Driving optimism

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Q & A

Vinod Aggarwal,

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

Interview by: Anirudh Raheja

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Trendline

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

Vinod Aggarwal is MD, VE Commercial Vehicles

SS Gill, SVP, HD, VECV, Mehul Dholakiya, Director Apco Motors and Vinod Aggarwal, CEO, VECV, Pro 6037 launch copy

At the board of directors’ meeting recently, Vinod Agarwal was appointed as the managing director of VE Commercial Vehicles. Agarwal joined Eicher in 1983, and has since successfully played various finance and commercial roles in Eicher businesses, including tractors, trucks, buses, components and engines. In 2006, Agarwal took over as the Group Chief Financial Officer. In 2009, he was elevated to the position of president, Eicher Trucks and Buses. In 2010, he was appointed as the Chief Executive Officer of VE Commercial Vehicles. Agarwal’s elevation as managing director comes at a time when Eicher is expanding its reach by launching new trucks and buses.

Frugal Tech

Q & A

Vinod Aggarwal, Chief Executive Officer, VE Commercial Vehicles Ltd.

Interview by : Anirudh Raheja

Q. M&HCV sales have been growing. LCVs continues to drag. What do you foresee?

A. It is true that the overall heavy-duty segment (16-tonne and above) is doing well. If you drill down further to haulage, and construction and mining trucks, the haulage segment has gone back to almost 90 per cent of its earlier peak in 2011. It is expected to be close to 150,000 to 160,000 units in 2015 as against 175,000 units in 2011. This has primarily been led by replacement demand, and may touch the peak in 2016. Construction and mining trucks are still in recession. They accounted for 60,000 to 65,000 units in the 2001 peak times, and are likely to be down to around 35,000 to 40,000 numbers on an annual basis in 2015. Even though, there is good growth in high end coal mining tippers, demand for iron ore mines as well as construction tippers continue to be in the recession mode due to stagnation in infrastructure investments.

In light and medium duty trucks (5 to 15-tonne), the recession continues; even though the decline has stopped. If you look at 2011, this segment peaked at around 100,000 units per annum. It dropped to 65,000 units in 2014. The last year average of 5,000 units per month is still continuing in the current year, and has not witnessed further downfall. In August 2015, there was a growth of around 20 per cent in light and medium-duty trucks. Going forward we have to see when it will start to recover; will hit peak volumes once again. One of the reasons for recession in this segment is sentiments in the rural areas. They are not yet upbeat due to monsoon worries. The other reason is the funding problems small operators (who use light- and medium-duty trucks) are still facing. There is always a lag in the recovery between heavy-duty and light- and medium-duty trucks. The lag has been longer this time as against the normal lag of six to nine months.

 

Q. Has the dilution of stake by Volvo brought any change in the JV?

A. As far as the JV is concerned, there is no change whatsoever. The shareholding pattern as well as the corporate governance structure continues to be same as before. The dilution has happened in the Volvo Group’s holding in Eicher Motors, which was a financial investment. Volvo Group continues to hold 45.6 per cent share in the joint venture. The commitment of both the shareholders to the JV continues to be extremely strong and their actions speak for themselves. Volvo Group has set up an Euro VI medium-duty engine truck plant, VEPT, at Pithampur, to meet medium-duty engine requirements. They have also extended technologies that are required for the development of the Pro series of products. Both the partners have extended tremendous support that is required to meet the vision of driving modernisation in the commercial transportation in India as well the developing world.

 

Q. A significant milestone, the modern engine plant at Pithampur, what could come next?

A. We have industrialised Volvo’s 5-litre and 8-litre medium-duty engines in India by setting up a state of the art plant at Pithampur. The base engines are Euro VI emission compliant, and have been adapted to meet Euro III and Euro IV emission norms. They are also powering the Pro 6000 and Pro 8000 series in BS III and BS IV emission guise. At the VEPT plant, we are currently manufacturing 1,500-2,000 engines per month. The number will rise as sales of Eicher heavy-duty trucks rise, and as demand from Volvo Group grows. The installed capacity of the new plant is currently 50,000 engines per annum. It can be hiked to 100,000 units per annum.

