Ashok Leyland, announced the appointment of Sanjay Saraswat as the Senior Vice President & Head of Global Buses. Mr. Saraswat joins Ashok Leyland with close to 30 years of experience spanning across manufacturing, sales, service, network development and marketing. A mechanical engineer from IIT Delhi (1988 batch), he replaces Mr. T. Venkataraman who retired in October 2017. In this role, Mr. Saraswat will lead the Global Buses business unit and will report to the MD, Vinod Dasari. Vinod K. Dasari, Managing Director, Ashok Leyland, said, “We are delighted to welcome Sanjay Saraswat to Ashok Leyland. He brings in-depth industry, market and cultural experience to the Company’s leadership team. His exceptional knowledge of industry trends combined with his cross-section of business experience will be of tremendous value to the Company.” Sanjay Saraswat, Senior Vice President & Head, Global Buses of Ashok Leyland said, “I am excited to join the incredible team at Ashok Leyland. This brand has been doing some amazing work and delivering great results. I look forward to working with all the members who are shaping the future of our industry.” Sanjay Saraswat joins Ashok Leyland from Bajaj Auto, in Pune, where he was the Vice President for Sales Operations and was heading sales planning, field service, service planning, network development, logistics, and special projects. He has had an extensive exposure and significant learning across functions in Bajaj Auto Ltd., where he joined as a Graduate Engineer Trainee in 1988.
To beat market cyclicity and achieve higher growth, Ashok Leyland is looking at digital initiatives as an enabler.
Story by: Bhushan Mhapralkar
With an eye on grabbing a greater share of the Rs.2.4 crore spent by an operator on a truck through out its lifecycle, Ashok Leyland has unveiled four digital platforms that promise to enhance value. Claiming to earn only Rs.20 lakh it typically takes to buy a truck out of the Rs.2.4 crore spent, Ashok Leyland is riding on the rapid growth of smart phones. It is hoping that its four digital initiatives – i-Alert, ServiceMandi, e-diagnostics and Leykart – will help customers to better manage their business logging on. Developed over the last year and a half, the four digital initiatives leverage the telematics solutions that the CV maker has invested in. Said to be the first CV maker to offer a telematics platform ‘Alert’ on its trucks since 2008, Ashok Leyland introduced i-Alert in 2016. The telematics platform was updated in July. If the i-Alert saw the company leverage telematics, the four digital platforms were piloted on 100 CVs prior to their unveiling.
Tapping the aftermarket
Looking at a Rs.60,000 crore opportunity on the Indian highways, the digital initiatives ride on a premise that Ashok Leyland continues to under-penetrate its own aftermarket. If the way in which the four digital platforms connect with each other could be termed as unique, Ashok Leyland is claimed to be the first company in India to do so to ensure an integrated approach for the user. Developed with an eye on a typical global aftermarket revenue benchmark of 25 per cent, the digital initiatives have been integrated with the company’s SAP architecture. Ashok Leyland uses the SAP architecture to carry out its various functions, including the identification and listing of parts, and more. The linkage with SAP architecture helped the company to price the parts it offers on the Leykart platform; to ensure that they could be delivered to the door step of the customer, and to connect 20,000 mechanics to the other initiative – ServiceMandi. With the aftermarket revenue benchmark in India at a low five per cent compared to the 25 per cent benchmark in the global markets, the digital initiatives signal a significant revenue growth potential thus.
Brand and platform agnostic
Said to use ‘Adobe Creative Cloud for Business’ as an interface, the digital initiatives are claimed to have been developed with close co-operation between various teams in the company. Part of the company’s broad plan to beat the cyclic nature of the CV market, the four digital platforms are expected to be made commercially available in the next one or two months for those who would want to opt for their existing fleet. To be expanded to Ashok Leyland’s export markets, and in-line with the company’s thrust on exports as it concentrates on margins rather than absolute market share, the digital initiatives are offered as standard on BSIV emission compliant trucks. What makes them suitable is the higher share of electronics they carry; the higher number of sensors they carry, and which makes them more receptive. Engineered to be brand and platform agnostic, Ashok Leyland is claimed to have engaged IT companies whenever the need for specialised knowledge and coding was felt necessary. Developed by a team of eight to ten young engineers with support from various other departments, the hardware bit of the initiatives includes a black-box. It is fitted inside the dashboard, and is hard to identify. Capable of working even on a two wheeler, if not on a CV of another brand, the functionality of the initiatives is best enjoyed on BSIV compliant Ashok Leyland CVs. On non-BSIV CVs or that of the other brand, the functionality of the initiatives may be limited to track and trace, geofencing, driver behaviour and seeking the nearest independent mechanic in case of the need.
