Interview: Vinod Aggarwal, Managing Director and CEO, VE Commercial Vehicles Ltd.
Q. You have launched a number of new CVs. How are you looking at the Indian CV market?
A. After six-long years of depreciation (the last peak was in FY2011-12) the CV industry touched a new peak in FY2017-18 in some of the segments. Some segments are still lower than the earlier peak of FY2011-12, but the good thing is that the industry is out of the depressing situation. Heavy-duty trucks touched a new peak of 267,000 units in FY2017-18 as against 224,000 units in the previous fiscal. The five to 15-tonnes segment was lower than the peak of FY201112. It was 105,000 in FY201112. In FY2017-18, it was still at 93,000. There is definitely more potential to grow in the five to 15-tonne segments. Buses also have a high potential for growth. Their market last year was 62000 as against an earlier peak of 72000. The numbers may look respectable, the potential for growth is very high for the CV industry. We are confident of light and mediumduty trucks and buses growing well. We are looking at them growing faster this year, and in the coming years. Heavy-duty trucks are doing very well. Their growth is led by factors like infrastructure growth and GST implementation. Efficiency has increased. Better roads have led to an increase in speed. Productivity has increased. Transportation time in a lot of areas has come down by 20 to 22 per cent. Factors like better roads and border-less states because of GST has had an effect on market sentiments. The need for higher productivity and efficiency has increased the demand for trucks that are more productive. The coming up of private roads has led to restriction on overloading. Overloading is attracting 10 times the toll amount as fine. A stricter regime against overloading has also resulted in higher demand for trucks. Positive outlook on the economy is also helping. I see a good time for the CV industry as a whole. For the next twoto-three years at least. The next big disruption, BSVI, will bring more opportunity. It will be the real inflection point of the modernisation of the trucking industry.
Q. What role are sentiments playing as far as the CV industry growth is concerned?
A. Whenever the interest rates go up or down, the first to be affected are the sentiments. When sentiments start turning negative, they affect business more than the actual effect of the interest rate change. The 25 basis point hike did not have much impact. If hike in interest rates continue, then one will have to look at the history and how the earlier hikes affected the industry. In FY2011-12, the industry started dropping. In 2009, the repo rate came down to 4.75. There was a meltdown in 2008. With the drop in repo rate to 4.75, the CV industry started growing. A continuous increase of 13 times followed thereafter. The repo rate rose from 4.75 to nine per cent. The rise impacted the sentiments badly. The CV industry could not recover for a good six years. All that is behind us. I don’t see any negative factor. Right
now, there are no negative sentiments because GST has been successful. GST has led to a lot of logistics related changes. Warehouse consolidation has started. The distribution model is changing. There is a free movement of trucks. As a result of these changes, some transporters are saving 20 to 25 per cent of the transportation time. Those who are still not, will also save time on transportation. Productivity is increasing. It is leading to a migration towards higher tonnage trucks. The 37-tonne truck market went up three times in FY2017-18. The market size of 37-tonne truck was 25000 in FY2016-17. It grew to 70,000 in FY2017-18. It is continuing to grow.
Q. How are you looking at the tractor-trailer market against heavy-duty rigid truck market?
A. The tractor-trailer market in FY2016-17 was 40000 units. It grew to 60,000 in FY2017-18. A lot of migration towards higher tonnage trucks is taking place. The focus on productivity is growing. Overloading has come down significantly. The tolls are enforcing heavy penalties on overloading.
Q. How has the steep rise in fuel prices affected the transportation industry?
A. It has had an impact. At the end of the day, it is the market forces that matter. That is the reason why transporters are moving towards higher tonnage trucks; to efficient trucks. Transporters are dealing with cost pressures. Transporters are not getting the same earnings. It is no secret, that to reduce costs, they have to look at revenues and find ways to reduce cost. One way is to move to a better truck, which can lower their costs. There has been some increase in freight rates. At the end of the day, it will be the markets, which will dictate. If freight rates do not rise in proportion to costs it does not amount to an economical business. About freight rates increase not being proportional, it is because there is no readiness towards payment
“We are confident of light and mediumduty trucks and buses to grow well.”
of complete cost increase. It, in fact, does not happen in any industry. Apart from a lag, the expectation is for the transporter to recover his earnings through efficiency improvements.
Q. Will the advantage of higher tonnage trucks increase further?
A. One could carry more load. In the case of operating two trucks, the need was to have two drivers. Drivers are a rare commodity. To deal with the shortage of drivers, it is essential to improve their working conditions. There is need to give respect to the drivers. Only then will people turn to the profession of driver.
