Q & A
Chief Executive Officer,
VE Commercial Vehicles Ltd.
Interview by : Anirudh Raheja
Q. M&HCV sales have been growing. LCVs continues to drag. What do you foresee?
A. It is true that the overall heavy-duty segment (16-tonne and above) is doing well. If you drill down further to haulage, and construction and mining trucks, the haulage segment has gone back to almost 90 per cent of its earlier peak in 2011. It is expected to be close to 150,000 to 160,000 units in 2015 as against 175,000 units in 2011. This has primarily been led by replacement demand, and may touch the peak in 2016. Construction and mining trucks are still in recession. They accounted for 60,000 to 65,000 units in the 2001 peak times, and are likely to be down to around 35,000 to 40,000 numbers on an annual basis in 2015. Even though, there is good growth in high end coal mining tippers, demand for iron ore mines as well as construction tippers continue to be in the recession mode due to stagnation in infrastructure investments.
In light and medium duty trucks (5 to 15-tonne), the recession continues; even though the decline has stopped. If you look at 2011, this segment peaked at around 100,000 units per annum. It dropped to 65,000 units in 2014. The last year average of 5,000 units per month is still continuing in the current year, and has not witnessed further downfall. In August 2015, there was a growth of around 20 per cent in light and medium-duty trucks. Going forward we have to see when it will start to recover; will hit peak volumes once again. One of the reasons for recession in this segment is sentiments in the rural areas. They are not yet upbeat due to monsoon worries. The other reason is the funding problems small operators (who use light- and medium-duty trucks) are still facing. There is always a lag in the recovery between heavy-duty and light- and medium-duty trucks. The lag has been longer this time as against the normal lag of six to nine months.
Q. Has the dilution of stake by Volvo brought any change in the JV?
A. As far as the JV is concerned, there is no change whatsoever. The shareholding pattern as well as the corporate governance structure continues to be same as before. The dilution has happened in the Volvo Group’s holding in Eicher Motors, which was a financial investment. Volvo Group continues to hold 45.6 per cent share in the joint venture. The commitment of both the shareholders to the JV continues to be extremely strong and their actions speak for themselves. Volvo Group has set up an Euro VI medium-duty engine truck plant, VEPT, at Pithampur, to meet medium-duty engine requirements. They have also extended technologies that are required for the development of the Pro series of products. Both the partners have extended tremendous support that is required to meet the vision of driving modernisation in the commercial transportation in India as well the developing world.
Q. A significant milestone, the modern engine plant at Pithampur, what could come next?
A. We have industrialised Volvo’s 5-litre and 8-litre medium-duty engines in India by setting up a state of the art plant at Pithampur. The base engines are Euro VI emission compliant, and have been adapted to meet Euro III and Euro IV emission norms. They are also powering the Pro 6000 and Pro 8000 series in BS III and BS IV emission guise. At the VEPT plant, we are currently manufacturing 1,500-2,000 engines per month. The number will rise as sales of Eicher heavy-duty trucks rise, and as demand from Volvo Group grows. The installed capacity of the new plant is currently 50,000 engines per annum. It can be hiked to 100,000 units per annum.
Q. What about the market growth of VECV buses? Do you foresee a distinct shift with the implementation of bus code?
A. Last year our market share in the bus market was 15 per cent. In 2008, it was close to 6 per cent. We are steadily growing in the bus market, year-on-year. We are having a strong position in school and staff bus segments, and we are planning to become a strong player in other segments like route permit or inter-city coaches. Also, in State Transport Undertaking (STU) bus segments. As far as the new regulations under Bus Code are concerned, all the buses that are manufactured by us or by our body builders comply with it. One of the big challenges will be enforcement of these regulations in India that all regulatory agencies need to ensure.
Q. What is the current status of JNNURM II? What about AMRUT?
A. The execution of the schemes has been very slow. Tenders have been issued and bids have been accepted, yet STUs are finding it hard to get the right contractors to run these latest technology buses. There are also funding constraints with STUs due to which implementation of the schemes has been slow.
Q. Are all the Pro series models out? How are they helping VE to carve out a place at the heavy-duty end?
A. We will continue to add more and more models as we go along. We have released nearly 90 per cent of the models in the light and medium duty CVs that operate under Pro 1000 and Pro 3000 series. In the heavy-duty segment, the launches have been slow.We have launched a few models under Pro 6000 and Pro 8000 series. We are also in the process of releasing more models for heavy-duty segment in 2016. These new technology trucks offer significant advantages in fuel efficiency as well as turnaround time and will lead to higher life time profitability for the transporters. We consider it to be the future of Indian trucking industry. We are now making all the trucks ready for BS IV emission norms that are becoming applicable in some parts of the country from October, 01, 2015, and in whole country from April, 01, 2017.
Q. There are talks of skipping BS V emission norms and moving to BS VI?
A. Both technically and commercially, it is not advisable to skip BS V. There are major changes required in engines as well as fuel like sulphur content in the emissions, major reduction is required in NOx and particulates. Apart from these, a very advanced electronics and controls are required that need not only huge investments but also the long lead time. Fuel companies also need to make major investments for reducing sulphur content in fuel. If the industry has to move to Euro VI from Euro IV in a short time, that will need huge investments and incremental cost of engine will also increase substantially. Therefore it is advisable to do the same in a proper sequence. Moving upto Euro V, and then to Euro VI.
Q. How far has the development on RESLF bus progressed?
A. Since the option is available to continue using the front engine buses, the concept of rear engine buses has not taken off well in the mass market products. Thus at the moment we are not pursuing RESLF buses.
Q. GST has been stalled? There is a talk of a new transport ministry with a dedicated secretary. How do you look at these developments?
A. The industry is looking forward to GST implementation for quite some time now as this will not rationalise the cascading taxes but also bring in efficiencies in distribution. Even though the government is very positive and committed, they are not able to move fast because of various reasons. Earlier we were thinking that GST will happen from April 01, 2016, but looks difficult now.
Setting up a new transport ministry with a dedicated secretary level person will bring in more focus on this important area and this it is a step in the right direction.
Q. What is your opinion on the FAME program?
A. It is an ambitious project, but electric mobility in India is still a few years away. With electric mobility, the costs will go up significantly. It will still take some time before it takes off in India.
Q. Eicher is known for frugal engineering, and Volvo is known for technology. What does it signify to the competition in terms of growth and new products?
A. We have adopted Volvo Group world-class technology using our frugal methods. We have been able to develop our entire new line of Pro series products from 5-tonne to 49-tonne at the right costs. We have optimised the investments and achieved much more with less investments. We now have an entire line of new products with latest technology adopted from the Volvo Group; a state of the art engine plant that produces Euro VI compliant engines for the need of the Volvo Group. We have a new state of the art bus body building plant; two new gear manufacturing plants, and a totally revamped and modernised truck plant with CED paint shop, and new assembly lines and a
body-in-white shop. We have a state of the art parts distribution centre and five company owned and operated dealerships. All these have been done at a cost of Rs. 2200 crore. We have achieved much more with less.
Q. Give us an update on Eicher Sure program?
A. Through this program we are trying to create an organised market place for used trucks. Since a truck comes back into the market in five years, remarketing it assumes a lot of importance. Keeping that in mind, we have taken this initiative to facilitate better realisation of the value of used trucks by getting the trucks refurbished. Eicher Sure team also helps in finding the right buyer. Earlier, the brokers used to pick up these trucks at throw away price and sell it at an exorbitant price, thus making a lot of money in the process. Eicher Sure team tries to connect the genuine buyers with sellers and that results in better value for used trucks.