Ravi Pisharody leaves Tata Motors

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Tata Motors has announced the departure of Ravi Pisharody from the company. Executive director of the commercial vehicles business of the company, Pisharody joined Tata Motors in 2007 as Vice President – Commercial Vehicles (Sales & Marketing). On the board of various Tata Motors Group Companies, Pisharody steered the Tata Motors’ commercial vehicle business through the lean period of 2008-09. Elevated in 2012 as executive director, he revamped the entire commercial vehicle fleet, including the Signa range of value oriented HCV truck range. Well aware of the price sensitive Indian commercial vehicle market, Pisharody was instrumental in the company expanding its product portfolio and overhauling the dealer network to be able to maintain its leadership position in the wake of rising competition. Driving hybrid, electric and LNG developments with an emphasis to do as much in-house in order to keep control over processes, quality and costs, Pisharody play an important role in roping in action hero Akshay Kumar as the brand ambassador. Under his leadership, Tata Motors regained the leadership in buses. The defence vehicles business also grew under Pisharody’s leadership. His exit citing personal reasons comes as a big surprise. Ironically, it also comes at a time when the company is undergoing restructuring. Pisharody’s exit also comes at a time when the commercial vehicle major has see its market share drop, and Mahindra snatch the lead in small commercial vehicles. Pishraody, along with the new MD Guenter Butschek, contributed in a new mid-term goal that envisaged Tata Motors to be among the top three commercial vehicle makers by 2019.

Tata Motors looks up to an exciting future

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Post the transition to BSIV, Tata Motors is eyeing strong growth.

Story by:

Bhushan Mhapralkar

Like many other commercial vehicle manufacturers, demonetisation affected Tata Motors too. The end of FY2016-17 marked not just the end of a tumultuous period, it also marked green shoots. For example, buses did exceedingly well. For Tata Motors, they posted a growth of 22 per cent against an industry growth rate of 10 per cent. This led the company to grab the lead in the Indian bus market. LCVs also performed well for Tata Motors. Looking at a new period that does not come often, and will perhaps never come again, Tata Motors is looking up to an exciting future. According to Ravi Pisharody, Executive Director – Commercial Vehicles, Tata Motors, the CV maker is confident of infrastructure revival helping it to grow. It is also looking at growth coming from the push for electric and alternate fuel vehicles. With teams in place, and post the significant structural changes to assume a leaner form, the company is exerting a good deal of thrust on exports as well.

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The Ultra, according to Pisharody, is in the sweet spot. It is helping the company, along with the Prima, to drive exports. Export volume accounts for 17 to 18 per cent of the total volume, and is expected to go up to 25 per cent. Keen to offer the lowest cost of ownership, Tata Motors, in FY2016-17, saw the M&HCV segment shake and rattle. A segment where its new age products, Signa and Prima, enjoy a considerable clout. The months of April and May brought good growth to M&HCVs whereas the months of June, July and August proved to be weak. The reason, said Pisharody, could be attributed to GST. “GST started doing the rounds, and the PMO and the finance minister began talking about its implementation from April 2017. This seems to have led to lacklustre performance of M&HCVs in June, July and August last fiscal on the back of uncertainty, as CV buyers, hoping that prices will fall, decided to postpone their purchase. The talk of a tax structure of 18 per cent would entail a drop in prices by 8 to 10 per cent,” he expressed. The M&HCV segment started gaining velocity in September, and because of the good monsoon. In October 2016, and at the start of the festive season, the M&HCV segment recorded the highest growth in FY2016-17.

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Demonetisation

In November 2016, the effect of demonetisation was most felt in north and west, the markets where Tata Motors enjoyed the most exposure. “For a few days, the CV industry was literally stranded on the road,” opined Pisharody. Pointing at the way the transport industry works, Pisharody said, “A truck driver carries an amount of cash, which the driver and owner figure out as necessary.” The industry declined over the next two months. Tata Motors’ sales declined 30 per cent in comparison to October, and 15 per cent in comparison to the corresponding month of the previous financial year. The same situation prevailed in December 2016. In January 2017, the effect had vanned.

Despite the Environmental Pollution (Prevention and Control) Authority for Delhi & NCR (EPCA) exerting its stance, it was expected that February, March and April 2017 would witness pre buying. An amount of pre-buying did take place. Tata Motors however, took a balanced approach according to Pisharody. This ensured that the CV maker did not carry much inventory into March 2017. “We looked at precedence, when vehicle manufacturers were allowed to sell their existing stock, and not manufacture it after the cut-off date. The Supreme Court judgement was surprising,” expressed Pisharody. He said further, “Our strategy works around dealers carrying a stock of 30,000, all segments included, at the end of March. It amounts to one month of stock, and something which the dealer is able to carry into the next month. In this case, into April.” Production of BSIII CVs was immediately cut down on March 29, 2017, by Tata Motors. More impetus was laid on BSIV vehicle production, which the company was already ramping-up. Attention was also paid to help dealers to liquidate their stock.

What made it important to help the dealers liquidate their stock was the sales tax component already paid. Taking back dealer stock would have meant losing the paid tax component. “We were largely successful in liquidating the dealer stock,” stated Pisharody. Over a off-take and retail of 30,000 in February 2017, the March 2017 off-take was only 36,000. Tata Motors did not push inventory, and the figure the company settled for in March 2017 was lower than March 2016. In March 2017, the company witnessed solid retails of between 51,000 and 52,000. Dealer stock of BSIII vehicles according to Pisharody was very low as a result. It was between 3000 and 4000. Big trucks amounted to less than 500. At the plant level, the company incurred a stock of 15000 CVs.

