Strong bus demand to drive sales this year: Volvo Eicher

Nachiket Kelkar
moneycontrol.com

Volvo Eicher Commercial Vehicles is betting on strong  demand for buses to drive earnings, even as the industry grapples with sluggish sales of medium and heavy duty trucks this year.

Domestic bus sales of VECV, a joint venture between Volvo Group and Eicher Motors, have accelerated 42% year-on-year to 4,826 units so far in 2012. This surge is being driven by strong replacement demand by state transport undertakings.

"This year the bus market is doing well even though the truck market is down...State Transport Undertakings are renewing their fleet...So we have seen lot of buying happening this year from STUs," Vinod Agarwal, CEO, VECV, told moneycontrol.com.

Earlier on Thursday, VECV said it has received an order for 1,019 bus chassis to Gujarat State Road Transport Corp. This order would be worth over Rs 100 crore, Agarwal said.

Over the last one year, Eicher has gained several orders from state transport undertakings like Rajasthan and Uttarakhand. It hd also received an order for 600 buses from  Andhra Pradesh State Road Transport Corp.

Tata Motors and Ashok Leyland, India's top two CV manufacturers have reported slow sales of medium and heavy trucks due to the general economic slowdown and expensive loans.

Tata Motors' M&HCV sales fell 23% to 34,943 units in April-June. Meanwhile, VECV's heavy duty truck sales have risen 26% to 4,197 units this year. VECV's financial year stretches from January to December.

 "We have a very clear strategy that we are implementing in heavy duty trucks and buses. As a result of that we are relatively doing better than the industry. We continue to have growth, which is coming from more penetration into market, improved market share..." Agarwal said.

With the company's sales growing at a faster clip compared with its peers, its market share has also increased. For instance, it has a market share of 4.7% in the heavy duty segment in the second quarter,  and 3.8% in the first six months of this year, versus 3% for last year. Its bus segment market share has gone up to near 12% from 9.7% last year. VECV has a 31% market share in light and medium duty trucks.

VECV's total sales grew 11% in the first half of this year, while the overall industry saw sluggish sales in the 5-tonne and above category. Agarwal refused to give specific guidance for the full year, but said the aim is to continue to grow faster than the industry.

In the last couple of years competition in the truck segment has increased with the entry of several new players like Mahindra Navistar, Asia MotorWorks (AMW) and Diamler (Bharat Benz).

VECV aims to invest over Rs 1,000 crore on expanding capacity, over 2012 and 2013. This investment will be used for a new bus body building plant, a new medium-duty engine plant, a new paint shop and expanding capacities and products, Agarwal said.

The medium-duty engine plant will become the global platform for all automotive requirements of Volvo Group, he said. These engines will also be used in Eicher Trucks.

Eicher Motors' shares ended up 1.8% at Rs 1,986.10 on NSE on Thursday. The stock is up 33% in 2012, outperforming the broader CNX auto index, which has gained 17%.

nachiket.kelkar@moneycontrol.com