Q & A
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.
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.