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Getting rid of the inventory

To get rid of 15000 BSIII CVs, Tata Motors is looking at export markets. It is also looking at aggregates to be sold as spares. Putting the company at a disadvantage when it comes to market share in March, Tata Motors reported a wholesale volume of 14000 as compared to a retail volume of 22,000-23,000. Out of the 15000 BSIII CVs left with Tata Motors, the number of M&HCVs, according to Pisharody, is 4000 units. He informed that discussions are on to seek a legal remedy, and that the government is supportive. Upon analysing, Tata Motors found out that 8000-8500 units (out of the 15000 BSIII vehicles) could be exported to markets like Sri Lanka, Nepal and Bangladesh as they are. Considering a monthly export of 5000 to 5500, it would take the company four to six months to get rid of the BSIII stock opined Pisharody. Of the remaining vehicles (that are not exported), Tata Motors plans to convert to BSIV. An ICV like the Tata 1109, explained Pisharody, can be converted to BSIV with a nominal cost of five per cent. Conversion of such vehicles has already begun. In case of vehicles that would pose a conversion challenge in terms of efforts and expense, Tata Motors is moving slowly. While hoping that a legal remedy is available to dispose them, the company is also looking at cannibalising high value items like gearbox, tyres, etc. This would help it to fulfill its long-term service obligations.

Beginning of a new period

Tata Motors is looking at FY2017-18 as a completely new period. The product performance equation in comparison to the competition will change according to Pisharody. The price positioning as well as customer eligibility will also change, said Pisharody. Terming the company as a CV market leader, and futuristic in its approach, Pisharody averred, “We will cater to price conscious as well as performance conscious customers.” The company will bank on a dual strategy as the new period reveals itself. For lower powered engine of up to 160 and 180 hp, the company is looking at EGR. With an overlap between 160 hp and 180 hp, Tata Motors is looking at deploying SCR technology on higher powered CVs. “All Tata engines have EGR,” informed Pisharody. He said, “Look at the 497 engine for example, and it is equipped with an EGR. The new three and five-litre engines that power the Ultra will deploy EGR. Two-axle trucks and lower powered buses will be equipped with EGR technology. For muti-axle heavier trucks, SCR technology will be deployed.”

If the stress on SCR technology hints at an attention to BSVI emission norms, Tata Motors is making a big jump in technology. It is doing so with an intention to achieve benefits like fuel economy, reliability and lower maintenance costs. Pisharody may expect higher resale value to come in once the migration to new (BSIV) technology takes place, and on the back of fuel, which will be different from what was available until now, the fact is, the next quarter looks lacklustre. It is something that Pisharody is well aware of. Especially on the back of some pre-buying in February and March. With GST scheduled for July 01, 2017, an amount of uncertainty is expected. Uncertainty is expected go down in the second quarter of FY2017-18 according to Pisharody. He opined that bus and SCV sales in July and August are expected to be much better than they were during the corresponding period last fiscal. Buses, he quipped, are already on SCR. As 13 Indian cities moved up to BSIV emission norms in 2010, Tata Motors equipped buses and urban application CVs like garbage compactors (on 1621 platform) with SCR technology. SCR technology for Tata Motors is therefore not newfound.

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EGR vs SCR

Ramping up production of BSIV CVs, the company has limited the deployment of SCR tech to Tata Cummins engines. The four-cylinder engines that Tata makes, will continue to be equipped with EGR. With Cummins, said Pisharody, Tata Motors is enjoying access to the latest and the most modern technology. Apart from SCR equipped engines, Tata Motors will also source EGR equipped engines from Tata Cummins in the 150 to 200 hp power range. Confident of the GST elevating the efficiency of the logistics industry (by doing away with border checks), Pisharody opined, “The strategy is to equip a certain range of engines with EGR, and a certain range of engines with SCR.” Girish Wagh, Head – Project Planning & Programme Management, M&HCV, Tata Motors, explained that they have acquired good global and local experience from the use of EGR and SCR technology. “For light-duty applications of up to 150 and 160 hp, EGR can do the job, and would entail lower costs,” he mentioned. SCR technology, according to Girish, makes sense for engines that are powerful as it will provide better fuel economy. “Beyond 180 hp, liquid economy of SCR is better than EGR”. With the use of SCR engines, Tata Motors is eyeing the twin advantage of lowest cost of operation and longer engine life. Well aware that the move to BSVI emission norms will make SCR essential, BSIV trucks with SCR techlogy according to Pisharody will command good resale value.

With the engine governed electronically, Tata Motors has had an opportunity to add value. It thus developed vehicle acceleration management system that filters driver input to ensure optimum efficiency and longer aggregate life. Tata Motors has also developed fuel economy switch, the mode of which the driver can select depending upon the duty cycle and usage condition. A host of technologies have been developed by Tata Motors to increase aggregate life. Efforts to improve ride and comfort were undertaken on the basis of the feedback received. The company has developed a modular chassis frame, which aligns with multiple applications. A new 6.5-tonne front axle has been developed to facilitate higher load carrying capability. Revealed Girish that 14000 common-rail trucks are already plying in India for the last seven years, and have provided a good learning opportunity. The company, averred Girish, is deploying 1800-2000 bar pressure common-rail systems and DOC for EGR application. The price differential between BSIII and BSIV Tata CVs is in the region of 10 per cent. For the higher amount paid, the operator is getting much better value mentioned Pisharody. He said, “We are offering better AMC for SCR equipped vehicles.” Keen to ensure that Tata CV operators enjoy lower total cost of ownership, the company will market AdBlue solution as a Tata brand through 3000 outlets and fuel stations.

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Confident of infra revival, and the rising demand for electric vehicles (a tender for 100 electric-buses has been floated at Pune, and for at least six buses in Himachal Pradesh), Tata Motors, expressed Pisharody, is expecting new regulations like AC, advanced crash norms and CAFE to call for attention in the next two years. “Powertrain and vehicle teams at Tata Motors are in place for BSVI regulations that are due to come in force by 2020,” Pisharody signed off.

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.

Signalling change

Q & A

Ravi Pisharody,

Executive Director – Commercial Vehicles, Tata Motors

Interview by: Bhushan Mhapralkar

& Anirudh Raheja

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Q. How do you look at the FAME outlay in the wake of hybrid and electric CV proliferation?

A. The government has pushed the FAME outlay up slightly, but for a bus that costs nearly two crore rupees, it is not easy to pick up steam. Consider the financials involved in electric buses, and it does not look easy. Electric buses have a made a splash in China because of the near 100 per cent subsidy they get. It is unbelievable but true. Right now, we are not really getting tied down by that, but unless volumes build up, costs coming down is a distant dream. We are going to make 20 electric vehicles, put it all over India to create public awareness. We already have one bus running on alternate media, but that is a hybrid. It ran at different places including Delhi. It ran in the BEST (Mumbai) territory two years ago. We already have an order from MMRDA (for Bandra-Kurla Complex in Mumbai) to supply 25 buses.

