In­ter­view: Vinod Ag­gar­wal, Manag­ing Di­rec­tor and CEO, VE Com­mer­cial Ve­hi­cles Ltd.

Commercial Vehicle - - CONTENTS - In­ter­view by: Bhushan Mhapralkar

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.

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