Ashok Leyland's Vinod Dasari raises the red flag on discounts in the commercial vehicle business, says the trend is very unfortunate. Adds that some commercial vehicle (CV) makers are buying market share with heavy discounting.
In an interview to CNBC-TV18, Vinod Dasari, President of Society of Indian Automobile Manufacturers (SIAM) expects CV segment to grow 10-15 percent this fiscal.
Sales momentum in the CV segment from last few months will continue, he said.
Some CV manufacturers in the industry resorting to 'crazy' pricing and financing but we will not go down the route of buying market share. Hence we lost market share in the month of August but will not chase market share on the basis of price, he added.
Discounting in CV industry is 'very unfortunate', said Dasari.
On light commercial vehicle (LCV) business he said the company is looking to launch one new LCV product every quarter.
Company will be participating in government's 10,000 e-Bus tender, he further mentioned.
According to him, defence business will generate a revenue of Rs 5,000 crore in coming years.
Below is the verbatim transcript of the interview.
Q: What is your view on the industry right now?
A: Our industry runs on gross domestic product (GDP), infrastructure and mining. For once I believe all three are in the positive. So I can sense that the number of heavy vehicles are getting heavier. So the top end of the vehicles are selling. So even if I am not selling more vehicles, my revenue is going up.
LCV business is very strong. It is moving quite well. So we are doing 20-30 percent higher volumes on LCV also. So I am fairly bullish.
Q: Give us a number, what kind of growth momentum can we expect? You are still sticking to that 10-15 percent growth guidance?
A: I said 10-15 percent at the beginning of the year and I will stick to it.
Q: You are saying that your realisation per vehicle has gone up significantly?
A: Substantially. I sell a 4*2 vehicle at Rs 11-12 lakhs or something in that range, maybe Rs 13-14 lakhs. I sell a 10*2 vehicle at Rs 30-33 lakhs. More than double and I am selling more of the Rs 33 lakh vehicles than I am selling a Rs 14 lakh vehicle. This is the shift that has happened over the last three-four years and this is why I was saying simply looking at a total number of vehicles means nothing anymore.
Q: When you came out with your monthly numbers for the month of August, investors – many of them who hold your stock – gave it a big thumbs up, we saw big movement in your share price as well. I know it is early days for the month of September but what is the sales trend looking like?
A: Sales momentum – the three things are still continuing to be positive. Like I said the GDP, the infrastructure and the mining continue to be positive and I am bullish about it. Not taking a very short-term view but taking a full year view, I think we will do okay.
There has been some crazy pricing that has been done by some in the industry, I don’t want to name who, and crazy financing but I told you earlier that we will not go down the route of buying market share. No matter what I will continue to protect my margin and hence we lost market share in the month of august. Still maintain it at respectable levels at over 31 percent and I will continue to do that but I will not chase market share on the basis of price.
Q: You are saying crazy financing, crazy pricing by some manufacturers, so you are saying that some CV makers are once again resorting to very heavy discounting which one thought was perhaps somewhat over post goods and services tax (GST) but you are saying that is not the case?
A: In some cases, it never went away but in some cases, it has gotten much worse. It is unfortunate. But we will not chase it. Ultimately the choice is with the customer.
Q: Which are the segments in the CV space where we are seeing the heaviest discounting?
A: All the trucks.
Q: Let us talk about your LCV business then? you were a late entrant into this and many said you have given a lot of space to Tata Motors and Mahindra and Mahindra (M&M), what is Ashok Leyland doing about it because your market share still a low double digit, what is the plan?
A: Your observations are very correct. We were not only late, we only had one model called Dost. We did not have anything else.
If you remember, we have been in the LCV business now for seven years with one model and with that one model, our market share is about 15 percent in overall LCV. But if you look at only that segment of 2.5-3 tonne segment, we are 33 percent of that market. With one model, we are fighting almost 14 other models between the other two players.
Nevertheless, this Dost Plus adds to this and what is good is that now that we have the LCV business fully with us – we were in a joint venture (JV) where we had constraints of the JV preventing us from adding new products and all of that. So now that we have the full ownership of the JV, you will see almost one new product every quarter.
Our LCV business – the JV failed because it was not making money. Six months since our acquisition of the JV, our LCV business is already profitable.
Q: We understand from government sources that the government may come out with a fresh tender to acquire 10,000 electric-busses. Will Ashok Leyland participate in that?
A: Certainly. When it comes to large buses, we are the largest in the country. Outside of China, we are the world’s largest bus manufacturer and we will continue to participate in India especially if it is with electric vehicles or something which is so important for the country, we will be always participating.
Q: Talk to me little bit about your defence business. You have said that you are looking at an overall revenue of Rs 5,000 crore going forward, what sort of opportunities do you see opening up there because the government clearly is coming out with various policy measures to sort of ensure more private sector participation?
A: I think it is going to be humongous opportunity for India and for Indian companies. I think the entire defence of this country will become much stronger if you leverage Indian industry.
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