Avenue for faster growth
Performing diagnostics and prognostics, the digital initiatives connect to the cloud. They inform as well as establish contact with the company’s nearest dealer outlet in an event of distress. Looked upon as an avenue that will grow faster in the scheme of things at Ashok Leyland, the way the LCV business of the company is growing, the digital initiatives are expected to grow faster too. They are expected to grow faster than the M&HCV business is currently growing. Offering the promise of enhancing operator efficiency, performance and profitability through an ‘anywhere and anytime’ support for his fleet, the digital initiatives, with an estimated potential to generate Rs.1000 crore in the next three years, are said to draw from the company’s use of digital medium for the past five years to dial process efficiency and operational improvements. The telematics-based i-Alert initiative among the four, offers a live dashboard, which displays vital information of the vehicle in real-time. Going beyond the track and trace function, i-Alert sends alerts directly to the smart phone if a Ashok Leyland CV needs attention. ServiceMandi connects customers with Ashok Leyland trained and qualified mechanics. Over 20,000 mechanics have been signed for the initiative, and with a focus that they use genuine spares sourced from authorised company channel. The mechanics have been star-rated according to their capability and skills. Their fees have been pre-determined, and can thus be pre-ascertained by the operator before choosing to entrust the job.
Providing live status updates of vehicle repairs on a smart phone, the operator can pay digitally on the pre-agreed rate once the repairs are executed. If this provides comfort to the driver, and gives him a feeling that he is not alone in his journey, the e-diagnostics platform is Bluetooth-based and pin-points the error by flashing the error code on the smart phone. A troubleshooting list pops up to help the mechanic or the driver to resolve the error in a simple step-by-step process. Offering a round the clock availability of genuine spare parts, Leykart helps to find out a specific part by entering the vehicle registration number, or by selecting the relevant part from the parts list. Customers can add their choice to the kart and pay digitally. The parts are dispatched to their location from the nearest warehouse through a shipment that could be tracked on the smart phone.
In view of the changes affecting the CV industry, Ashok Leyland is banking on technology and innovation.
After revealing the use of ‘smart’ EGR to help its CVs to comply with BSIV emission norms, Ashok Leyland has announced that it is innovating on various fronts to ensure that its products are relevant, and make a profitable business case. If the ‘Smart’ EGR technology, which the folks at Ashok Leyland call iEGR, has enhanced fuel efficiency by 10 per cent, and minimised the usage of electronics; have kept the weight constant and reliability good, the innovation is also expected to result in lighter, safer, efficient and world-class products. According to the chief technology officer Dr. Seshu Bhagavathula, the company is planning three upgrades to address a shift to CVs with higher power to weight ratio, and CVs with fully-built AC cabins. This, mentions Bhagavathula, will occupy our time and effort.
With the rise in operating speeds set to change the way the long haul segment operates, Ashok Leyland is finding an opportunity to innovate. It also stems from the need to match the duty cycle requirements; the need to change engine calibration parameters, and to collect data. “All this will have to be done in the next couple of years,” mentions Bhagavathula. He explains, “EGR is suitable for Indian conditions rather than SCR. SCR can be offered at the price of an EGR, but will result in higher maintenance cost.” Connecting higher maintenance cost of SCR to the need for urea dosing and electronics, Bhagavathula opines, “SCR systems are not bad. It is EGR that we believe will help our CV users in the long run.” A function of engine as much as it is the function of fuel quality, driver and the road conditions, EGR, mentions Bhagavathula, offers the advantage of less number of parts. The bill of materials is better. “We researched. We collected data. We found out that EGR is less complex,” he reveals.
If the ‘smart’ EGR developed by Ashok Leyland has the ability to help a 400 hp engine to meet BSIV emission norms, much work has gone into the tweaking of the cooling system, the exhaust gas control valve among others. The in-cylinder combustion process was optimised. “We combined intelligence with EGR. We gave five per cent back and a maximum of 10 per cent exhaust gas instead of 20 per cent. The intelligence thus is in the combustion chamber, and not at the EGR level. It reduces the role of a Particle Oxidation Catalyst (POC), and could even eliminate it. We optimised in-cylinder temperature as well,” Bhagavathula elaborates.
