Strong sales trend in the commercial vehicles space continues coupled with better- than-expected performance in the VECV (VE Commercial Vehicles Ltd) business, said Vinod Aggarwal of Eicher Motors. We produced 5700 CVs in May compared to 5300 in April and 5000 in March, he added. The overall market share in CV segment has risen to 12 percent from 10.9 percent. The company launched many new products, and seen better penetration and stronger demand in the last three months. Demand for school buses has also risen. "April to July is a school season. Schools start new batches so demand for buses goes up," Aggarwal said. The company's overall capacity (bus and trucks) is 5000 per month and it aims to take it to 7000 per month the year end, he maintained. He also expects higher EBITDA margins due to increase in volumes. Below is the verbatim transcript of Vinod Aggarwal's interview with Latha Venkatesh & Sonia Shenoy on CNBC-TV18.
Sonia: It's been another good month for you. Looking at the trend over the last few months, In May it was 5,700 units, in April it was 5,300, in February it was 5,000 and January it was 3,700, so it has been progressing at a steady pace. Will this progression continue in the months to come and how is the demand situation looking now?
A: The demand is continuing to improve and Volvo-Eicher Commercial Vehicles (VECV), we are continuing to even do better than the market and that is due to the new products that we have introduced. We have much better penetration now, we have company owned dealerships operating in some parts of the country and then of course there are a lot more infrastructure projects which are taking off, so there will be more and more demand. So on the whole we are doing better and we expect to do like this.
Latha: Some of the other commercial vehicle players did see a little bit of softening of demand, even three-wheeler pick up unit saw a bit of a softening of demand or at least softening of output in the month of May. Is there anything by way of tiredness of demand or is it that you are capturing higher market share but demand is plateauing?
A: If you look at the heavy-duty trucks, which are 16 tonne and above, that market is continuing to grow and that market growth in the first two months, April and May is 27 percent. Tippers, which are construction trucks, they have grown by 65-70 percent and tractors, trailers have also grown well. So we see good demand coming in the heavy-duty trucks. In light and medium duty trucks, there is some softening that seems to be happening but in the first two months the growth has been 20 percent. Buses, the growth has been slightly less.
Sonia: Dwell a bit into construction truck segment; you said it has grown 65-70 percent. This is within what time period and is this for the industry or for Eicher Motors?
A: It is for the industry. The growth is like this for the last four-five months.
Sonia: Where does the growth come in from, which industry it comes in from. Is it more from mining, is it any other infrastructure related industries and geography wise, where are you seeing higher amount of pick up?
A: This growth is coming from mining as well as from road construction.
Latha: The margins are not your main concern but are margins likely to do even better because raw material costs are still subdued? Will FY17 be a year of EBITDA growth being stronger than revenue growth?
A: Yes, EBITDA growth will be better because of the volumes; if volume is more, we will have better operating leverage but on the other hand we also see some hardening of inflation rates. However, in auto sector, it is largely due to steel because there is lot of protection that has been given to the industry, so as a result of that we see hardening of steel rates.
Sonia: One of your peers, SML Isuzu was telling us that the school bus segment has picked up quite a bit and in the buses segment your own market share has risen from 13 percent to 16 percent in the quarter gone by. Have you seen incremental orders come in and if yes, from where and would you be increasing your production capacity for the busses segment?
A: Busses continue to grow especially from April to July because the school reopens; they have new fleet, they replace a few, so busses are going to be strong during this period up to July. However, we are also increasing our capacity. Overall capacity including trucks and busses is 5,500 per month and we are taking steps to increase it to 7,000 per month by the yearend.
Sonia: Your margins in the commercial vehicle segment went up about 100 bps this quarter to 8 percent - because of the improvement that you are seeing in demand can we expect 10 percent margins or double digit margins in this fiscal?
A: It is difficult to mention how the margins will behave because that's a combination of various factors. We have to continue to do our best to improve the margins.
Discover the latest Business News, Sensex, and Nifty updates. Obtain Personal Finance insights, tax queries, and expert opinions on Moneycontrol or download the Moneycontrol App to stay updated!
