Vinod Dasari, MD, Ashok Leyland in an interview to CNBC-TV18 spoke about upgrading their BS-III vehicles the BS-IV compliant engines.
He said the two most important things that helped them move over to BS IV compliant vehicles is one, discipline of having cash and carry with dealers - that is never pushing vehicles into dealer pipeline.
Over 90 percent of the unsold BS-III inventory is lying with the company and not dealers.
Two, development of this innovative new intelligent exhaust gas recirculation (iEGR) technology system, which allows the company to just slot the new engine in place of old one.
He said the one-time cost of retrofitting BS-IV engines will be around Rs 20 crore.
The company will retrofit over 10,000 BS-III unites with BS-IV Engines.
Dasari said the company would also look at de-risking business model with focus on exports and other businesses.
Below is the verbatim transcript of the interview.
Q: How is company going about retrofitting the BS-III vehicles?
A: With Selective Catalytic Reduction (SCR), you have an entire piping which has to be changed. Your muffler has to have vanadium pentoxide or copper zeolite coated material inside. You have to a urea tank, you have to have a urea dozing mechanism, you have to have a pump that keeps dozing this urea, you have to have an after-treatment control unit which has electronics to do all of this, wiring harness that goes all the way. Sensors that feedback to you, all this jazz, I do not have to do at all because I am following the Internal Exhaust Gas Recirculation (IEGR) system. That is the beauty of this.
Q: Could you quantify the advantage for us?
A: The entire urea system and all of that easily will cost about Rs 40,000-50,000. I do not have to pay that cost. So, my IEGR system based engine, my powertrain versus somebody else's BS-IV powertrain system, my IEGR will definitely be cheaper, a lot less complexity.
Q: So you are saying yours would be almost one-fourth the cost you will do compared to your competitors.
A: One-fourth meaning?
Q: Overall. You are saying initial upfront cost for you will be Rs 20,000 as opposed to company A will be spending Rs 60,000-80,000 to do the same thing. So you are saying you will be doing at one-fourth the cost of your competitors?
A: No, I do not know how others will choose to do that. If they were making a new BS-IV vehicle, they would have anyway put these exhaust systems and all of that.
Q: But I am talking about existing BS-III vehicles.
A: Existing BS-III, maybe they will have to take it out and they will also sell in the aftermarket. But the new BS-IV engine will it fit exactly in the same thing? Another advantage 95 percent of the vehicles we sold have no cabin. So the engine does not have a cover. So I can easily replace it. If it was already sitting under a cab and I have to do new piping under the cab which is not designed properly with a different engine, you can imagine the complexities that somebody has to go through. So, I do not have to deal with that.
Q: So, you are sitting easy today?
A: Three things helped us. First and foremost, our discipline of having cash and carry with our dealers. That means we never ever pushed our vehicles into the dealer pipeline. Since we had that discipline, there was nothing left with the dealer that I had to bring back, virtually nothing.
Second, development of this very innovative IEGR system which allow us to simply slot a new engine in place of the old one. It is like taking a torch-light, replacing the batteries and putting new batteries. It is as simple as that and I do it at no cost because I make after market margin.
Q: Then you also talked about how these engines will be far more fuel efficient.
A: Last five years, I have gained market share in this market regardless of how many new players have come. Five years ago, we were at about 23-24 percent market share. We just finished the year at 32.5 percent market share. It is the highest we have ever been.
Q: Last year, it was 31.3 percent.
A: 31-point-something percent, this year, 32.5 percent. And the beauty of it is that we have gained or defended market share in 90 percent of the regions and segments. So, we have a grid of all the segments and all the regions. In 90 percent of the places, we have either defended or gained.
A few areas where we actually lost, one was the state transport undertaking (STU), the city buses inside the city where we have deal with state governments, we have actually backed off from that because they are not profitable and it is difficult to do business with the state governments, so we have backed off from that. Purposefully lost business. So our market share in bus has come down, but it was by design. Very low margin business, painful to do business, so we have actually dropped.
Q: Is Ashok Leyland completely pulling out of the state?
A: No, I have decided to choose which STUs I will compete in and which STUs I will not.
Q: So, which are the STUs you have decided to completely pull out of?
A: I do not want to comment. We have literally blacklisted a few STUs we will not do business with because it is unethical and I do not want to say that publicly, but we have chosen to bring our market share down.
Q: What is your plan with light commercial vehicles (LCV) because that is an area where Ashok Leyland's volumes of LCV is about 25 percent your overall volumes?
A: Before I get to LCV, can I tell you one last thing about the entire thing that I am very excite about?
Q: Yes, you are entitled to that.A: Thank you. I take great pride in Indian innovation. Western companies who are afraid of Indian innovation, they will say, 'ye jugaad karte hai'. This is not 'jugaad'. Five years, my engineers have worked on this. Day and night they have come up with this kind of solution. Give them some credit. For seven years I was selling mechanical fuel pump driven BS-III engine, world's only one to the extent that our fuel system supplier took it and demonstrated Indian innovation in their German research and development (R&D) labs. So they are proud of what we are doing. Sometimes, we ourselves beat ourselves up. So, IEGR was one superb innovation that we have done.