The company has successfully field-tested 50 units and has already commenced production for the new series.
Cummins India has launched new models of generators in line with the CPCB II (Central Pollution Control Board) norms. The company has successfully field-tested 50 units and has already commenced production for the new series, said CFO Rajiv Batra on CNBC-TV18.
The new CPCB II norms will be applicable from April 1, 2014, (got delayed by 8 months, the earlier implementation date was July 2013).
“The CPCB II norms have come after gap of 7-8 years. These are more environment-efficient norms. The company expects a rise in the overall cost for new product line by 15-20%,” he said.
These norms are applicable for products up to 800 kVA and may impact 40% of Cummins portfolio.
Batra feels the genset industry could see some pre-buying before April 1 and the new product launch will be margin-neutral.
Below is the edited interview transcript of Rajiv Batra on CNBC-TV18
Q: What would be the impact of these new norms on the genset industry?
A: I think Central Pollution Control Board (CPCB) II norm, which is a next level of emissions after CPCB I, has come after a gap of seven-eight years. This increases fuel efficiency which is great for the environment and takes us to the next level of emissions, which would be controlling pollution much better. Therefore, there is advantage for everybody and we will leapfrog couple of level of emissions when this will be brought on.
Q: I want to know what would be the impact, you have incurred the research and development (R&D) cost to develop new sets, what kind of fall in margins perhaps in the initial years, because of this new product?
A: It is an entirely new range.
Q: Would it impact the overall margins?
A: Let us start with selling price; we have indicated to the market that prices would go up between 15 percent and 20 percent and we are holding on to that. Marginwise, I am not expecting much of a movement and we are margin neutral at this stage. However, later on over the cycle, we might see some improvements but that depends on how the market reacts.
Q: Do you expect to see a lot of pre buying because of this rule and what kind of impact do you think it could have on your own volumes?
A: Both questions need separate answers. One is pre buying. Yes, there would be some elements of pre buying and as the cost from April 1 would increase, we expect a rise in overall cost by 15-20 percent, where people who have been waiting to complete the purchase would jump in and complete that in the first quarter.
Volumes are dependent on how the market is doing and it is a function of customer confidence, investment flows in the economy and at this stage both are down. So, volume is a bit of a qualified answer. Pre buy yes, we should see some buy.
Q: The reason I asked is because I wanted to know whether you would change your sales guidance cut that you had outlined earlier. Will there be any revision to your topline guidance?
A: Not at this stage. It is a bit early for us but we will look at that come back.
Q: Can you give us an idea of what might the sales look like because we are dealing with a slightly power surplus situation, not because there is no demand but because there is an inability to pay perhaps at the rate at which power is available? Is that impacting volume significantly?
A: Markets are tight at this stage and that is not only relevant to us but the entire capital goods industries and it is the fact that the winding down on capital formation has not stopped. There is overcapacity in the economy and unless that gets absorbed, fresh buying is muted at this stage.
Q: Does rupee depreciation have any impact on your margins?
A: Somewhat yes and at this stage the low horsepower genset range is not impacted but on the higher-end foreign exchange, if it goes beyond where we are today, it will start to impact us.