Q. What is the per centage of growth you are looking from higher tonnage trucks?
A. Last year has been a good year of growth for the heavyduty trucks. We expect the growth to continue. There are a lot of positive factors. As of now, we continue to be at a low level. Of the overall truck market, we are still at the FY2011-12 level. If the growth looked very high last year, the base was low. A lot of growth will be seen coming in the tipper segments with the amount of investments that are happening in infrastructure. The tipper segment will grow much faster this year.
Q. How much are the haulage segments lagging?
A. Last year saw haulage segments grow very fast. They are continuing to grow.
Q. How are you looking at the 41-tonne rigid segment?
A. We are sure that migration to the new segment will start happening. We are looking at getting good numbers even though we don’t want to attach any numbers to it. Our short-term target in heavyduty trucks is to move up from 1000 units to 1500 units. While we drive deeper into the heavy-duty market, we see the two heavy-duty trucks we launched recently to contribute significantly. The 41-tonne rigid offering will cannibalise the 37-tonne truck to some extent. Some part of the 41-tonne will cannibalise from the tractor segment. There will be more migration happening on the other hand.
Q. Are you looking at some truck segments to cease existence?
A. All segments will continue. The coming of 41-tonne will not lead to the stoppage of 37-tonne segment. There will be overall growth in the market rather than a shift within segments. This will be in-line with the GDP growth that is pegged at seven to eight per cent. The GDP growth is indicative of that much more goods and services om the market. To move more goods and to offer better services, there will be a need for more trucks. Add to it the restriction on overloading, and more trucks are needed.
Q. Where does the hub and spoke transportation model stand?
A. The hub and spoke transportation model is becoming more and more relevant. The consolidation of warehouses in the wake of GST is encouraging more movement of cargo; more long-haul movement of cargo from point to point. The later part being the distribution through the spokes.
Q. Are you looking at a slowdown in CV launches in the run-up to BSVI?
A. More launches will take place this year than in 2019.
Q. Wouldn’t BSVI pose a bigger challenge for the lighter and smaller trucks you manufacture from a packaging point of view?
A. The R&D team is at work. They are figuring out the best way to engineer the trucks to meet BSVI. The trucks, to meet BSVI, will have EGR and SCR.
Q. There’s the talk of achieving BSVI at Indian costs. What is your perspective?
A. Our road conditions are different. It is not possible to copy and paste BSVI technology in India. If that was possible, we did not have to do anything. We already have a Euro6 engine, but that is not the situation. The load conditions are different, and the requirements are different. It is therefore that there is a need to have specific technology or specific after-treatment for
India. We will design BSVI to meet the needs. All the aftertreatment system suppliers are coming to India and setting up their plants. They are looking at good volumes here. Based on the volumes, they should be able to offer after-treatment systems at lower costs. The right fuel quality will have to be ensured since the BSVI engines will be more sensitive and have more electronics on board.
Q. Are you not running your Pithampur plant at full capacity?
A. We are doing around seven to 7500 per month. We can also scale it up to 8000 per month. Last year we sold 66000 trucks an buses. With this capacity we should be able to manage this year. With the new plant, we will be adding capacity of about 40,000 units. The Pithampur plant has a capacity of 91000 units.
Q. As a full range player with CVs ranging from five to 49-tonnes, how are you looking at the performance of each segment?
A. In each segment, we are doing very well. In the light and medium-duty segment, we are at 32 to 33 per cent. In buses we are becoming stronger year after year. We are now at 17.2 per cent. In heavy-duty, we are 4.6 per cent. We are doing about 1000 heavy-duty CVs per month. We want to move from 1000 to 1500. We are doing very well in all the segments. Our turnover has gone beyond Rs.10000 crores.
Q. What role are you looking at the Pro 6000 series trucks to play?
A. As modernisation happens, the Pro 6000 series will be the truck that the market will prefer. It is the truck that will drive growth. In 16-tonne segment, there is no Pro 6000 series. It is just the Pro 5000 series. Much depends on what the customer wants. There are customers whose needs are addressed by the Pro 5000 series, and they are going for it.
Q. Are drivers beginning to dictate which truck to buy?
A. Efficiency and comfort are the two criteria that are becoming important. The drivers are today looking at more comfort. You will be surprised to know, but we are leaders in the parcel and ecommerce sectors.
Q. How are you looking at the push for electric and alternate fuels?
A. The use of electric systems will find use in buses first. This will be followed by city application for trucks. For longhaul trucks to go electric will take a long time. In the case of electric, a good number of batteries are required. Their cost is high. There is a need for the right charging infrastructure. In the case of long-haul applications, charging infrastructure becomes all the more necessary. If the range is (say) 200 kms, a charging infrastructure will be necessary.
