Commercial vehicles sales may grow 15-20% in FY16: SIAM

To counter the overall slowdown, Ashok Leyland has taken various initiatives, Dasari says adding, “we have Invested heavily in network growth across country, launched wide range of new products, some of which will be exhibited in the upcoming auto show and taken initiatives to enhance the productivity of front end sales”.  

He also pointed out the company does not focus on discounting and instead strictly focuses on maintaining margin, adding that the company has managed to improve market share to over 30 percent.  Below is the verbatim transcript of Vinod Dasari’s interview with Latha Venkatesh & Sonia Shenoy on CNBC-TV18.Sonia: It has been a fairly decent year for the commercial vehicles sector so, in the first half of the year the industry volumes have jumped by almost 35 percent. What is the expectation for the second half of the fiscal year as well as for 2016?A: It has been a wonderful year for the commercial vehicle (CV) industry the medium and heavy commercial vehicle (M&HCV) industry. However, please note that this industry was at a high of 350 thousand vehicles just three years ago and it fell for two consecutive years and came down to about 200 thousand. The last year we had a 15 percent uptake and came up to 230 thousand. This year the first half was very good because there was also a bit of a pre-buy because there were lots of safety regulations coming from October 1st.We have seen a little bit of a slowdown in Q3 but we are still doing far better than last year’s Q3. I can see the green shoots that shows that a Q4 will also be fairly strong. So, I expect the year to finish at least 15-20 percent higher than last year. However, looking forward I think, even if this industry grows at about 15 percent it will take at least two more year of such growth before it even catches up to the previous high. We know that even the previous high was far from where developed countries are in terms of penetration of commercial vehicles.Latha: Would one of the blessings be the Supreme Court ban on old trucks? Would that give you a bump-up above that 15 percent growth for FY17?A: I think so, well this is something that the industry has been pointing out for quite some time that if you want to stop pollution stop polluting vehicles rather than stop very contemporary vehicle. So, we had been suggesting this for quite some time and government was trying to find ways and means to implement this because it is a little bit of a complex way of implementing it because one person who is selling the old vehicles is not necessarily the person who is buying the vehicle. However, there will be ways and means that the industry and the market himself will figure it out. It is a welcomed move. I am sure it will have nice, may be another four-five percent additional boost coming because of this. Latha: I was just asking you that as you ask older than 15 years vehicles to be moved out, you will also have a pool of fleet operators who will be impoverished, who may not have the money to buy. So, does it really translate into a goodish bit of fresh demand for trucks?A: I don’t think there is a huge chunk of vehicles which are more than 15 years old. Most fleet operators replace their vehicle every three to four years. So, their vehicles will be fairly current. What happens with these 15 year old vehicles is they get into very menial kind of operations like moving sand or moving dirt around in villages and rural areas. Very little of this actually comes to the cities. So, I don’t see an impact on fleet operators. However, please also note that if they buy newer vehicles they are far more fuel efficient not just better in terms of emission. So, they also generate better revenue and better profits.Sonia: If you had to give us sort of a bird’s-eye view of how the next couple of years will look for the sector? What would your call be for the commercial vehicle sector because a lot of analyst believe that there could be even a 25 percent growth by the time we reach FY18 in the sector purely because of the replacement demand pick up as you pointed out and also the improvement in some of the sectors like mining etc. Is it 20-25 percent growth a reasonable assumption for the next couple of years?A: I don’t want to be very optimistic but it is possible. I am trying to be little conservative on numbers but it is actually possible because of four things. Two is you pointed out. One is that the replacement demand second is the mining and infrastructure also starting to build. As the government builds more roads and airports and ports I think there will be more demand for that. More so then the mining, the infrastructure will pick up the demand. The third is what Latha Venkatesh just pointed out about the old vehicles being disbanded whether it is 10 years old or 15 years old as this spreads across the country, today it is only at NCR. Please also note that before FY18 BS IV will become nationwide. So, there will be a bit of a pre-buy also as people there be a difference in cost between BS III and BS IV vehicles so people will try to buy stage wise as it is getting across the country by April 2017 and everything will go to BS V or BS IV nationwide. I think there will be a bit of pre-buy also. So, I am fairly bullish for the next couple of years.Latha: We are just trying to do the math very quickly and that is why we are asking you these numbers. Would it be 350 thousand vehicles being manufactured or being sold by the end of FY16 so would that be a time when people will start looking at capex?A: No I don’t think it will reach 350 thousand by FY16. We will probably end somewhere around 270-280 thousand at best leaving good headroom for another one year or one and a half year of growth.Latha: The point I was trying to ask you is that at what point does capex resume? Would it be in FY17 where you would be probably producing to 75 percent? What are you producing to in terms of capacity as an industry and would you be 80 percent capacity by the end of FY16 so you will start thinking capex?A: No, I don’t think we will need capex at least for the next one-two years. Industry has had a capex at the rate of 350 thousand or even higher. I don’t think there will be capacity requirements at least in the next 12-18months because there is also productivity improvements that have happened in the factories over this period, where we might have to look at capacity changes if the light commercial vehicles come back very strongly. That is a sector that has not been doing very well. Primarily, because of rural demand being slow but if it suddenly bounces back and it is supposed to come back in line with the heavy commercial vehicles usually the lag is about six months now it is always been 12 months since the heavy commercial vehicles picked up and the light didn’t So, I expect the light commercial vehicles to come back very strongly and when it does we will have to evaluate our capacity options.Sonia: Ashok Leyland’s market share has been improving it is now more than 23 percent but that was in the last quarter. Since then have you seen further improvement in market share? A: Our market share is not 23 percent it is closer to 30 percent. However, it depends on exactly which sectors or region you are looking at. We are doing fairly well but this is basically a result of three things that we have been doing over the last several years. We continue to invest in our network growth. In the last five years we nearly quintupled our network across the country.Second thing that we have done is we continue to launch whole slew of new products and more are coming. You will see them at Auto Expo also showcasing not just customer value vehicles buy futuristic technology vehicles as concepts. The third thing that we did is we invested a lot of effort and money in developing and enhancing the productivity of our frontline. Today we are one of the only commercial vehicles companies in the world where our dealers sales executive use a little mobile device a little tab to sell their vehicles. Everything else is done through that so we have leveraged the mobility rather than people selling with books and dairies and all that. So, enhancement or productivity of frontline, several new products as well as a very established network is helping us. We did lose a little bit of market share in this quarter because we are not going to chase the discounts. We have to maintain our margins at a high level. We did maintain it above double digit for last three quarters and let us see how we maintain it in fourth quarter.