The first of the two panel discussions focused on the growth the CV sector will experience in 2016.
Satish Sharma set the tone for the discussion by stressing upon deficient monsoon in FY15 and FY14. Stating that the rainfall in Chennai was a deluge, Sharma drew attention to the incremental optimism seen in the market. Pointing at mining and road infra beginning to show up, he expressed that bank credit continues to be in the region of seven to eight per cent. “It needs to climb up to 14-15 per cent. Capacity is being put back by three years; the forming of the new capex cycle is still to happen, and the story is yet to play out. The consumption story has to play out. Whether the government is going to spend or the public is going to start consuming first, I think both of it should happen at some point in time,” mentioned Sharma. Stating that the M&HCV space is operating on a low base, Sharma opined that the LCV story is clearly negative, and reflects on an entire value chain that is not sequential. “It is a cause for worry,” he added.
Touching upon HCV segment revival, Nalin Mehta said that the replacement demand will continue and is likely to include pre-buying on account of regulatory expenses and cost increases. He added that fleet utilisation is improving, and the need is to wait and watch. Said Kaushik Madhavan, that there is optimism, and the driver for continued growth is likely to be the demand for last mile connectivity. Last mile connectivity, he expressed, will drive LCV growth. Pegging domestic sales at around 3000 units, which is about eight to nine per cent more than current, Madhavan drew attention to exports. He stated that they are likely to be around 12-14 per cent, and amount to a little over 100,000 units, which is good.
Speaking on freight trends, Rajinder Singh Sachdeva expressed that freight index has not seen much uptake in the last two years. He mentioned, “Every diesel price reduction led to one per cent profitability for the fleet owner. The Government is however not passing on the benefit of fuel price decrease. While the overloading ban has helped, the negative part is an increase in operational costs due to regulatory norms and toll taxes.” Stating that competition from railways has increased, Sachdeva remarked, “The industry is bracing up to compete with waterways, and there’s improvement in overall efficiency of transportation. There is hope, but the emergence of e-commerce, is exerting cost pressure at the OEM and fleet level.”
In response to Ramakrishnan’s mention of four pillars of growth, government initiatives on road infra, and a significant reduction in international crude prices, Dr. A K Jindal mentioned that there is optimism in the case of coal mines and infrastructure expenditure. He remarked that the effect is yet to be felt at a level where it will reflect growth. Stressing on an overall improvement in freight efficiency, Dr. Jindal opined that professionally managed logistics companies are seeking more profits by better utilising their fleet. He stressed upon fuel efficiency being dear to operators as it accounts for almost 50 per cent of the overall cost despite softening of diesel prices. Drawing attention to rising focus on safety, weight reduction, and higher load carrying capability, Dr. Jindal stated that these factors are influencing the design of trucks and their operation.
Stating that growth is visible after a long time, Nalin Mehta mentioned that the overall environment is cautious and private investment is not coming through. He expressed, “A lot of capacity was quickly installed when India was shining. Today, capacities are under-utilised, and discounting is a reflection of that.” Private investment may not be coming soon till other signs of the government stabilise, including the picking up of the convergence story, he added. In response to Ramakrishnan’s question about running on two cylinders out of the four, Mehta averred, “There’s good optimism on account of some of the fundamentals falling in place.” “No private investment proposal is pending. I would give it another two years before we see a very good time,” he mentioned.
Stating that 2011 was the best year for the CV industry post the recession of FY09 when the market halved to half a billion vehicles, Rajinder Singh Sachdeva mentioned that almost 29 per cent of the CVs in 2009 were above 31-tonne. The number has risen to 57 per cent since, he said. “In light- and medium-duty, it has risen to 47 per cent from 29 per cent in the above 12-tonne category,” mentioned Sachdeva. Stating that in (6×6 and 8×4) tippers, the count has gone up from 57 per cent in 2009 to 75 per cent, Sachdeva said that preference for heavier vehicles is on the rise, and has led to better operating efficiency. “In buses, there has been 18-19 per cent growth. Light- and Medium-duty buses have taken over because of city congestion, and the need for fuel efficient vehicles,” explained Sachdeva. He opined that buyers have become alert because of the talk of end-of-life, and are becoming more organised, efficient, and productivity is turning out to be key factor.
