The Hindu Business Line
Limited impact from push towards electric vehicles
Fleet replacement, encouraged by better operating economics of higher axle vehicles and pre-buying before the Bharat Stage VI (BS VI) emission norms, will drive commercial vehicle (CV) sales this fiscal, said Jatinder S Gujral, CEO, Setco Automotive. Setco is a leading supplier of clutches to commercial vehicle manufacturers and has a sizeable after-market presence. Excerpts from an interview:
CV sales has slowed down in recent months. What are the prospects for this fiscal?
In the last few months, CV sales has slowed. Despite that, the industry will end 2018-19 with a positive growth of 12-15 per cent. We expect sales volumes in the first quarter of 2019-20 to be around 10 per cent lower than last year due to uncertainty around the elections.
However, what we have understood from the market sentiment and our customers is that, the second and third quarters of this fiscal are going to be on par with or better than 2018-19. The fourth quarter will be better than last year because of pre-buying before the BS VI norms come into effect from April 1, 2020.
How is the industry expected to manage the transition to BS VI norms?
In the last quarter of 2019-20, you will have a customer-driven demand for BS IV, which could be 5060 per cent of the total demand. The balance, which is usually production for selling in future, will not happen this time as sale of BS IV vehicles have to stop on March 31, 2020.
Our customers are smart enough to produce only that many BS IV vehicles which they will be able to sell by then.
This practically means all of them will be forced to move to BS VI production as early as January and, in some cases, even before. The BS IV vehicles will get into ‘bill to order’ in the second half of this fiscal.
So it will not be ‘bill to stock’ as no one wants to be saddled with unsold stock.
Thus, the ruling (that sale of BS IV vehicles must stop on April 1, 2020) has forced manufacturers and the supply chain to be more efficient.
OUnfortunately, electric vehicles don’t have a clutch. Of the total CVs, 80 per cent are goods vehicles and 20 per cent are passenger (buses). Of this 20 per cent, 12-13 per cent could be interState buses and the rest 7-8 per cent run within the city. So the real threat is on this 7-8 per cent.
Otherwise, if I were a car or twowheeler clutch manufacturer, I would be worried. That way, it was a thoughtful decision on our part to diversify into supplying clutches for tractors than cars. As far as electric commercial vehicles go from a 10year-perspective, I would say we are insulated from changes.
How has the backward integration into castings through Lavacast helped Setco ?
When we envisaged the Lavacast business, the idea was to have a facility which gives us control over a critical part of the clutch. Almost 85 per cent of our castings requirement is now supplied by Lavacast. A total of 60 per cent of Lavacast’s capacity is earmarked for us.
Inherently, there are advantages such as raw material security and savings on transportation costs. The third advantage is that this is the state-of-art foundry. So the quality and finish is much better than what we used to get. If I look at costs with interest, depreciation of a new facility, it would not be offering any cost advantage as of now since it was commissioned only two years back.
Utilisation is around 65 per cent in the just concluded year. Next year, we will hit around 8085 per cent utilisation at which foundries usually make money, which we will make.
You have also begun in-house manufacturing of diaphragm springs. How has it picked up?
About threefourths of the CVs sold in India continue to use coil springbased clutches. Only the balance 25 per cent use diaphragm springs. The latter is popular with European manufacturers and some Indian makers use it for bigger vehicles. Diaphragm spring is less labour-intensive and operates as use and throw. So if labour costs are high, diaphragm is the way to go. We set up this facility because earlier we were importing diaphragms from Germany to cater to our client’s needs.The plant was set up two years back. While the pick –up has been a bit slow due to various testing and validation requirements, we have recently moved to two shifts.
The writer was recently in Kalol, Gujarat at the invitation of Setco Automotive