 

Q. What about the market growth of VECV buses? Do you foresee a distinct shift with the implementation of bus code?

A. Last year our market share in the bus market was 15 per cent. In 2008, it was close to 6 per cent. We are steadily growing in the bus market, year-on-year. We are having a strong position in school and staff bus segments, and we are planning to become a strong player in other segments like route permit or inter-city coaches. Also, in State Transport Undertaking (STU) bus segments. As far as the new regulations under Bus Code are concerned, all the buses that are manufactured by us or by our body builders comply with it. One of the big challenges will be enforcement of these regulations in India that all regulatory agencies need to ensure.

 

Q. What is the current status of JNNURM II? What about AMRUT?

A. The execution of the schemes has been very slow. Tenders have been issued and bids have been accepted, yet STUs are finding it hard to get the right contractors to run these latest technology buses. There are also funding constraints with STUs due to which implementation of the schemes has been slow.  

 

Q. Are all the Pro series models out? How are they helping VE to carve out a place at the heavy-duty end?

A. We will continue to add more and more models as we go along. We have released nearly 90 per cent of the models in the light and medium duty CVs that operate under Pro 1000 and Pro 3000 series. In the heavy-duty segment, the launches have been slow.We have launched a few models under  Pro 6000 and Pro 8000 series. We are also in the process of releasing more models for heavy-duty segment in 2016. These new technology trucks offer significant advantages in fuel efficiency as well as turnaround time and will lead to higher life time profitability for the transporters. We consider it to be the future of Indian trucking industry. We are now making all the trucks ready for  BS IV emission norms that are becoming applicable in some parts of the country from October, 01, 2015, and in whole country from April, 01, 2017.

 

Q. There are talks of skipping BS V emission norms and moving to BS VI?

A. Both technically and commercially, it is not advisable to skip BS V. There are major changes required in engines as well as fuel like sulphur content in the emissions, major reduction is required in NOx and particulates. Apart from these, a very advanced electronics and controls are required that need not only huge investments but also the long lead time. Fuel companies also need to make major investments for reducing sulphur content in fuel. If the industry has to move to Euro VI from Euro IV in a short time, that will need huge investments and incremental cost of engine will also increase substantially. Therefore it is advisable to do the same in a proper sequence. Moving upto Euro V, and then to Euro VI.

 

Q. How far has the development on RESLF bus progressed?

A. Since the option is available to continue using the front engine buses, the concept of rear engine buses has not taken off well in the mass market products. Thus at the moment we are not pursuing RESLF buses.

 

Q. GST has been stalled? There is a talk of a new transport ministry with a dedicated secretary. How do you look at these developments?

A. The industry is looking forward to GST implementation for quite some time now as this will not rationalise the cascading taxes but also bring in efficiencies in distribution. Even though the government is very positive and committed, they are not able to move fast because of various reasons. Earlier we were thinking that GST will happen from April 01, 2016, but looks difficult now.

Setting up a new transport ministry with a dedicated secretary level person will bring in more focus on this important area and this it is a step in the right direction.

 

Q. What is your opinion on the FAME program?

A. It is an ambitious project, but electric mobility in India is still a few years away. With electric mobility, the costs will go up significantly. It will still take some time before it takes off in India.

 

Q. Eicher is known for frugal engineering, and Volvo is known for technology. What does it signify to the competition in terms of growth and new products?

A. We have adopted Volvo Group world-class technology using our frugal methods. We have been able to develop our entire new line of Pro series products from 5-tonne to 49-tonne at the right costs. We have optimised the investments and achieved much more with less investments. We now have an entire line of new products with latest technology adopted from the Volvo Group; a state of the art engine plant that produces Euro VI compliant engines for the need of the Volvo Group. We have a new state of the art bus body building plant; two new gear manufacturing plants, and a totally revamped and modernised truck plant with CED paint shop, and new assembly lines and a
body-in-white shop. We have a state of the art parts distribution centre and five company owned and operated dealerships. All these have been done at a cost of Rs. 2200 crore. We have achieved much more with less.

