offers almost the same amount of cargo space as a rear-engine bus. Storage space in an Indian bus matters. A lot of the operator profitability comes from cargo. 

Q. Why do Indian operators seem to take an amount of time to look up to premium offerings?

A. Indian operators are smart. They know their ROI very well. The trick lies in selecting the right route and the right bus. If either of it goes wrong then it could spell trouble for an operator. Unfortunately, there have been instances were the operators have selected a bus and then started looking for a route. Good operators are very clear about selecting a route; if its a human populated route or a cargo route. They are clear about where the money is going to come from. If it is a human populated route, the turnaround has to be high. It is not possible to earn the kind of money a cargo route can deliver.

Q. How do you look at the permit system in buses, and its use by the operators?

A. We recently had a Volvo team visit us. We asked them if the 13.8 m long multi-axle bus was more profitable than a 12 m long bus. They said that there are some routes where the 13.8 m long bus will make profit, and there are some routes where the 12 m long bus will make profit. The problem is when an operator were to buy a 13.8 m bus for a route that is suitable for a 12 m bus. As we got into the heavy-duty bus segment we found out all the merits and demerits after speaking and listening to so many people, we now know where to peg the figure. Figure comes from ROI, and Rs. 4.5 m is the deadline. The period is three to four years. The maximum is four and a half years. An operator will be very keen to get the most fuel efficiency. Everything must be measured, and everyday. 

Q. Where do technologies like AMT matter?

A. I look at AMT as the future of buses. An AMT will give better fuel efficiency than a manual transmission. An automatic transmission in comparison is very costly, two and a half times more almost. It also has its own loses. The fuel efficiency of an AMT will be better than a manual transmission any day. We are developing AMTs. You could hope to see them by 2018. An advantage of AMT is that the life of transmission almost doubles. There’s no misuse. We are working with Wabco to develop AMT technology. We are also getting inputs from Volvo. Volvo has I-Shift Amt technology. 

Q. How much more would an AMT cost over a manual transmission?

A. If a manual transmission costs Rs.50,000 for example, an AMT would cost around two-lakh rupees. An auto transmission would cost five times more than a manual transmission. The trick is in getting the costs down. The lower we can bring it, the more attractive we can make it. 

Q. How are your relations with the suppliers helping you?

A. We have very good relations with our suppliers. We depend on them. Almost 90 per cent of the suppliers are one off. You may be surprised, but the supplier industry for buses does not exist. We have had to create a supplier base from scratch. Today we have about 110 suppliers. Even in a front-engine bus, the similarity of components and sharing has been changing. We have a completely different range of chassis. These come with parabolic suspension; with pneumatic suspension, which is not there in the trucks at all. The chassis is absolutely different from that of a truck. The brakes are different. Operator preferences indicate that they don’t like brake noise. Because of the noise that comes with asbestos free linings, we have had to move over to an imported lining material. 

Trendline

We are highly optimistic about sleeper coaches. Sleeper coaches are selling in huge numbers.

Validation and Certification

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Q & A

Dinesh Tyagi,

Dinesh Tyagi, Director, International Center for Automotive Technology (ICAT)

Interview by: Anirudh Raheja

Q. What role is ICAT playing in shaping up the Indian automotive industry?

A. ICAT was setup under the National Automotive Testing and R&D Infrastructure project (NATRiP). It is one of the most significant initiatives in the automotive sector under the Ministry of Heavy Industries and Public Enterprises. The NATRiP project was setup to build several R&D and infrastructure projects in the country at several locations representing unique collaborative efforts by the Government of India, the various state governments and the automotive industry in India. It was in the northern part of the country, that the ICAT was envisaged. ICAT was set up in 2004 as ARAIRCN. In 2006, NATRiP acquired ARAICN and renamed it as ICAT. At ICAT we provide automotive testing, certification and product development services. We understand the requirements of our clients and work towards serving their needs. This includes both, existing as well as new customers. Customers at times ask for unique requirements. This makes it necessary for us to upgrade our facilities and increase our capabilities. Some of the requirements may entail buying more gadgets, sensors and tools. Basic infrastructure is not a problem, but capabilities need to be added. When needed, advice is taken from international experts.

Q. Are your services aimed at component manufacturers primarily, or at OEMs?

A. We cater to all types of requirements. We cater not only to the automotive sector but also to non-automotive sectors like the white goods industry. To be able to cater to non-automotive sectors we are adding more infrastructure. We are also looking at serving the needs of the locomotive industry. What we have here (at Manesar) is a full fledged powertrain facility. At the vehicle level, we have chassis dynamometer with emission testing capability, engine dynamometer lab with emission testing capability and various types of testing equipment that can be used to count the particulate number, FTIR, and more. The requirements for these often change in-line with the changes in regulations. The upcoming BS VI emission regulations for example.

Q. What infrastructure have you invested in to meet the future needs?

A. We have acquired equipment like Portable Emission Measurement System (PEMS) to cater to the needs of upcoming emission regulations. We have developed a fatigue lab, where we have four posters for both passenger cars and heavy-duty vehicles. We also own various universal test benches to test the vehicle dynamics and its structural durability. We also have a climatic test cell, which can control the temperature from -30 degrees up to +55 degrees. We have two sites at Manesar, which collectively measure 55 acres. At Site 2, we have Electro Magnetic Capability (EMC) lab and a crash lab. Crash regulations are primarily for passenger vehicles under M1 category of regulatory tests, but we can also crash test light commercial vehicles for speeds up to 85 kmph. For passenger vehicles, we undertake front crash, frontal offset, side impact, rear impact, Euro NCAP and Indian NCAP tests. We have recently inaugurated new facilities at Site 1. These include a powertrain lab, a fatigue lab, CAD facility, and a infotronics lab.