Optimising injection pressure by modifying the design of the nozzle, Ashok Leyland engineers claim to have upped the fuel efficiency, and the life of the engine. Planning to keep the electronic content to the bare essential, the CV maker is keen to gradually increase the complexity of its products. The current efficiency of the engine at around 40 per cent, states Bhagavathula. It leaves enough potential for improvement, he adds. Touching upon the potential to improve material technology, Bhagavathula opines, “Over 60 per cent of the engine efficiency can be achieved by using fine materials. There will be no corrosion or sound, and hardly will there be a need for oil.” Hoping that one fine day it will be possible to arrive at such a development in real-time, Bhagavathula draws attention to the engines they make. We make our own engines, and not source them, he says.
At Ashok Leyland, a separate team is working to improve the combustion process. Products that have higher power to weight ratio will be launched. Also launched will be CVs with a power output of more than 400 hp. According to Bhagavathula, 49-tonne vehicles with 180 and 190 hp will rise to 200 and 220 hp. The AC cabs, he adds, will flaunt a different level of fit and finish. The use of light weight material is set to increase, states Bhagavathula, the future lies with the suppliers, and how they could help reduce the cost of the end product. Ashok Leyland is closely following alternate fuel technology developments. In the electric vehicle space, it is working on new management strategies. They are about controlling the vehicle and battery functions.
With Optare, Ashok Leyland has developed a strategy to enhance the bus range by 45 per cent. Efforts are being made to access new technologies. Reveals Bhagavathula, “Fruitful exchange of technologies is taking place.” In the direction of connected CVs, the work on driver warning systems is underway. Three systems would be offered. The basic system will warn the driver. The mid-level system will address the needs of fleet operators that are keen to deliver their cargo on time. The premium-level system is autonomous, and engineered to offer complete control. What Ashok Leyland currently offers is ‘iAlert’ and ‘Ley Assist’. ‘iAlert’ improves viability through state-of-the-art, innovative, user-friendly, and cost effective services. Through the ‘Ley Assist’ app., the owner or driver can avail of all the information about the truck through Bluetooth. This includes information about the problems faced too.
Keen to become a full range player, Ashok Leyland will launch one new product every three months for the next two years. With an aim to bag 30 per cent of the LCV market, the company is planning to invest Rs.400 crore over the next two years for LCVs. An electric LCV range is also said to be on the cards, and would be soon unveiled. With the Indian CV market set to change, it is natural of Ashok Leyland to innovate. It will not just benefit the CV buyer, but also the society at large.
Ashok Leyland is not keen to participate in the sub-one tonne CV segment claim industry sources. They draw attention to Nitin Seth, President – LCV and Defence, Ashok Leyland, having mentioned that the respective segment is shrinking, and they would therefore not be keen to look at it. With Ashok Leyland said to be keen to double its LCV market share from 15 per cent to 30 per cent over the next three to four years, a strategy to concentrate on a segment between two and 7.5-tonne would help. Apart from operators looking at moving up in anticipation of better earning potential by carrying higher load, and quickly, the reason for the sub-one tonne segment to shrink is said to be the tightening emission standards. In FY2012-13, the total volumes in the sub one-tonne segment were 2.47 lakh units with Tata Ace accounting for about 83 per cent of the market share. Total sales of pick-up segment (above one-tonne payload) were about 1.93 lakh units. In FY2016-17, sales of sub one-tonne vehicles were about 1.17 lakh units. Pick-up truck volumes were .08 lakh units. If this indicates a shift to higher tonnage CVs, it is also about the growing shortage of drivers, said a source.
Ashok Leyland has developed iEGR for its CVs to comply with BSIV emission regulations.
