Challenges & opportunities
Interview by Bhushan Mhapralkar
Q. In terms of M&HCVs, how was the market in FY2020-21?
A. The M&HCV segment registered a 58 per cent decline in the Total Industry Volume (TIV) in April-November period of the financial year 2020-21 as compared to the corresponding period in the last financial year. The government mandated lockdowns provided limited business opportunity in the first quarter of FY2020-21. An amount of recovery was visible in the second quarter of FY2020-21. The month of November 2020 saw the M&HCV TIV register a positive growth in comparison to the volumes in the corresponding month last fiscal. This was largely due to the return of traction in construction trucks. The overall TIV growth in construction truck business (led by the announcement of new road construction and mining projects) reached 43 per cent by November 2020. Rapid expansion of e-commerce logistics too helped. It also contributed to the return of traction in Q2. Haulage requirements for white goods, FMCG, etc., were the factors as well.
Q. Any rub-off of the last financial year that led to consequences in the current financial year?
A. With the pre-buying of BSIV CVs in the period between December 2019 and February 2020, a sluggish demand in the Q1 of FY2020-21 was expected. A clear road map concerning the transition from BSIV to BSVI led to a sequential reduction in BSIV vehicle production in late 2019 and early 2020. This was followed by a de-stocking plan and the transition to BSVI inventory at the dealership level. The Covid induced lockdown and uncertainties further impacted volumes in Q1 of FY2020-21. With the deployment of the business continuity plan and ramp-up of BSVI vehicle production since June 2020, a steady recovery in volumes and market share is underway.
Q. Covid-19 was a big factor and continues to be even today. How did it affect the M&HCV market this year?
A. The Covid induced lockdown and uncertainties impacted volumes in Q1 of FY2020-21. The pandemic has had a definitive effect on demand and the way we do business. There was a clear impact in Q1 and Q2 of FY2020-21 on replacement demand as economic activities slowed down. The shortage of drivers during the respective quarters affected fleet utilization. The availing of moratorium by truckers had a negative impact. It resulted in limited finance opportunity for fleet expansion. In Q3 of FY2020-21, driver availability improved. Fleet utilization also improved. However, for the financial health of the transporters and their credit profile to improve will take time. Until then, M&HCV sales will continue to face some impact. This, mainly in the area of vehicle finance. The change in the way of doing business due to the pandemic has impacted CV OEMs ability to reach their customers. Communication channels used to drive BSVI product awareness before the pandemic were redundant during the lockdown and post it. The entire approach therefore had to be modified to include a lot more digital communication platforms. Tele-communication platforms too found more use.
Q. How did the construction trucks fare this year?
A. The construction truck volumes in the period April-November 2020 trailed that of the volumes during the corresponding months in FY2019-20. They declined by 39 per cent. However, across the April-November 2020 period, the M&HCV construction truck business posted an increase from 30 per cent to 43 per cent, month-on-month. The period also saw a significant shift towards higher powered vehicles. Road construction, mining and Ready Mix Concrete (RMC) were the key segments that drove growth in the construction truck business. Even now, they continue to do so.
Q. How did the haulage trucks fare this year?
A. In the April-November 2020 period, haulage truck volumes declined by 66 per cent as compared to the corresponding period last year. The reduced economic activities during April-June 2020 impacted M&HCV haulage truck volumes. The other reason was driver and labour shortage. Post lockdown, a few green shoots in segments like petroleum, oil and lubricants (oil and lubricants, e-commerce), e-commerce and white goods were visible as far as the haulage truck volumes would go. With economic revival assuming speed, traction for haulage trucks returned on the basis of demand from sectors like cement, market load, steel, container and reefer.
