Eicher Motors is in focus as it was another strong month of sales for commercial vehicles in February. Demand for trucks has seen a pickup because of infrastructure, construction and e-commerce.
In an interview with CNBC-TV18, Vinod Aggarwal, MD & CEO-VECV of Eicher Motors spoke about the latest happenings in his company and sector.
After six long years of wait, after 2011-2012 that the industry was at its peak, this year we are going to touch new peak. Going forward there are a lot of positive factors which are going to spur this growth further, he said.
Below is the verbatim transcript of the interview:
Sonia: We spoke with Gopal Mahadevan, Chief Financial Officer of Ashok Leyland and he indicated that 10-15 percent growth for the industry is something that he doesn’t rule out for the next year. Do you have the same assumption and are you as optimistic?
A: I think after six long years of wait, after 2011-2012 that the industry was at its peak. This year we are going to touch new peak and going forward there are a lot of positive factors which are going to spur this growth further. The positive factors could be from infrastructure, e-commerce is very strong and similarly End of Life policy, we are expecting to come from the government. There are positive sentiments in the economy like we have seen good movement in fast moving consumer goods (FMCG), good movement in consumer durables and rural economy should also chip in. So there are very good positive factors which may spur the growth for the next year.
Latha: What kind of growth. Year-to-date you have done a little over 10 percent. How do you think you are going to do hereafter? Can it be much better than 10 percent?
A: Till now we have 10 percent and if you look at last two-three months, we are almost selling 7,000 per month; last month was 6,900 and before that 6,800 and this month again it should be a good number. Now our capacity is 7,000 or between 7,000 and 8,000. So right now we are operating at you can say almost full capacity and next year we are expecting good growth especially in Q1. Last year Q1 was very depressed because of the movement from BS-III to BS-IV. So Q1 there will be good growth quarter-on-quarter as compared to the previous year. We will also take steps to increase the capacity as we go along.
Sonia: You are at full capacity right now. What are the steps that you are taking to increase capacity and by when do you think this new capacity could come through?
A: We are still to take the call. Once we decide that then it will take some time to increase the capacity but as of now we will try to improve our production based on productivity improvement or based on working days in a month like working on Sundays to increase the capacity further. So that is how we will do it right now but once we take the long-term step of setting up a new plant – that will take more time.
Latha: Can you give us some timeline, size capacity expansion, amount for your capex plans?
A: That is still under finalization and we will come back once we are final on that.
Latha: When will that be?
A: We should take the call in next three months.
Sonia: Ashok Leyland was telling us how we are seeing higher tonnage commercial vehicle selling much more now and that could give them higher margins as well. Can we expect the same from Eicher. Higher amount of margins in the commercial vehicle (CV) space because of higher tonnage sale?
A: With the improvements that have taken place with goods and services tax (GST) implementation like optimization of warehouses or the entire productivity improvements that has happened, a lot of migration has happened to higher tonnage trucks and there are also restrictions on overloading of trucks in some of the states where earlier overloading was rampant. So due to that all the big fleet owners or customers are moving towards high tonnage trucks and in fact you could see more segmentation, for example right now in the rigid trucks we have the maximum tonnage of 37 tonne. You could see another rigid truck coming up with 41 tonne. So we are expecting more and more migration towards higher tonnage trucks because it is more efficient to move goods with higher tonnage trucks. If you have higher tonnage trucks the margins also could be better.
Latha: What was margins year-to-date and how much will it improve now that you are moving towards higher tonnage trucks?
A: It is difficult to pinpoint that how much margin will go up because of this. You can look overall; we are improving the margin. If you look at our last results we have an EBITDA margin of 8.5-9 percent. So let’s see because the market is also more competitive, the discounts are still not coming down so the margins always remain under pressure. Therefore, we have to create a fine balance between the margins and entire price management.
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