Ashok Leyland achieved the feat of complying with BSIII emission regulations when they were enforced in 2010 with an in-line mechanical fuel pump. The fuel governing system of the engine was suitably tweaked. To meet the BSIV emission norms that came into force pan-India from April 01, 2017, the commercial vehicle manufacturer has taken the Exhaust Gas Recirculation (EGR) route. It has developed what it would like to term as intelligent Engine Gas Recirculation (iEGR). Rather than adapt a Selective Catalytic Reduction (SCR) system, the company chose to tweak the engine combustion management system and EGR of both its engine families – H and N, that range between 130 hp and 400 hp. Announced Vinod K. Dasari, Managing Director and CEO, Ashok Leyland, that the technology was developed over four years, and with the view of eliminating challenges pertaining to SCR system in terms of weight and operational costs. Claiming that his were the only company in the world to comply with BSIII emission norms using a mechanical pump, Dasari mentioned, “Better fuel efficiency (of up to 10 per cent), and reliability from the absence of SCR associated electronics are the two outcomes of the iEGR endeavour.” With the elimination of POC, and additional sensors, the BSIV trucks, the company offers, promise to deliver higher payload because of the weight saved. Stating that they have been offering SCR since 2010, and came to conclude that it is useful in long runs at constant speeds, Dasari averred, “India is a value conscious market.” What makes iEGR interesting is the low acquisition cost of the vehicle as compared to the one that is equipped with a SCR system.
Impact of SC order
Like other Indian automakers, Ashok Leyland was also affected by the Apex Court’s order to stop selling BSIII vehicles beginning April 01, 2017. Not the one to push inventory on to its dealers, the company, according to Dasari, was left with 10,664 BSIII CVs. “It was panic”. “The successful development of iEGR over the last four years helped us to retain our confidence,” said Dasari. A decision to swap the BSIII engines in BSIII CVs was taken. The engines taken out will be sold in the aftermarket, mentioned Dasari. He claimed that no major financial impact was had, and even though the development was painful. “It is a pain, not fun, but we will get over it,” averred Dasari. Till date, 220 BSIII CVs have been converted to BSIV. The cost of swapping the engine per vehicle is roughly Rs.20,000. The BSIII engine costs Rs.1.4 lakh according to Dasari. In the aftermarket, it is expected to fetch a price of Rs.2.2 lakh. Ashok Leyland vehicles, expressed Dasari, are virtually sold on cash and carry basis.
An endeavour to invade new markets overseas has proved to be of much use to Ashok Leyland in its effort to averse risk. With the Indian market showing signs of much cyclicity off late, the company, which according to Dasari, is the ninth largest truck maker and fourth largest bus maker in the world, is looking at increasing its export thrust. Said Rajive Saharia, President – Global Sales and Distribution, that the company is keen to export one CV for every two CVs sold in the domestic market. Expressed T Venkataraman, Senior Vice President – Global Bus, that the domestic and export sales ratio as far as buses are concerned is 58:42. Buses are exported, he averred, to the Middle East, SAARC, and African markets. Stressing upon the next quarter looking tough, Venkataraman expressed, “We are supplying Euro 5 vehicles to Ukraine, and are going to Latin America.” Quipped Saharia, that more trucks were sold overseas last year than buses. “ Close to 60 per cent of export sales was through trucks,” announced Saharia. The company is looking forward to export LCVs. When it does, the exercise would help it to inch closer to the target of exporting one CV for every two CVs sold in India. Apart from the Middle East, SAARC and African markets, Ashok Leyland is looking at Russia and Ukraine too. In an effort to arrive at streamlined manufacturing processes and higher efficiency, Ashok Leyland has replicated the Ras Al Khaimah plant at Bangladesh. A 200 to 300 unit market will make an attractive export market (in Bangladesh) according to Saharia.
If Bangladesh is the largest truck export market for Ashok Leyland, the company has began exporting the Boss to Russia. Said Saharia, “Supply of bus kits to Ukraine is on, and local converters are building bodies on them.” Ashok Leyland’s strategy to averse risk and grow faster than the industry reflects from its decision to exit some of the STU businesses. This, for a leading bus player in the country was not an easy task. Said Dasari, “We exited some STU businesses for low profitability.” In its quest to put the Dollar where the returns are, Ashok Leyland made it a point to concentrate on innovative products. The result of this is the introduction of Captain, Guru, Circuit electric bus, Sunshine school bus with roll-over protection, and the Oyster (safest) school bus in the Gulf. Due to its growth potential, Ashok Leyland paid attention to the coal tipper and construction truck market.