Q. What were the challenges that affected the M&HCVs most in FY2020-21?
A. The major challenges that impacted the M&HCVs were the fall in replacement demand in Q1 and Q2 of FY2020-21 due to business environment change. The lockdown impacted the overall financial health of the transporters. It also impacted the availability of finance. There was an impact on the ability to reach out to customers through traditional means. As new, digital and tele-communication based means were resorted to, the establishment of supremacy of BSVI products got delayed. The most affected perhaps were product demonstrations and fuel trials. There were supply chain disruptions, which affected BSVI product ramp-up. Amid this, it is also necessary to understand that there is a direct correlation between freight and economic condition. An economy that is growing and exerting higher demand for freight transportation has a positive impact the freight rates and TCO. Higher TCO makes business lucrative and hence more vehicles are purchased and deployed till an equilibrium is reached, which is beneficial with respect to freight, TCO and earnings. Post the BSIV pre-buying in Q3 and Q4 of FY2019-20 on anticipation of 10 to 15 per cent price rise as part of the transition to BSVI, the BSVI M&HCVs are finding traction as they travel beyond the immediate impact of Covid-19. Efforts are being made to establish the superiority of BSVI CVs across application areas.
Q. Any peculiar trends that you noticed this year, which going forward would shape up the M&HCV space?
A. The peculiar trends pertaining to M&HCVs include a transition towards higher powered CVs. This is in view of improving the turnaround time. The requirement for a complete solution are on the rise. Customers are discussing about the same. They are no longer asking for just the vehicle, but for a complete package. A package that includes customised AMC, fleet management solutions, driver availability and sourcing, etc. The emphasis on fuel efficiency is growing, and
the acceptance of four-cylinder engines in the MAV space. Transporters are exploring alternate fuel
options like biodiesel to reduce fuel costs. The transition to BSVI, rather than being just a regulatory change,
has had a host of new features built into M&HCVs to ensure lower TCO and higher appeal. These are about driving comfort improvements. These are about the use of technology.
Q. Any new technological trends in the M&HCV space other than BSVI that have been most regarded?
A. Other than BSVI, the other technological trends that have come to be regarded are the telematics-based fleet management services. Compared to the BSIV level, their utilization has grown Big fleets have increased their reliance on fleet management services. New axle combinations with trailers for lower TCO are yet another technological trend. The 55-tonne 4×2 tractor, for example, is a prime example. New axle combinations are being explored post the change in axle load norms to reduce TCO. Relating factors to these include tyre life, fuel efficiency and revenue.
Q. How do you anticipate the next financial year to be for M&HCVs?
A. We expect the volume growth to continue in FY2021-22. We expect the second half of the respective financial year to be a time when the peak volumes of FY2018-19 could be bridged on the back of an improving economic scenario, positive business sentiments, higher freight availability, and continued government expenditure in infrastructure and road construction projects. We expect the announcement of scrappage policy by the government. It will help to stimulate M&HCV sales.
Q. What about factors like driver shortage,
increased dependence of truckers on OEMs due to higher electriconic content, and their productivity
and profitability?
A. The rise in electronic content in-line with the regulatory requirements has increased the dependence of fleet on OEMs for service and maintenance. Electronics onboard a CV has actually made it easier to calibrate the engines, to enhance truckers’ earning potential through lower TCO. OEMs are now offering attractive AMC rates, which not only hedges the maintenance expenses over a vehicle life of up to six years, a higher peace of mind for transporters is had as far as vehicle maintenance is concerned. Rather than invest in vehicle maintenance infrastructure, bigger fleets are finding it economical to opt for AMC. Adding value to the AMC proposition are the Tata Motors’ six service training centres and nine mobile training vans fitted with the state-of-the-art equipment to develop capability amongst the transporters manpower for vehicle maintenance and daily checks. Apart from the enhanced power-to-weight ratios of BSVI CVs, Tata Motors has come to offer a gamut of services under ‘Sampoorna Seva 2.0’. These cover the lifetime of the vehicle and help transporters enhance productivity and as well as profitability. The services also help to achieve good resale value. While the macro economic factors which may impact productivity of the transporters’ fleet are out of control of an OEM, to help transporters tide over the key challenge of driver shortage, Tata Motors has established driver training institutes in Punjab, Assam, Nagaland, Rajasthan and Maharashtra. These centres impart practical and theory classes. Till date, more than 6,20,000 drivers have been trained. Plans are being drawn to further expand this exercise to other states.
“The peculiar trends pertaining to M&HCVs include a transition towards higher powered CVs”.