Q. How is the response from transport undertakings to such vehicles?

A. To be frank, they are also looking out for directions. In Jnnurm II, BMTC (Bangalore) actually raised a demand for 25 buses, but when we shared the costs they conveyed that only 30-35 per cent of the costs were being borne by Jnnurm II scheme. So the amount that they had to shell out was still more than a crore rupees. The same may change quickly because of the pollution related problems. Especially in the hilly areas. Himachal Pradesh, I think, has placed an order for an electric bus. The volumes may be small but the idea of being futuristic is already there.

Q. You have launched the Signa range of trucks. Is it an upgrade of the LPT range?

A. We are moving into brands, which includes the Ace, Magic and the Prima. The Prima was followed by Ultra. In our main segment, we felt that the cabin needed a major uplift. The product had to be ready for the next 10 years. So rather than selling it as a 3118 and a 4923, we have decided to bring them all under a brand. The numbering like 3118 and 4923 will remain. So, if you see the cabin of the Signa, it may not be as good as the Prima, it will however equal or be better than most of the cabins available, and at a nominal cost increase. The powertrain will not change much and will be similar to what our 3118, 4018 and 4923 models carry. Additionally, it will be fitted with telematics as a standard feature.

Q. Would the Signa cannibalise the Prima?

A. Sales of the Prima LX are increasing and we are focusing a lot on tippers. Multi-axle trucks are still going slow. Exports are giving us 200 numbers. It was decided three years ago that the current cabin should be upgraded so that it looks as modern as the other new products. Many of our competitors are new but we have been in the market for six decades. The Prima’s cabin has got more weight and is much more sturdy. People might not buy Prima because of the cost of operations, and not because of the vehicle cost. The Prima will be very useful for those who want to transport heavy duty loads or cover a six-day trip into a three day trip. And, even if the Prime is successful, we cannot look away from our main range. It is necessary to acknowledge the fact that a lot of cabin sales are from the 3118. That is the segment that will move over to the Signa.

Q. There were no LCV launches in 2015 except below 3.5-tonnes. How do you look at this?

A. We launched Ultra range last year – the 812, 912 and 1012 models. We have launched the Ultra 1518 model at the Auto Expo 2016. It will be the first vehicle in the ICV range with a sleeper cab. It will be a complete walk through flat cabin with an extended load body. We will also have a narrow Ultra in the four-tonne and seven-tonne range. For the SFC 407 or LPT 407, we did not make big changes. There’s been no launch therefore. We showcased them at the last Auto Expo. The Ultra narrow truck on a four-tonne platform will be launched in FY17. We felt that a narrow cabin on a high vehicle will not look good, so we had to lower the wheelbase. The hierarchy will be Ultra, Signa and Prima. This is how the 9- to 49-tonne segments will be covered.

Q. The Ultra platform looks highly versatile. How far will it extend?

A. If you ask me, we can take the Ultra up to 25-tonne platform. We may not do that since the cabin will become too small. We are therefore looking at a B-cab design. The Prima range is already available with a B-cab design, which is typically used in a multi-axle truck. For a 25-tonne truck too we will be looking at a B-cab design. There will be a certain overlap for co-existence between the Signa and the Prima range. For deep mining applications they would certainly need the Prima.

Q. You showcased four construction trucks at Excon 2015. How do you think the industry segment is moving?

A. Last month, we grew by 20 per cent, which has come in after three years. While the M&HCV segment was growing, LCV was struggling. Now LCV is 12 per cent, M&HCV is 40 per cent and tippers are also growing. It think this quarter we will grow by 20 per cent. If we focus on the numbers, one of the developments in the last four months has been the growth in construction tippers. If you look at the M&HCV growth (which consists of tippers) till September, it hovered around 30 per cent. Tipper growth was zero. Consider the last 18 months up to October, and the tipper growth was zero. All the growth came from the cargo segment. Now, tippers have started to grow. We can also see a government effort on infrastructure and construction where road contracts are being executed, mining relaxation is gradually happening. I think that the next one year will be strong in terms of tipper sales. Like cargo, there was a pent up demand, which suddenly came in. The government is aware that the next wave of growth will come from public spending and not from private spending.

Q. When could we have Tata CVs with Automated Manual Transmission (AMT)?

A. There are two programs right now. We are currently working on an AMT for the Ultra range. I think it will be more useful in the start-stop kind of environment; in cities where short haul transportation happens. AMT may come on the Ultra platform buses first. This is because buses is where the maximum urbanisation is happening. We are also looking at automatic transmission for Xenon because of rising demand from our export markets like Thailand and Australia.

Q. Would Tata Motors also introduce start-stop technology in CVs?

A. Start-stop technology was introduced in the Tata Ace Ex. There was no demand for it. We decided to not put an extra cost when we saw that the market is not absorbing it. We pulled out. With focus on AMT, we will re-visit the start-stop technology later.

Q. With every new development at Tata Motors globally oriented, does the Signa hold export potential?

A. We are exporting close to 5000 vehicles every month, out of which 1200-1500 units are trucks. If you look at the Signa, from the outside it might look as an earlier cabin, but it has got better fit and finish. It has a new dashboard, and is more safer. We are starting with the 4923 tractor, 4018 and 3118. Once all the tractors migrate, we will stop producing the existing one. The Signa will replace the current LPS and LPT range. Then we will move to tippers and then we will move to 25 and 31-tonne multi-axle trucks. Over a 12 month period, Signa will be the mainstream range and Prima will be the upgraded range. Initially it will be the domestic market (for about 12 months). Exports will follow because the numbers here are pretty large.

Q. Do you see a future for hybrid trucks in India?

A. Not in the near future because of the higher cost of the vehicle. Such a technology will not be good enough to compensate the 10 per cent increase in (fuel) saving. Hybrid technology largely depends on regenerative braking, and in long distance vehicles, braking does not happen that often as compared to a city vehicle. Hybrid buses for city operations is the best; it has to brake at every signal. Because the bus stops often, regenerative braking is high. This could be an option for Xenon. Migration will however take time.