Selling over 200 Guru ICVs till date, Ashok Leyland witnessed good uptake in 10×2 and 8×2 mining tippers and construction trucks. It sold over 1500 units according to Dasari. The share of Ashok Leyland’s mining tipper and construction truck market, claimed Dasari, grew by 50 per cent over the industry average of 30 per cent. From the time it was launched, the company has sold over 3000 Sunshine school buses. There is a waiting list of 500 vehicles. Despite a single product (Dost), Ashok Leyland’s LCV portfolio, said Dasari, witnessed a growth of 4 per cent. Expressed Nitin Seth, President, LCV and Defence, “We are now looking at running faster. We will launch the passenger version of Dost followed by the bigger version of Dost called the Dost+. An eight-metre long bus on the Mitr platform will be introduced. We will also address the demand for 32-seater school bus and a CNG vehicle. These would be developed in left-hand drive variants as well by keeping in mind the export markets.” Ashok Leyland is keen to tap world’s 80 per cent LCV market that is left-hand drive oriented. To cater to the market for smaller buses, the left-hand drive Mitr will be Ashok Leyland’s ace card.
Apart from expanding the three LCV platforms the company currently has, the plan, according to Seth, is to develop new LCV platforms by 2019-2020. Well aware of the domestic LCV market turning eight-per cent positive for the first time this year, Seth is looking at hitting a six-lakh volume by 2021. Seth is also hoping the LCV to be a bigger player with the coming of GST. In the export markets, Seth is keen to leverage the fact that Nissan LCVs are marketed in many markets making them a familiar sight. With stress on filling up the gaps in the LCV product portfolio by developing new platforms, Ashok Leyland is looking at quadrupling the sale of LCVs with the Nissan joint venture behind it. Keen to sell one LCV for every two LCVs sold in the Indian market, the company is banking on Dost+, which offers a 1400 kg capacity and rides on 15-inch dia. wheels to further increase its LCV market share in the near future. The Dost+ comes equipped with six leaf spring suspension at the rear, and a four-leaf spring suspension at the front.
Providing further impetus to its defence strategy, the supply of Stallion vehicle kits grew 7.4 per cent, from 3076 numbers to 3304 numbers. With an ambition to cater to 25 per cent of the defence budget, the company has invested in a new defence vehicle facility at its Ennore plant. Special focus is on catering to defence vehicle market. Close to 95 per cent of the UN peace keeping forces in Africa, informed Dasari, use Ashok Leyland vehicles. The company has received 4×4 mine protected vehicle order from the Indian Army, he revealed.
Investing in the right solutions
Happy with the genset volume growth of six per cent on the back of new product variants, Ashok Leyland has begun selling automotive engines. It has received first customer order from USA. Said Gopal Mahadevan, Chief Financial Officer, Ashok Leyland, “We have been doing away with all those inside processes, which do not add value to a shareholder, vendor, customer or a large investor. We are automating a lot of them, eliminating, and streamlining them. With limited resources, we have been judiciously investing employee cost in product development and marketing. Much focus is being paid to achieve a high rate of success.” Claiming that Ashok Leyland is one of the few companies in the world to possess sub-BSIII capabilities since it caters to such markets, Mahadevan averred, “We have BSIII in-line and common-rail tech, and we have BSIV EGR and SCR.”
Owning German SCR specialist Albonair, which supplies Euro6 SCR systems to Volvo, Ashok Leyland, it is surprising, chose to develop iegr rather than to deploy SCR. Said Dasari that stress was laid on offering what would best suit the Indian market. He gave an example of trucks being washed by the river-side with buckets of water. Expressed Mahadevan, “We are attributing growth to addressing the exacting needs of the market. We are the only manufacturer to increase the price of our products in January 2017 by four per cent. We are the only one to gain maximum market share in March 2017.” Averred Dasari that the company’s market share grew from 24 per cent to 32 per cent. Of the view that they have seen good growth despite hiking product prices, Gopal averred, the solutions we offer are about total cost of ownership. Working on multiple channels, Ashok Leyland, to tap growth, worked on increasing the points of presence. “50 to 1,600 is a disruptive force,” said Mahadevan. Putting money on channel expansion rather than discounts, the company concentrated on efficient breakdown services, he added. This, mentioned Gopal, was necessary because the vehicles sold by them are often misused, and are therefore prone to a breakdown.