 

Q. Give us an update on Eicher Sure program?

A. Through this program we are trying to create an organised market place for used trucks. Since a truck comes back into the market in five years, remarketing it assumes a lot of importance. Keeping that in mind, we have taken this initiative to facilitate better realisation of the value of used trucks by getting the trucks refurbished. Eicher Sure team also helps in finding the right buyer. Earlier, the brokers used to pick up these trucks at throw away price and sell it at an exorbitant price, thus making a lot of money in the process. Eicher Sure team tries to connect the genuine buyers with sellers and that results in better value for used trucks.

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Frugal Tech

Article by: Anirudh Raheja
timthumb

Q & A

Vinod Aggarwal,

 

Chief Executive Officer,
VE Commercial Vehicles Ltd.

Interview by : Anirudh Raheja

Q. M&HCV sales have been growing. LCVs continues to drag. What do you foresee?

A. It is true that the overall heavy-duty segment (16-tonne and above) is doing well. If you drill down further to haulage, and construction and mining trucks, the haulage segment has gone back to almost 90 per cent of its earlier peak in 2011. It is expected to be close to 150,000 to 160,000 units in 2015 as against 175,000 units in 2011. This has primarily been led by replacement demand, and may touch the peak in 2016. Construction and mining trucks are still in recession. They accounted for 60,000 to 65,000 units in the 2001 peak times, and are likely to be down to around 35,000 to 40,000 numbers on an annual basis in 2015. Even though, there is good growth in high end coal mining tippers, demand for iron ore mines as well as construction tippers continue to be in the recession mode due to stagnation in infrastructure investments.

In light and medium duty trucks (5 to 15-tonne), the recession continues; even though the decline has stopped. If you look at 2011, this segment peaked at around 100,000 units per annum. It dropped to 65,000 units in 2014. The last year average of 5,000 units per month is still continuing in the current year, and has not witnessed further downfall. In August 2015, there was a growth of around 20 per cent in light and medium-duty trucks. Going forward we have to see when it will start to recover; will hit peak volumes once again. One of the reasons for recession in this segment is sentiments in the rural areas. They are not yet upbeat due to monsoon worries. The other reason is the funding problems small operators (who use light- and medium-duty trucks) are still facing. There is always a lag in the recovery between heavy-duty and light- and medium-duty trucks. The lag has been longer this time as against the normal lag of six to nine months.

 

Q. Has the dilution of stake by Volvo brought any change in the JV?

A. As far as the JV is concerned, there is no change whatsoever. The shareholding pattern as well as the corporate governance structure continues to be same as before. The dilution has happened in the Volvo Group’s holding in Eicher Motors, which was a financial investment. Volvo Group continues to hold 45.6 per cent share in the joint venture. The commitment of both the shareholders to the JV continues to be extremely strong and their actions speak for themselves. Volvo Group has set up an Euro VI medium-duty engine truck plant, VEPT, at Pithampur, to meet medium-duty engine requirements. They have also extended technologies that are required for the development of the Pro series of products. Both the partners have extended tremendous support that is required to meet the vision of driving modernisation in the commercial transportation in India as well the developing world.

 

Q. A significant milestone, the modern engine plant at Pithampur, what could come next?

A. We have industrialised Volvo’s 5-litre and 8-litre medium-duty engines in India by setting up a state of the art plant at Pithampur. The base engines are Euro VI emission compliant, and have been adapted to meet Euro III and Euro IV emission norms. They are also powering the Pro 6000 and Pro 8000 series in BS III and BS IV emission guise. At the VEPT plant, we are currently manufacturing 1,500-2,000 engines per month. The number will rise as sales of Eicher heavy-duty trucks rise, and as demand from Volvo Group grows. The installed capacity of the new plant is currently 50,000 engines per annum. It can be hiked to 100,000 units per annum.

 

Q. What about the market growth of VECV buses? Do you foresee a distinct shift with the implementation of bus code?

A. Last year our market share in the bus market was 15 per cent. In 2008, it was close to 6 per cent. We are steadily growing in the bus market, year-on-year. We are having a strong position in school and staff bus segments, and we are planning to become a strong player in other segments like route permit or inter-city coaches. Also, in State Transport Undertaking (STU) bus segments. As far as the new regulations under Bus Code are concerned, all the buses that are manufactured by us or by our body builders comply with it. One of the big challenges will be enforcement of these regulations in India that all regulatory agencies need to ensure.