Q. When could we see the 40 hp version of the Magic?

A. The segment that the Magic is in has been struggling for sometime. This is where the nexus of financing default and low financing has hit the most. Financiers are not ready to give more than 70 to 80 per cent loan. Whenever a permit is involved, such things can happen. When defaults started happening, people just left the vehicles and walked away. Financiers are more cautious. Cargo still carries a positive reputation, and despite less business. In the SCV segment, I think, we have hit the bottom. Sales have started increasing. We will launch the Magic Mantra in this quarter(FY16 Q4). It will not suffer so much. It is a very good option for a school bus because it is a higher powered vehicle. Magic’s limitation today is its 16 hp engine with a top speed of 55-60 kmph. Magic Mantra will soon get a closed body version. The Magic today comes with a soft top. When it comes to carrying people in a city, students or staff, the Magic Mantra will fit the bill nicely.

Q. Is India a friendly market for the one who would like to become an entrepreneur?

A. Four years ago, it was too friendly when the financing was easy. The penalty for not paying installments on time was weak. India is still a business friendly market. As the economy improves, the loan availability will increase. If you ask me, Tata Ace was launched in 2005, and the M&HCV market saw correction in 2008, 2009 and 2010 and again in 2012, 2013 and 2014. The Ace saw the first correction after eight years. We had by then sold 1.5 million units already. In India, vehicles don’t disappear. They continue to be resold, which I think is still fairly encouraging.

Q. What about permit issues pertaining to public carriers?

A. Wherever passengers are involved, a permit is applicable. Permit is applicable even for a private bus. The situation, I think, will ease up as we move forward. A lot of state transport undertakings are willing to deploy more buses, but they don’t have the money for it. They are tying up with private partners even as they face issues like getting the requisite parking space. Bigger buses will see some revival because of the need to have better public transport. Smart cities will need public transportation. Smaller vehicles are more or less state driven. As the financing environment returns, this segment will pick up again. It is like a share taxi market. In Kerala, four-wheeler segment is more strong. It is like a taxi that is hired to go from one place to another. We sell close to 800 units every month, which is more than three-wheeler sales. We have already overtaken Piaggio. Our dialogue with the government continues to give legitimate results.

Q. The emission compliance goalpost seems to shift. How do you view it?

A. The BS IV emission compliance will be made mandatory nationwide in April 2017. Of the India permit trucks on the road hardly any is BS IV emission compliant. There’s is a lot of pressure on this. The Ministry of Road Transport & Highways (MoRTH) also took us into confidence. We also had a meeting at SIAM, and came to the conclusion that there is no sense doing BS V for two years. All the platforms have to be in production, and have to be tested. By skipping BS V we will actually save a lot of investment and time. Petroleum ministry has said that we will have the fuel by 2020. We have asked the ministry to supply fuel at least a year in advance. BS VI is a sophisticated technology and needs critical testing and validation. They are time consuming. Also, one cannot sell any fuel lesser compliant than BS VI once BS VI vehicles are out in the market. The country has to move 100 per cent to BS VI. We will start building BS VI compliant products by April 2020. We have asked for a permission to phase out products over a period of two years. The same was also done in Europe. What it means is that we have taken a huge challenge for investment, technical capabilities and testing facilities.

Q. How will that go down with customers where an SCR system could cost as much as an engine?

A. It is difficult to zero down on the costs for now, but there will be at least 25 per cent escalation. The move up to BS IV calls for a 10 per cent increase in the vehicle cost. Bigger BS IV trucks need after treatment whereas smaller ones don’t need it. For the next one year, we will see good demand for BS III vehicles till April 2017. The following year will be dull. As we will approach 2020, people will start advancing to BS IV vehicles.

Q. Will the Indian duty cycles differ from markets that have already graduated to BS VI?

A. The view that foreign companies are making BS VI in India and exporting is not right. For selling the vehicle in India, the technology cannot be copy pasted. A lot of software work is involved. It is going to be quite challenging.

Q. How are you looking at the van market that has the Winger? Would you introduce a new product?

A. A new vehicle will take time. In the case of the current Winger, we have recovered our investment. Over 7000-8000 units are selling every month. It is very popular as an Ambulance, and has overtaken the Force Traveller as an Ambulance. Traveller is selling more of 17 to 18-seater versions. They are the market leaders in that segment.

Q. Would vans play a crucial role as feeder service vehicles?

A. The customer in India still seems to prefer a semi-forward look. Van has a box-type look. The segment will not become as big as it has been in Thailand and Indonesia where you see vans transporting 6-7 people.

Q. Which alternate fuel do you think will be the most sustainable? Would it provide a better passage to BS VI?

A. Rather than ethanol, I think LNG is a good option. At the 2014 Auto Expo, we showcased a LNG powered tractor trailer. While CNG is there, for long haul trucks, we believe LNG could be a good option. Whether it gives a better route to BS VI, I cannot comment on. Diesel has not gone off completely from any country and for long distance transportation it will still be viable. When you move to BS VI, data will show that the performance of diesel as compared to that of a petrol is equal in some parameters and slightly inferior in some parameters to petrol. This is not the case with BS III diesel. As you keep going up, the question of diesel being called a bad fuel does not arise if you discuss it scientifically.

Q. Diesel vehicles are under scrutiny; are looked upon as polluting.

A. Today, new (diesel) vehicles have been banned. I think this is defeating. Delhi is already at the BS IV emission norms level. In the discussion we had with the ministry, they have accepted this. My view is that they are already working on a notification for which they are consulting a lot of people; to finalise the incentive for scrapping and other things for which they are actually looking for experts to advice them.

Q. How are the suppliers and dealers looking at the move up to BS VI?

A. It is not too much of an issue with the dealers. There will be a lot of changes at the after service. On board diagnostics, I think, will come in a phased manner. In Europe, OBD implementation was phased over two years. We are running a big transformation at the dealerships. We are encouraging them to invest into hi-tech and better reception facilities, to give a better consumer experience. With the vendors, suppliers involved with engine and after treatment like Bosch and Delphi, will have a major impact. Some enterprising vendors can actually take the lead, for which OEMs will be happy to outsource rather than try to do everything in-house. They can also sell the product to many OEMs, which would give them the chance to reinvent an engine.

Trendline

If you look at the Signa, from the outside it might look as an earlier cabin, but it has got better fit and finish. It has a new dashboard, and is more safer. The Signa will replace the current LPS and LPT range.