Apart from investing in the channel, Ashok Leyland has also invested in new products. The Boss, Captain, Partner, Janbus, Mitr, Guru, and others are a point in case. The company leveraged technology to address the requirements of the customers at any given time. This helped the company to secure an order from USA. Claiming that dealers appreciated company’s policy to not push inventory, Gopal opined that a clear focus is on return on investment at Ashok Leyland when it comes to technology. He explained, “As far as technology is concerned, ours is the only electric bus that climbed the Rohtang pass without a breakdown.” Ashok Leyland is building its capabilities in parallel. It is digitising. Mentioned Rajive Saharia, that Ashok Leyland is banking on digital initiatives for growth.
Digitisation for Ashok Leyland, apart from common-rail engines, means telematics and a slew of ‘support’ technologies. Mentioned Dasari, “We developed a new way of providing telematics in the form of a single device that works on any Ashok Leyland vehicle, and without any kind of engine or associated architecture. It provides driver information, diagnostics, etc., and is found on BSIV CVs.” Ashok Leyland has developed a scan tool for onboard diagnostics for a fraction of a cost, and sans the need for a laptop. The company has also developed Ley Assist, which according to Dasari is a Bluetooth operated phone based tool to diagnose error without any physical connection. Looking at autonomous vehicles and vehicle platooning technologies as the future, the folks at Ashok Leyland are working in that direction, albeit with limited resources. Expressed Mahadevan, “I have limited Dollars, and I am spending them efficiently.” “Our net price realisation in March was better than in February, and it is something that is hard to believe but true,” he added. Ashok Leyland is paying attention on logistics and supply chain. It is also paying attention to improve the capabilities of tier 2 suppliers. Revealed Mahadevan that stress is on pertinent technology; technology that will sell. “We are thus keen to build an engine portfolio, and turn it into a separate line of business. A lot of our engines are used for marine applications besides gensets,” he signed off.
After a tumultuous last year, the CV industry is looking at a rare new period.
Story by: Ashish Bhatia
Supreme Court’s judgement to stop the sale of BSIII emission compliant vehicles on April 01, 2017, led to an unprecedented situation. CV manufacturers and dealers were left with an estimated inventory of 96,700 (and 40,048 three-wheelers) BSIII emission compliant CVs as on March 30, 2017, amounting to a sum of Rs.2500 crore approximately. With the Supreme Court order clearly stating that on and from April 01, 2017, such vehicles that are not BSIV compliant shall not be sold in India by any manufacturer or dealer, led CV industry stakeholders to look at quick ways of off-loading as many BSIII emission compliant CVs as they could in a short span of three-to-four days; from the time the Supreme Court gave the order and from the time BSIV emission norms came into force on April 01, 2017. The scope of the Supreme Court judgement can be had from the fact that it ordered all the vehicle-registration authorities under the Motor Vehicles Act, 1988, to not register such vehicles on and from April 01, 2017, that do not meet BSIV emission standards, except on proof that such a vehicle has already been sold on or before March 31, 2017. It was no secret that BSIV emission norms will come into force from April 01, 2017. The CV industry knew it. What the CV industry did not know, claimed an industry source, was if they should discontinue manufacturing BSIII vehicles such that there will not lie a single unit with them or their dealers on April 01, 2017. He drew attention to the fact that manufacturers were entitled to manufacture BSIII emission compliant vehicles till March 31, 2017. He also drew attention to the Centre’s response on pleas filed by Bajaj Auto and Environmental Pollution Control Authority (EPCA) in the Supreme Court, that the sale and registration of BSIII vehicles can continue after March 31, 2017, and the cut-off applies to manufacturing only. During the March 24, 2017, hearing, claimed an industry source, the court had considered allowing registration of BSIII vehicles by imposing a compensatory cess. The Centre’s response is said to have been based on two earlier instances of upgrading to BSII and BSIII emission norms respectively. Then, the sale of existing stock was allowed.
Bone of contention
Mentioning in its order that the health of the people of India is of greater importance than the losses the auto industry would suffer (sic), the Supreme Court was not impressed by the argument that manufacturers be allowed to sale BSIII vehicles even after the BSIV regulation was implemented.
Claimed an industry source that the ministry of transport issued a notification on August 19, 2015, to switch to BSIV emission compliant vehicles on April 01, 2017. It did not however clarify whether production of BSIII vehicles would have to be stopped, or also their sale. Interestingly, the Supreme Court did not fail to observe the fact that an expenditure of Rs.30,000 crore was incurred by refineries to produce BSIV grade of fuel. The Court in its order stated that manufacturers failed to take pro-active steps despite being aware of the timelines. Much confusion prevailed until the Supreme Court issued an order on March 28, 2017, to stop the sale of BSIII vehicles on March 31, 2017.