 

Q. What is the current status of JNNURM II? What about AMRUT?

A. The execution of the schemes has been very slow. Tenders have been issued and bids have been accepted, yet STUs are finding it hard to get the right contractors to run these latest technology buses. There are also funding constraints with STUs due to which implementation of the schemes has been slow.  

 

Q. Are all the Pro series models out? How are they helping VE to carve out a place at the heavy-duty end?

A. We will continue to add more and more models as we go along. We have released nearly 90 per cent of the models in the light and medium duty CVs that operate under Pro 1000 and Pro 3000 series. In the heavy-duty segment, the launches have been slow.We have launched a few models under  Pro 6000 and Pro 8000 series. We are also in the process of releasing more models for heavy-duty segment in 2016. These new technology trucks offer significant advantages in fuel efficiency as well as turnaround time and will lead to higher life time profitability for the transporters. We consider it to be the future of Indian trucking industry. We are now making all the trucks ready for  BS IV emission norms that are becoming applicable in some parts of the country from October, 01, 2015, and in whole country from April, 01, 2017.

 

Q. There are talks of skipping BS V emission norms and moving to BS VI?

A. Both technically and commercially, it is not advisable to skip BS V. There are major changes required in engines as well as fuel like sulphur content in the emissions, major reduction is required in NOx and particulates. Apart from these, a very advanced electronics and controls are required that need not only huge investments but also the long lead time. Fuel companies also need to make major investments for reducing sulphur content in fuel. If the industry has to move to Euro VI from Euro IV in a short time, that will need huge investments and incremental cost of engine will also increase substantially. Therefore it is advisable to do the same in a proper sequence. Moving upto Euro V, and then to Euro VI.

 

Q. How far has the development on RESLF bus progressed?

A. Since the option is available to continue using the front engine buses, the concept of rear engine buses has not taken off well in the mass market products. Thus at the moment we are not pursuing RESLF buses.

 

Q. GST has been stalled? There is a talk of a new transport ministry with a dedicated secretary. How do you look at these developments?

A. The industry is looking forward to GST implementation for quite some time now as this will not rationalise the cascading taxes but also bring in efficiencies in distribution. Even though the government is very positive and committed, they are not able to move fast because of various reasons. Earlier we were thinking that GST will happen from April 01, 2016, but looks difficult now.

Setting up a new transport ministry with a dedicated secretary level person will bring in more focus on this important area and this it is a step in the right direction.

 

Q. What is your opinion on the FAME program?

A. It is an ambitious project, but electric mobility in India is still a few years away. With electric mobility, the costs will go up significantly. It will still take some time before it takes off in India.

 

Q. Eicher is known for frugal engineering, and Volvo is known for technology. What does it signify to the competition in terms of growth and new products?

A. We have adopted Volvo Group world-class technology using our frugal methods. We have been able to develop our entire new line of Pro series products from 5-tonne to 49-tonne at the right costs. We have optimised the investments and achieved much more with less investments. We now have an entire line of new products with latest technology adopted from the Volvo Group; a state of the art engine plant that produces Euro VI compliant engines for the need of the Volvo Group. We have a new state of the art bus body building plant; two new gear manufacturing plants, and a totally revamped and modernised truck plant with CED paint shop, and new assembly lines and a
body-in-white shop. We have a state of the art parts distribution centre and five company owned and operated dealerships. All these have been done at a cost of Rs. 2200 crore. We have achieved much more with less.

 

Q. Give us an update on Eicher Sure program?

A. Through this program we are trying to create an organised market place for used trucks. Since a truck comes back into the market in five years, remarketing it assumes a lot of importance. Keeping that in mind, we have taken this initiative to facilitate better realisation of the value of used trucks by getting the trucks refurbished. Eicher Sure team also helps in finding the right buyer. Earlier, the brokers used to pick up these trucks at throw away price and sell it at an exorbitant price, thus making a lot of money in the process. Eicher Sure team tries to connect the genuine buyers with sellers and that results in better value for used trucks.