We are running a big transformation at the dealerships. We are encouraging them to invest into hi-tech and better reception facilities, to give a better consumer experience.

Staying ahead

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Article by: Staying ahead

Q & A : Ravi Pisharody, Executive Director — Commercial Vehicles, Tata Motors

Interview by : Bhushan Mhapralkar

Q. What growth will the CV industry achieve?

A. We are seeing more of what we saw last year. M&HCV sales continue to grow at 20-25 per cent, driven by cargo. Cargo M&HCVs are growing at 30 per cent on replacement demand. Tipper and construction truck part, which accounts for 30 per cent, is flat. Not like 2010-11, which saw the last big purchase. Replacement demand is connected with resale value. Demand is also coming from clients that are asking operators to buy new trucks, which are efficient and have a faster turnaround time. On October 01, 2015, some regions will move to BS IV emission norms. ABS and speed limiter will be implemented from October 01 as well. Some pre-buying to offset three to four per cent price hike is expected. We however want IIP (Industrial GDP) and mining recovery to come in. Also, agriculture. The base effect is kicking in. Buses (4 to 11-tonne) performed better in the first quarter. Small pick-ups have seen no major impact. It is essential to look at each segment. M&HCVs are growing at 20 to 25 per cent and Small Commercial Vehicles (SCVs) are declining. Companies with a complete range hold the chance of looking adverse in the short-term.

 

Q. What impact would regulations have on growth?

A. Regulations are a part, and also the return of some of the growth drivers like the move up to higher tonnage vehicles, tractor-trailers, etc. Today, tractor trailers are the fastest growing; two-axle trucks are the least growing. Customers want to invest in new segments. The 49-tonne segment for example. Introduced six years ago, this segment almost vanished during recession. It is coming back. Also, the move to higher hp. We led the movement from 150 hp to 180 hp in 2010-11. We are seeing a move up to 230 hp trucks from 200 hp. Even multi-axle designs due to more open competition. All the big names are here. It is obvious that people would like to differentiate. A movement towards higher spec products is on therefore. Regulations like ABS and speed limiters will help.

 

Q. What about alternate fuel technologies?

A. Government is trying to get some sort of electric play, and we want to be at the fore-front of it. In the area of hybrid buses mainly. The biggest area for electric play is the city hybrid bus. We are piloting a vehicle for almost four years now. We are trying to talk to the government and frame the FAME programme; to make it commercially viable. A BMTC order is part of that programme. We qualified for a hybrid tender BMTC floated. The price of the product is making it a bit of an issue. A strong push is necessary for alternative fuel technology or hybrid. We were expecting a larger outlay by the government in the budget. We expect it to come.

 

Q. So, buses are seeing a technological leap?

A. We are working towards executing an order for articulated buses for Hubli-Dharwad by December. There was no articulated bus purchase for many years. Higher unit price is difficult to afford. Technology is slowly moving up. For JNNURM recognition, many bus body builders are becoming bigger, professional and more efficient. With Bus body code fully implemented on August 01, 2015, ‘Mickey Mouse’ body builders will find it hard to derive a cost advantage. This is good for companies like Tata Motors and Ashok Leyland. Buses are highly regulated, and have a socialist agenda associated. They need the right permit; need to be allotted a route. Also, seen is if the state transport undertaking will be affected. Issues like these may not make hybrid buses viable. State transport undertakings cannot increase prices, and for a better experience, the need will be to recover costs by charging higher.

 

Q. What about the luxury bus segment?

A. For upmarket body builders it is like a boutique work. The super luxury high deck coaches are worth Rs.70 to Rs.80 lakh. The body price is five times the price of the chassis. Conversely, in a typical school bus, the price of the body and the price of the chassis are the same. Thus, a bus body is not small, and the reason why we invested in a company. With regulations, the body is becoming more expensive. Unlike China where the bus market is 50 per cent of the truck market, in India it is 15 to 20 per cent of the truck market. It will remain limited.

Q. How will competition impact?

A. As far as competition is concerned, we are of the opinion that everybody has to be in India. There is no excuse for any company to be not there in Brazil, India, Russia, and China. In Brazil and India especially. BharatBenz has laid out everything they promised in the 9-tonne to 49-tonne range. They will get a chance. Especially in those markets that regard foreign as hi-tech. Making a transition from three players to eight players, the market will see some market share correction in the short term. Many may appear in the long term. There would be no permanent repercussions with new entrants like Suzuki launching an SCV. Measured in primary sales, market share will see some inflow. The need however is to look at it 18 to 24 months down the line, and if it is sustaining. For us, the challenge is quite enormous. We are not undermining it. We have to protect from an Ace Zip to a Prima truck, or a DTC bus. Different competitors are focussing on different areas. With 60-70 per cent market share, we will have to anticipate and identify gaps. Some even though we do not find it interesting.

 

Q. Is government participation absolutely necessary for FAME?

A. Without government support it is not viable to participate. Not unless there’s certain volume. The battery and some of the key items cannot be localised. Dialogue is on, and while it may have been a little late for the JNNURM tender, there is a tender MMRDA has floated for 25 hybrid buses. MMRDA will run a hybrid bus service from Bandra-Kurla Complex. Despite a policy in principal, it is becoming a bit staggering to support 40-50 per cent subsidy. It amounts to Rs.40 or Rs.50 lakhs for a low-floor hybrid bus. If one were to sell 100 buses, so much money is involved. It is here that the authorities are struggling to try and give a mass face to the programme. Buses are going to benefit mass users but the number of vehicles they can showcase is only this much.

 

Q. How do you look at competitors who lashed on to certain segments?

A. A competitor exploited tipper segments in 2008, 2009, 2010 and 2011. Today, the numbers that we see are very low. MAN, Navistar did not get the sort of trial a BharatBenz or a Volvo got. From their numbers, available in the public domain, it is clear that they are not getting the benefit of the 20-30 per cent upturn. The need is to look at staying power; those who have back-end technology. If you don’t have back-end technology, you have tie-ups taking place. There are some who have preferred to go on their own. We will have to wait and see. Some are seen crossing 500 units a month, which is less than two or three per cent market share. It is therefore easy to understand why BharatBenz came to be the third largest player very quickly in the M&HCV segment. The only other player is Eicher. It is in the 9- to 16-tonne range. The moment BharatBenz went up to 800-900 units, they announced that they have become the third largest player.