Dealing with the impact
Left with no choice, CV industry stakeholders came up with the prospect of fire-sale. With the Court order coming out three-to-four days before April 01, 2017, the auto industry, and not just the CV industry saw fire-sale as a promising prospect, which is not surprising. Many two wheeler manufacturers too resorted to fire-sale of their BSIII vehicles as well.
Expressed Vinod K. Dasari, Managing Director and Chief Executive Officer, Ashok Leyland, and President, Society of Indian Automobile Manufacturers (SIAM), that they are looking at exporting the leftover (BSIII vehicles) inventory to emerging markets, currently complying with BSIII norms. Claimed an industry source that those (vehicles) that are left behind will be dismantled. Some of the aggregates could be rescued. Alternatively, the vehicles could be upgraded to BSIV if possible. A statement issued by Mahindra & Mahindra announced that the Group is ramping up BSIV vehicle production. The OEM, the statement read, is also exploring options within the framework to minimise the impact. The brisk discount sales and incentives CV makers offered to off-load BSIII vehicles in the three-to-four days costed them in the region of Rs.2500 crore, claimed an industry source. According to a report by research firm Crisil, companies sold a little over half of their BSIII inventory by March 31, and have lost Rs 1,200 crore on discounts and incentives. They are expected to lose another Rs.1,300 crore to dispose off the unsold inventory.
Mentioned a Tata Motors source that the ban would have a material impact on all the CV industry stakeholders. They are, he mentioned, assessing unsold inventory that lies with the company and the dealerships. According to the Tata Motors spokesperson, the decision to ban the sale of BSIII vehicles was unprecedented and unexpected. Erich Nesselhauf, Managing Director and Chief Executive Officer, Daimler India Commercial Vehicles (DICV), expressed that they planned a year in advance to meet the BSIV deadline. The company, he added, has sold its 1000th BSIV truck in the state of Kerala recently. Kerala migrated to BSIV emission norms in November 2016, much before the pan-India BSIV regulation came into force last month. Despite prior planning, DICV has come to have an unsold inventory of 200 BSIII CVs, said Nesselhauf on the sidelines of the launch of BSIV BharatBenz HDTs at Chennai. DICV had its CVs shed 400 kgs to accommodate BSIV apparatus. The company has adapted SCR technology to meet BSIV emission norms unlike Ashok Leyland, which has adapted intelligent EGR technology to meet BSIV emission norms. DICV is supplying AdBlue solution to its dealers (and to petrol pumps) to ensure quality and reliability. The price of BharatBenz BSIV CVs is the same as the price of the
The impact on CV dealerships was considerable. Dealers came under immense pressure to off-load BSIII CVs. If slow moving inventory made for a higher impact, dealers panicked at least in the beginning. Averred Piyush Jain of A V Motors, a SML Isuzu dealer, that the ruling is hard hitting, and has rendered dealers helpless. Jain compared the development with that of demonetisation. Demonetisation too hit us hard in the third quarter of FY2016-17, he said. “A strong (and clear) judgment should have been passed about discontinuing the manufacture of BSIII vehicles in 2016 itself,” opined Jain. “Had such a ruling been passed in 2016, it would have not resulted in the quantum of losses that we are staring at today,” he added.
Jain also touched upon the fear of electronics among CV buyers and operators. “The customer here is far from being accustomed with the high level of sophistication (electronic engine) BSIV emission regulation will call for,” said Piyush. He informed that he had an inventory of 20 BSIII vehicles. Apprehensive of the volumes in the first quarter of FY2017-18, Tej Ghatge of Chetan Motors, a Tata SCV dealer from Kolhapur said that he held an inventory of 55 vehicles as on March 31, 2017. Of these, he managed to fire-sale 20 vehicles. Huge discounts were offered. Discounts of Rs.50,000 on a Tata Ace was offered. Vimal Gujral of Cargo Motors, a Gandhidham-based Tata CV dealer, expressed that the development was shocking. He held an inventory of 500 vehicles as on March 31, 2017. If his regional centres would be accounted for, the count would go up to 700 vehicles. Not a happy prospect for certain, opined Gujral. With unsold inventory accounting mainly for Small Commercial Vehicles (SCVs) and pick-up trucks, Gujral revealed that they have hiked the discounts considerably.