Q. What are CoEs, and how many of them do you have?

A. We currently have three Centres of Excellence (CoE). These are for component development, powertrain, and NVH. Fourth CoE for tyre development is in the pipeline. It is being set up at Site 2 along with the NVH CoE. At the powertrain development CoE, we are currently focusing on developing engines and products that will meet future emission standards like BS VI. In India, BS IV emission norms will be rolled out across the country soon. We are catering to clients that are looking at such emission standards and products. Some of the emission equipment suppliers may also utilise our facility for their projects, and in case they do not have enough capacity. NVH CoE is a developmental lab for noise, vibration, and harshness of the vehicle. It does not have as much to do with certification. In this lab, we are building two semi-anechoic chambers passenger vehicles and heavy-duty vehicles. There will also be a chassis dynamometer inside the chamber. For passenger vehicles we have indoor pass by noise simulation. Simulating field conditions, the vehicle is driven on a chassis dynamometer, and an array of microphones that simulate the passing by of a vehicle. The vehicle is stationary and the microphones move while recording the noise. For tyre development CoE, we are developing new test rigs with multiple stations. We have a photometry test lab to support lighitng manufacturers for developing next generation products. We expect the Indian market to graduate to LEDs 100 per cent by 2020.

Q. Are you approached by international players?

A. There is a big movement taking place. There are many MNCs, which have had a presence only in the virtual engineering field, working with CAD, and are now planning to expand their base in India. They are approaching us. They are tying up with us so that they can save on investing in a similar infrastructure. They are seeing an opportunity to do real work by collaborating with us. We have been closely working with manufacturers like Daimler and Renault to tweak their existing range of products for the Indian market. We are also working with various companies based out of China, Gulf and the UK. We are offering them engineering services.

Q. What role does ICAT play in commercial vehicle testing?

A. We do CMVR certification for commercial vehicles. Some of them come to us for emission development. Work on BS VI emission norms has already begun. Not just the OEMs, tier suppliers are also approaching us for product development. Even Tier 2 and 3 players are showing interest. Not in a big way at the moment, we are rendering services for export homologation as well. We have an online system called IOCS where a customer registers a case, lays down the documents as the prescribed format, submits test properties and seeks a report from us followed by certificates. Coordination happens mainly for certification work. It happens through various forums under the Ministry of Road Transport and Highways (MoRTH).

Q. Product recalls are increasing? What do you think is causing it?

A. The market is becoming sensitive to defect liability. The quality has not gone down. It is improving. It is OEMs, that are becoming careful about defect liability. They therefore voluntarily recall. This used to happen earlier as well. The regime in India is however not so strong. Globally, it is a good practice.

Q. Can NGT ban on diesel vehicles help in controlling pollution levels?

A. The MoRTH is working on various options like providing concessions while buying new vehicles and relaxing the duty for scrapping old vehicles. With moves like the NGT ban on diesel vehicles, we can expect some effect in the level of pollution. If Delhi does it, it will be followed by other states. The replacement of fleet will happen at a brisk pace. There is an impact on sales due to the ban on diesel passenger vehicles of more than 2000cc. It will push engineers to build efficient engines. The final objective is to curb pollution. If it will reduce is doubtful. It is not correct to think that a bigger engine will pollute more. Much depends on technology and sophistication. Controlling pollution in petrol is not a big challenge. Controlling it in diesel is a tedious task.

Q. Can pollution be curbed by engine downsizing and light weighting?

A. Downsizing of engine is increasingly talked about in the industry. (Injection) pressure is going up and displacement volume is going down. This collectively determines power, and power is increasing. We can be of secondary help if anyone needs to test light weighting of products. The need is to bother about the endurance ability as well as the life of a product that would run for thousands of kilometers. If manufacturers need help, we are ready. We are talking to oil refineries to get bulk low Sulphur diesel to support our customers for testing vehicles, and to carry out the validation process. The quest for BS VI by 2020, I feel, is an aggressive timeline. Nowhere in the world has such progression happened in such a short time span. For foreign multinationals, it may not amount to a big challenge, for Indian companies it is.

Q. For commercial vehicles, are you setting up pollution control facilities?

A. We are setting up four pilot centres for inspection and certification for commercial vehicles. We have already completed two of them in Rohtak and Delhi., Work in under progress for such centres at Lucknow. The Lucknow centre will be ready next year. Also, the centre at Himachal Pradesh. Many states are in dialogue with us. We will help them to set up such centres.

Q. What has been the investment in ICAT till date?

A. Close to about Rs.1000 crore has been invested in ICAT under the NATRiP project. In addition, close to Rs.150 crore has been ploughed back for the creation of new infrastructure. We grew 47 per cent last year. A similar growth rate is expected in this fiscal too.

We grew 47 per cent last year. A similar growth rate is expected in this fiscal too.