 

Q. What do you hope to achieve by expanding the dealer network?

A. Before Ace came, there was no touch and feel factor associated. We expanded from 300-400 touch points to 1000 touch points with the Ace and Magic. Existing dealers invested; new dealers were appointed; at locations (inside cities and towns) were the Ace could ply but not a big truck. The current wave began two years ago with the need to compete with new players. Ensure showroom experience. New technology like BS III and BS IV calls for a laptop to repair vehicles. A strong transformation to fully built vehicles is on. In buses it has reached 70 to 80 per cent. One may not want to experiment with more expensive products like the Ultra and Prima. Some of the sales outlets (1S) have expanded to include three to four service bays for SCVs. Coming to include programmes like 24×7 assistance, apart from expanding current locations and establishing new locations we are focussing on proper connectivity of service centres. We expect our network to reach 4000 touch points by the end of FY17 from the existing 3000 touch points.

 

Q. With many dealers stressed, how do you look at their ability to modernise?

A. Over 60 to 70 per cent of the revenues come from trucks, and the recovery is helping. CV numbers may not be picking up yet, the revenues are higher than that of the previous year. This is good for vendors, and for the channel partners. Return on investment is measured in revenues rather than the number of vehicles sold. Sale of eight to 10 Ace Zips can be made up by the sale of one big truck. Similarly, sale of five to six Ace or Magic can be made up by the sale of one truck. This will also explain why the M&HCV recovery is so critical. Keen to maintain the dealership structure or culture, we would not like a dealership to fail. In case of a CV dealership, due diligence can be exasperating. It can take one-and-a-half year to issue a letter of intent. It will take another one year for the dealership structure to be established. If is therefore, that we are talking about a lead time of up to FY17.

 

Q. How popular are fully-built trucks?

A. Multi-axle tipper sales account for 100 per cent fully-built units. Tractor-trailers already come with a cabin. The issue is with multi-axle trucks. Insistence on cowls is there. In the 16-tonne to 25-tonne multi-axle truck category, the market remains value conscious. Customers in this category prefer a wooden cabin as costs are low. In case of an accident, the cost of a wooden cabin is not as high as a fully-built vehicle cabin. We have embarked on an education programme, but the per centage of fully-built vehicles in the the category is still at less than 10 per cent.

 

Q. What about exports?

A. We have been exporting for 20 years. It is however not enough to balance against a domestic down cycle. Availability of Prima, Ultra, and SuperAce with a 1.4-litre common-rail diesel engine will help us to reduce our dependence on SAARC markets like Bangladesh, Nepal and Sri Lanka. These markets don’t have a local brand. There are export markets that we are in, which include European brands. Our products compare well on appearance and specs, and offer a 10 per cent price advantage. We are getting repeat orders from the Middle East, South Africa and other markets. Planning to go up from 45,000 units last year to 1,50,000 units in a three-to-four year time frame, our first quarter results show that we have grown by 35 per cent on export numbers. We have launched pick-ups in a number of Asian markets like Philippines, Indonesia, Malaysia, Vietnam and Australia. We are already present in Africa. In Thailand we are diversifying our range beyond Xenon, to trucks. We will soon begin export of SuperAce Mint. We will also launch a refreshed Xenon with extended space cab. Half the Thailand market is about space cab pick-ups. In Tunisia we started an assembly operation. We also have a manufacturing JV in South Africa. We entered the Saudi Arabia market in 2013. In the manner in which Suzuki had to develop a diesel engine for India, we had to develop a petrol engine for the export (left hand drive) variant of the Ace.

 

Q. What about regulations and technology when it comes to exports?

A. Unless we have a critical mass in a Euro 6 product, we may not look at Europe. It is an extremely expensive proposition. A declining market with solid home grown players can be an expensive affair. The products that we are going with are not leaps and bounds ahead in terms of technology. Though more developed than us, many markets are yet to reach the BS IV levels. In many markets we have had to go back to BS II specs to export some of our products. We will therefore go with our products where there is a scale for our technology. We are investing in Australia. It is one of our lead markets from the technology stand point. We are looking at automatic transmission on a pick-up with Australia as a lead. We are also working on Euro 5 and Euro 6 because it will come to India in 2019 and 2022. Our presence in some of the export markets is giving us a head-start to go into some of the technologies rather than wait and scramble at the last minute. It is an enormous task across cars and commercial vehicles.

 

Q. What are your capex plans?

A. We have been anticipating competition, exports, and in a sense that the capex, which is somewhere between 1500 and 2000 numbers, will continue. There is hardly any product in which we are investing only for exports. We are planning an AMT in an ICV category vehicle. The two big cabin-platform investments – Prima and Ultra – are behind us. Not expecting dramatic rise in sales, platform renovation will continue. We invested in capacity in the past. When the M&HCV capacity was running short at Lucknow. As a result we got good growth in 2010-11 and 2011-12. If we had not expanded at Lucknow, or if Tata Cummins would not have setup a facility at Phaltan, we would have fallen short. We have also invested at Dharwad for SCVs. We are facing issues of under utilisation for past three-four years, but the capex is focussed on product design and development; very little on facilities for the next five to six years.

 

Q. Is the market discount oriented yet?

A. The market is still heavily discount oriented. We have capped our discounts. We don’t want to be a discount leader despite having in excess of 70 per cent market share. We feel it is a better long-term measure at the cost of some short-term loss till the market gets better. We are seeing a strong recovery in South. The fall in that market was also the largest. This is over a four year cycle. We are not missing any particular segment, product-to-product. The Prima 4018 and 3118 continue to lead their respective segments.

 

Q. You have bagged defence orders?

A. Defence is a business waiting to happen. Even before this government came in, over the last three-four years, there has been sufficient talk about buying from the Indian private sector. Before the ‘Made in India’ thing came about. We have been asked to put our vehicle on trial. It is a big ticket – in the 6×6 and 8×8 segment. These vehicles have not been bought from India. Replacement demand for such defence vehicles is thus coming up. While we want to export more defence vehicles, ‘Make in India’ is really applicable in defence vehicles. The 6×6 quotation was received in 2011-12. As trials go on for longer periods, we have received an order now.