Stating that the higher price differential between BSIII and BSIV emission compliant CVs is yet to result in a clear picture as far as the demand in CV industry goes, Gurjral said, “We are yet to witness demand for BSIV CVs.” Mentioned a prominent CV dealer, that they have been advised by their principal to register (BSIII) vehicles in their name. “There is a limit to the number of vehicles we can register in our name,” he said. Suresh Jain of Veerprabhu Marketing, a CV dealer from Jodhpur, expressed that inventory levels are usually higher at the end of the financial year. This is done to realise depreciation benefits by billing the inventory over the financial year end. With customers expecting unrealistic discounts, and at times below the cost of goods sold, it is not a happy prospect since the dealer has already been billed for local transportation, local taxation and sales tax among other charges, averred Jain. Jain’s dealership held an inventory of 200 vehicles as on March 31, 2017.
As a desperate measure CV dealers are known to give an extended credit of up to 30 days to some of their large fleet operator clients to off-load BSIII inventory. Said a dealer on the condition of anonymity, that the impact of Supreme Court’s order and the slow demand for BSIV CVs will reflect in the sales statistics for the first quarter of FY2017-18. The CV industry, he averred, will perform worst than when it was impacted by demonetisation.
With the Crisil report pegging the CV industry loss at Rs.2,500 crore, the total impact of the Supreme Court order is claimed to be 2.5 per cent of the annual revenues of listed CV manufacturers. According to the Crisil report, an expense of another Rs.1,300 crore will be incurred to dispose off unsold inventory of BSIII CVs. The effect of this development, claimed an industry source, will be spread across FY2017-18. The discounts offered during the fire-sale of BSIII vehicles is also expected to negatively impact EBITDA margins by 100 bps (one per cent) in FY2017-18. Expressed Rakesh Batra, Partner and automotive sector leader at Ernst and Young Services, that it is necessary to consider that the CV industry works globally on 20 to 30 days of inventory. This is within the distribution channel, and should have been accounted for as part of the plan to transition from BSIII to BSIV emission norms. An ICRA report pegged unsold inventory of BSIII CVs to between Rs.4600 and Rs.5800 crore approximately. Despite being caught off-guard by the SC ruling, SIAM’s latest report states the overall commercial vehicle segment to have registered a 4.16 per cent growth in FY2016-17. Medium and Heavy Commercial Vehicles (M&HCVs) grew by 0.04 per cent over the same period last year. Light Commercial Vehicles (LCVs) witnessed a 7.41 per cent growth while CV exports registered a 4.99 per cent growth.
Looking for clarity
The Society of Indian Automobile Manufacturers (SIAM) has written to Prime Minister Narendra Modi, seeking a meeting, claimed an industry source. The letter, he mentioned, speaks about the auto industry wanting to thrive in an environment where there is policy clarity and certainty. Especially, due to the long gestation period involved. Claimed a source on the condition of anonymity that the recent Supreme Court ruling contradicts the 2015 notification by the transport ministry. He mentioned that this has been mentioned by SIAM in the letter it wrote to the Prime Minister. The fact is, the die has been cast. BSIII CVs are history. The road ahead lies on the frame work of tightening regulations starting with BSIV. With the crash regulations said to come into force from next fiscal, the road ahead for the Indian CV industry is going to be as challenging as it has been for sometime now. With GST round the corner, the CV industry, it is looking like, is already anticipating big changes. In 2020, the bridge to BSVI emission norms will have to be crossed too.
Ashok Leyland has announced that it plans to consolidate its presence in the state of Jharkhand on the back of substantial growth over the past one year. The commercial vehicle major, claim industry sources, has witnessed a 50 per cent jump in sales in the last one year. From around seven per cent to 16 per cent initially. Anuj Kathuria, President, Global Trucks, Ashok Leyland, is known to have said that the growth has provided a big boost to expansion plans in the state. Kathuria is also known to have pointed at a significant rise in demand for tippers. The company is said to be looking at doubling production in the next two years in anticipation of growth brought about by government’s focus on big ticket infrastructure projects. Tippers especially. With 32 per cent market share, the company has recorded a two per cent increase in the sales volumes of M&HCVs, and four per cent in Light Commercial Vehicles (LCVs) for FY2016-17.