Q. Input costs are going up. Isn’t that exerting an amount of pressure?
A. We will have to recover the increase in steel prices from the market. Irrespective of the raw material prices going up, we continue to exercise light weighting initiatives. Doing that would help to increase the payload. Since GVW remains the same, an increase in payload with the use of light weight materials like plastics ensures higher utility. With stricter imposition of antioverloading norms, an increase in payload translates into an opportunity to make more money for the operator. To light weight, we have introduced Domex steel in the chassis. Most of our trucks use Domex steel chassis.
Q. How is VECV tackling challenges like regulations and a shift in market requirements?
A. At Eicher we are highly innovative. Some of the innovative technologies that we have introduced include fuel coaching and intelligent driver information system. We are the first to introduce them. Volvo may have these technologies, but to adapt them to the Eicher customer’s perspective; to the Indian price point, is not easy. In the R&D we have over 600 engineers. If it were about how innovative Eicher engineers are, there are a lot of things that they do, which Volvo could learn. It actually works in either direction. We both could learn from each other. Our R&D costs are much lower. In India, there is a good amount of multitasking practiced. At the resource level, the costs in India continue to be lower. We could therefore supply them at a lower cost.
Q. What kind of shift are you looking at when it comes to
the 41-tonne rigid truck that you have launched?
A. It is difficult to say of how many will switch immediately to the 41-tonne rigid truck segment; how many will take time to switch, and how many will not switch at all. What we are confident of is that the market for 41-tonne trucks will evolve. Look at the past record, and it were 4x2 trucks only. Some seven or eight years ago, there were no 6x2 trucks. The 6x2 came in 25-tonnes. Then 31-tonne truck came in. It was followed by the 37-tonne truck. The interesting part is, not a single segment has closed. The 25-tonnes segment continues, and also does the 31-tonnes segment. The 37-tonnes segment has grown to become the biggest segment with 70,000 units. The 31-tonnes segment is at approximately 30,000 units. The 25-tonnes segment is around 20,000 to 22,000 units. All put together, it would amount to 120,000 units. Five years back, the 25-tonnes segment was 100,000 units strong. The entire multi-axle truck market has moved to 120,000, and of these, the 37-tonnes amounts to 70,000 units as of now. We expect the 41-tonnes segment to do around 40,000 to 50,000 units. The other segments will still continue to exist.
Q. What disruptions are you looking at?
A. I don’t see any major disruption coming at this point in time. The regulations that are upcoming will present an opportunity to modernise. Those will work as inflection points for the truck industry to modernise. There are a lot of things that the government is looking at. It is looking at fuel efficiency norms. The truck code, and the trailer code. The axle load regulation. All these are good for modernising the industry.
Q. Doesn’t that worry you in terms of ROI?
A. For a CV maker like us, it is an opportunity. We are already offering trucks that feature better technologies. If the government comes out with a regulation that this is the truck to be bought, it will work to our advantage. It will also improve the situation regarding discounts. When technology moves up for everyone, which is not the case today, it will help. Consider this: Not everyone supplies a truck with a cabin today. So, the cost is less. When the cabin is there, cost would be more.
Q. What about AMT?
A. AMT technology is already available with us. It will be also available in the 41-tonnes segment. Our vision for the next three years is to become a strong player in heavy-duty.
Q. How far will the axle load regulations have an effect?
A. Axle load regulations will further improve the payload capacity.
Q. Wouldn’t regulations like these induce a cost pressure?
A. Our cost structures are already aligned towards better technology. It will be the players that are taking advantage of low technology that will be impacted. Such players are currently making huge profits because of their pricing.
Q. Will all the engines that you offer be upgraded to BSVI?
We have Eicher engines on light and medium-duty trucks. Those engines were also redesigned some three or four years ago, and can be upgraded to BSVI. The five and eight-litre engines are Volvo engines. Their manufacture began in 2013. It was at around the same time that we redesigned the (Eicher) engines.
Q. How hopeful are you of alternate fuel propulsion mediums like gas?
A. CNG and LNG continue to be better options. CNG infrastructure is already there in 35 to 37 cities. LNG infrastructure has to come up. For LNG, there is a need to store them in cryogenic cylinders. LNG has a longer range as compared to CNG. In the case of CNG the payload comes down. It is not so much the case with LNG. There are challenges regarding the handling of LNG, its storage at minus 200-degree Celsius. LNG has better chances of coming ahead as an alternate fuel.
Q. How far have you come on electric buses?
We are already selling electric buses. We will supply 40 ninemeter electric buses in Mumbai. Regarding electric vehicles, it will be the markets forces that will decide. It is they who will decide, which bus addresses their requirements. The customers will have to benefit.