Staying ahead

Article by: Staying ahead

Q & A : Ravi Pisharody, Executive Director — Commercial Vehicles, Tata Motors

Interview by : Bhushan Mhapralkar

Q. What growth will the CV industry achieve?

A. We are seeing more of what we saw last year. M&HCV sales continue to grow at 20-25 per cent, driven by cargo. Cargo M&HCVs are growing at 30 per cent on replacement demand. Tipper and construction truck part, which accounts for 30 per cent, is flat. Not like 2010-11, which saw the last big purchase. Replacement demand is connected with resale value. Demand is also coming from clients that are asking operators to buy new trucks, which are efficient and have a faster turnaround time. On October 01, 2015, some regions will move to BS IV emission norms. ABS and speed limiter will be implemented from October 01 as well. Some pre-buying to offset three to four per cent price hike is expected. We however want IIP (Industrial GDP) and mining recovery to come in. Also, agriculture. The base effect is kicking in. Buses (4 to 11-tonne) performed better in the first quarter. Small pick-ups have seen no major impact. It is essential to look at each segment. M&HCVs are growing at 20 to 25 per cent and Small Commercial Vehicles (SCVs) are declining. Companies with a complete range hold the chance of looking adverse in the short-term.

 

Q. What impact would regulations have on growth?

A. Regulations are a part, and also the return of some of the growth drivers like the move up to higher tonnage vehicles, tractor-trailers, etc. Today, tractor trailers are the fastest growing; two-axle trucks are the least growing. Customers want to invest in new segments. The 49-tonne segment for example. Introduced six years ago, this segment almost vanished during recession. It is coming back. Also, the move to higher hp. We led the movement from 150 hp to 180 hp in 2010-11. We are seeing a move up to 230 hp trucks from 200 hp. Even multi-axle designs due to more open competition. All the big names are here. It is obvious that people would like to differentiate. A movement towards higher spec products is on therefore. Regulations like ABS and speed limiters will help.

 

Q. What about alternate fuel technologies?

A. Government is trying to get some sort of electric play, and we want to be at the fore-front of it. In the area of hybrid buses mainly. The biggest area for electric play is the city hybrid bus. We are piloting a vehicle for almost four years now. We are trying to talk to the government and frame the FAME programme; to make it commercially viable. A BMTC order is part of that programme. We qualified for a hybrid tender BMTC floated. The price of the product is making it a bit of an issue. A strong push is necessary for alternative fuel technology or hybrid. We were expecting a larger outlay by the government in the budget. We expect it to come.

 

Q. So, buses are seeing a technological leap?

A. We are working towards executing an order for articulated buses for Hubli-Dharwad by December. There was no articulated bus purchase for many years. Higher unit price is difficult to afford. Technology is slowly moving up. For JNNURM recognition, many bus body builders are becoming bigger, professional and more efficient. With Bus body code fully implemented on August 01, 2015, ‘Mickey Mouse’ body builders will find it hard to derive a cost advantage. This is good for companies like Tata Motors and Ashok Leyland. Buses are highly regulated, and have a socialist agenda associated. They need the right permit; need to be allotted a route. Also, seen is if the state transport undertaking will be affected. Issues like these may not make hybrid buses viable. State transport undertakings cannot increase prices, and for a better experience, the need will be to recover costs by charging higher.

 

Q. What about the luxury bus segment?

A. For upmarket body builders it is like a boutique work. The super luxury high deck coaches are worth Rs.70 to Rs.80 lakh. The body price is five times the price of the chassis. Conversely, in a typical school bus, the price of the body and the price of the chassis are the same. Thus, a bus body is not small, and the reason why we invested in a company. With regulations, the body is becoming more expensive. Unlike China where the bus market is 50 per cent of the truck market, in India it is 15 to 20 per cent of the truck market. It will remain limited.

Q. How will competition impact?

A. As far as competition is concerned, we are of the opinion that everybody has to be in India. There is no excuse for any company to be not there in Brazil, India, Russia, and China. In Brazil and India especially. BharatBenz has laid out everything they promised in the 9-tonne to 49-tonne range. They will get a chance. Especially in those markets that regard foreign as hi-tech. Making a transition from three players to eight players, the market will see some market share correction in the short term. Many may appear in the long term. There would be no permanent repercussions with new entrants like Suzuki launching an SCV. Measured in primary sales, market share will see some inflow. The need however is to look at it 18 to 24 months down the line, and if it is sustaining. For us, the challenge is quite enormous. We are not undermining it. We have to protect from an Ace Zip to a Prima truck, or a DTC bus. Different competitors are focussing on different areas. With 60-70 per cent market share, we will have to anticipate and identify gaps. Some even though we do not find it interesting.

 

Q. Is government participation absolutely necessary for FAME?

A. Without government support it is not viable to participate. Not unless there’s certain volume. The battery and some of the key items cannot be localised. Dialogue is on, and while it may have been a little late for the JNNURM tender, there is a tender MMRDA has floated for 25 hybrid buses. MMRDA will run a hybrid bus service from Bandra-Kurla Complex. Despite a policy in principal, it is becoming a bit staggering to support 40-50 per cent subsidy. It amounts to Rs.40 or Rs.50 lakhs for a low-floor hybrid bus. If one were to sell 100 buses, so much money is involved. It is here that the authorities are struggling to try and give a mass face to the programme. Buses are going to benefit mass users but the number of vehicles they can showcase is only this much.

 

Q. How do you look at competitors who lashed on to certain segments?

A. A competitor exploited tipper segments in 2008, 2009, 2010 and 2011. Today, the numbers that we see are very low. MAN, Navistar did not get the sort of trial a BharatBenz or a Volvo got. From their numbers, available in the public domain, it is clear that they are not getting the benefit of the 20-30 per cent upturn. The need is to look at staying power; those who have back-end technology. If you don’t have back-end technology, you have tie-ups taking place. There are some who have preferred to go on their own. We will have to wait and see. Some are seen crossing 500 units a month, which is less than two or three per cent market share. It is therefore easy to understand why BharatBenz came to be the third largest player very quickly in the M&HCV segment. The only other player is Eicher. It is in the 9- to 16-tonne range. The moment BharatBenz went up to 800-900 units, they announced that they have become the third largest player.