Echoing Sachdeva’s observation about a segment shift towards higher tonnage, Mehta expressed that there is higher emphasis on reliability and efficiency. “Transporter is learning a new way of dealing with this. There is last mile distribution, there is rural demand, there is semi-urban demand. The hub and spoke model is taking off even without the GST,” Mehta remarked. He added, “Once GST comes in, and the states are intelligent enough to not circumvent certain barriers, the (industry) will take off.” Adding a technology edge to the discussion on segment shift, Dr. Jindal stated that the 49-tonne tractor-trailer is today the biggest loading segment. It wasn’t there during the last two years. Also, pressure against overloading is on the rise. The demand for lower kerb weight is on the rise therefore,” he mentioned. Dr. Jindal drew attention to the rise in use of composites. This will lead to a big shift in the design of vehicles, he said. Dr. Jindal also drew attention to the emergence of autonomous vehicles, and the introduction of safety features like lane departure warning. He averred that with safer driving environment, it will be easier to cut down weight and increase the overall efficiency of freight. Sachdeva expressed the need to curb tertiary use of vehicles; vehicles that are not maintained well, and are operating in a bad condition. He stated that first five years mark the prime usage period followed by a sale to the second owner. “The biggest barrier to put composites on CVs,” explained Sachdeva, “is the refusal of insurance companies to honour the claim.”
Pointing at the mindset of a typical fleet operator who thinks that he need not spend money as he can’t overload, Sharma, in response to a question on sale of tyres providing an indication of growth, expressed that Uttar Pradesh and Harayana embraced radialisation first, rather than the disciplined south. “The grossly overloaded states did not radialise. We found out that the buyer is not ready to pay 30 per cent more for a tyre if he cannot overload,” mentioned Sharma. He added, “The current behaviour does not indicate a boom ahead. The retreading industry is looking far more progressive, and our dealers tell us that transporters are stressed; their working capital is blocked. As far as indications from tyre sales are concerned, tyre production is down by five per cent.”
Growth, opined Mehta, is seen at the FY12 level currently. “There’s a lot of replacement demand. Buyers are getting good deals. Looking at freight movement, infra activity, private investment, and global investment, I am optimistic that a year from now the situation would be much better. Young transporters are taking over, and they will lead to a big change,” he added. Delving upon the key factors associating growth, Rajinder Singh Sachdeva stressed upon fuel efficiency. “Fuel efficiency,” he said, “constitutes to about 50 per cent of the total costs as compared to 10-15 per cent in Europe.” “It will continue to be so even as the other factors including toll costs, tyre costs and driver costs play out. Not only has the driver become more aspirational, he is available in lesser numbers,” he added. Mehta averred, “I used to see a lot of cost focus in the transport industry. It will change to revenue. Focus would be to get better out of the trucks, and fuel will remain an important factor. Strategically transporter will start thinking about doing better; about achieving faster turnaround time.”
Expressed Kaushik, “Trends like the move to higher tonnage vehicles will lead to a change in price positioning. We see the mass market segment under 30 lakhs; premium segment under 40-45 lakhs. There seems to be some activity in recent years in what some would call as the value segment (in the 30-45 lakh bracket). This segment is going to see a lot of activity in the next two years. Different OEMs seem to be approaching it in different ways. There are the European players who are aggressively targeting this segment. Then, there are the Indian OEMs as well.” Expressed Sharma, “Directionally we are correct, it is a matter of when (strong growth will show up). My own personal guess is the year after.”
Rajinder Singh Sachdeva, EVP, Volvo Eicher Commercial Vehicles
Kaushik Madhavan, Director – Automotive & Transportation, Frost & Sullivan
Nalin Mehta, MD & CEO, Mahindra Trucks & Bus Division
Satish Sharma, President (APMEA), Apollo Tyres
Dr. A K Jindal, VP & Head, ERC (Commercial Vehicles), Tata Motors
Moderator:
VG Ramakrishnan, MD, Aventeum Advisors LLP