 

Q. What do you hope to achieve by expanding the dealer network?

A. Before Ace came, there was no touch and feel factor associated. We expanded from 300-400 touch points to 1000 touch points with the Ace and Magic. Existing dealers invested; new dealers were appointed; at locations (inside cities and towns) were the Ace could ply but not a big truck. The current wave began two years ago with the need to compete with new players. Ensure showroom experience. New technology like BS III and BS IV calls for a laptop to repair vehicles. A strong transformation to fully built vehicles is on. In buses it has reached 70 to 80 per cent. One may not want to experiment with more expensive products like the Ultra and Prima. Some of the sales outlets (1S) have expanded to include three to four service bays for SCVs. Coming to include programmes like 24×7 assistance, apart from expanding current locations and establishing new locations we are focussing on proper connectivity of service centres. We expect our network to reach 4000 touch points by the end of FY17 from the existing 3000 touch points.

 

Q. With many dealers stressed, how do you look at their ability to modernise?

A. Over 60 to 70 per cent of the revenues come from trucks, and the recovery is helping. CV numbers may not be picking up yet, the revenues are higher than that of the previous year. This is good for vendors, and for the channel partners. Return on investment is measured in revenues rather than the number of vehicles sold. Sale of eight to 10 Ace Zips can be made up by the sale of one big truck. Similarly, sale of five to six Ace or Magic can be made up by the sale of one truck. This will also explain why the M&HCV recovery is so critical. Keen to maintain the dealership structure or culture, we would not like a dealership to fail. In case of a CV dealership, due diligence can be exasperating. It can take one-and-a-half year to issue a letter of intent. It will take another one year for the dealership structure to be established. If is therefore, that we are talking about a lead time of up to FY17.

 

Q. How popular are fully-built trucks?

A. Multi-axle tipper sales account for 100 per cent fully-built units. Tractor-trailers already come with a cabin. The issue is with multi-axle trucks. Insistence on cowls is there. In the 16-tonne to 25-tonne multi-axle truck category, the market remains value conscious. Customers in this category prefer a wooden cabin as costs are low. In case of an accident, the cost of a wooden cabin is not as high as a fully-built vehicle cabin. We have embarked on an education programme, but the per centage of fully-built vehicles in the the category is still at less than 10 per cent.

 

Q. What about exports?

A. We have been exporting for 20 years. It is however not enough to balance against a domestic down cycle. Availability of Prima, Ultra, and SuperAce with a 1.4-litre common-rail diesel engine will help us to reduce our dependence on SAARC markets like Bangladesh, Nepal and Sri Lanka. These markets don’t have a local brand. There are export markets that we are in, which include European brands. Our products compare well on appearance and specs, and offer a 10 per cent price advantage. We are getting repeat orders from the Middle East, South Africa and other markets. Planning to go up from 45,000 units last year to 1,50,000 units in a three-to-four year time frame, our first quarter results show that we have grown by 35 per cent on export numbers. We have launched pick-ups in a number of Asian markets like Philippines, Indonesia, Malaysia, Vietnam and Australia. We are already present in Africa. In Thailand we are diversifying our range beyond Xenon, to trucks. We will soon begin export of SuperAce Mint. We will also launch a refreshed Xenon with extended space cab. Half the Thailand market is about space cab pick-ups. In Tunisia we started an assembly operation. We also have a manufacturing JV in South Africa. We entered the Saudi Arabia market in 2013. In the manner in which Suzuki had to develop a diesel engine for India, we had to develop a petrol engine for the export (left hand drive) variant of the Ace.

 

Q. What about regulations and technology when it comes to exports?

A. Unless we have a critical mass in a Euro 6 product, we may not look at Europe. It is an extremely expensive proposition. A declining market with solid home grown players can be an expensive affair. The products that we are going with are not leaps and bounds ahead in terms of technology. Though more developed than us, many markets are yet to reach the BS IV levels. In many markets we have had to go back to BS II specs to export some of our products. We will therefore go with our products where there is a scale for our technology. We are investing in Australia. It is one of our lead markets from the technology stand point. We are looking at automatic transmission on a pick-up with Australia as a lead. We are also working on Euro 5 and Euro 6 because it will come to India in 2019 and 2022. Our presence in some of the export markets is giving us a head-start to go into some of the technologies rather than wait and scramble at the last minute. It is an enormous task across cars and commercial vehicles.

 

Q. What are your capex plans?

A. We have been anticipating competition, exports, and in a sense that the capex, which is somewhere between 1500 and 2000 numbers, will continue. There is hardly any product in which we are investing only for exports. We are planning an AMT in an ICV category vehicle. The two big cabin-platform investments – Prima and Ultra – are behind us. Not expecting dramatic rise in sales, platform renovation will continue. We invested in capacity in the past. When the M&HCV capacity was running short at Lucknow. As a result we got good growth in 2010-11 and 2011-12. If we had not expanded at Lucknow, or if Tata Cummins would not have setup a facility at Phaltan, we would have fallen short. We have also invested at Dharwad for SCVs. We are facing issues of under utilisation for past three-four years, but the capex is focussed on product design and development; very little on facilities for the next five to six years.

 

Q. Is the market discount oriented yet?

A. The market is still heavily discount oriented. We have capped our discounts. We don’t want to be a discount leader despite having in excess of 70 per cent market share. We feel it is a better long-term measure at the cost of some short-term loss till the market gets better. We are seeing a strong recovery in South. The fall in that market was also the largest. This is over a four year cycle. We are not missing any particular segment, product-to-product. The Prima 4018 and 3118 continue to lead their respective segments.

 

Q. You have bagged defence orders?

A. Defence is a business waiting to happen. Even before this government came in, over the last three-four years, there has been sufficient talk about buying from the Indian private sector. Before the ‘Made in India’ thing came about. We have been asked to put our vehicle on trial. It is a big ticket – in the 6×6 and 8×8 segment. These vehicles have not been bought from India. Replacement demand for such defence vehicles is thus coming up. While we want to export more defence vehicles, ‘Make in India’ is really applicable in defence vehicles. The 6×6 quotation was received in 2011-12. As trials go on for longer periods, we have received an order now.