Eicher Motors expects 4-5% growth for CV indusry in FY15

Below is the transcript of Vinod Aggarwal's interview with Latha Venkatesh and Sonia Shenoy on CNBC-TV18.Sonia: It has been a good month for commercial vehicle sales but just tell us how much of it is courtesy a low base, how much is genuine improvement in demand, what kind of levels do you see sustainable in terms of sales run rate?A: If you look at the commercial vehicle industry, it has gone through one of the worst phases of recession in last three years. However, the good thing is that the industry has started reviving now and that revival has started with the heavy duty trucks. Heavy duty trucks that had dropped to 131,000 last year in 2013, has gone up this year. It is likely to go up in 2014 to around 150,000. If you look at this, the earlier peak of 241,000 so definitely in the month of November, there is a growth of almost more than 60 percent in the heavy duty trucks. That has also come because of the low base but at the same time, there is also revival in the industry because heavy duty trucks are the first ones to drop and they are the first ones to recover whenever the revival happens.Second important segment that is the light and medium duty trucks, which is 5 to 15 tonne trucks is still dropping. This year in 2014, the drop is likely to be 18 percent in 5 to 15 tonne industry.If you take buses, which is the third important segment- they continue to see a drop led by the low purchases from state transport undertakings. However, going forward the state transport undertakings are likely to purchase more next year based on the government assisted Jawaharlal Nehru National Urban Renewal Mission (JNNURM) scheme. If you look at the exports of the trucks from the country that is also growing very well this year from 27,000 in 2013 this year it will be around 41,000. So based on all this, the CV industry is likely to grow in 2014 calendar year by around 4-5 percent but it will be led by heavy duty trucks and exports. Light duty and medium duty as well as buses are still dropping.Latha: Do you see any improvement at all in the light duty segment, even a chance that the worst is over?A: For the light duty segment we are very hopeful that this recovery will start in next six months because it always lags the recovery with respect to heavy duty because what happens is that heavy duty trucks basically see the signs of recession as well as signs of revival much earlier. So they start replacing the fleet much earlier than the replacement started by the light and medium duty opponents. We should see this recovery.Second thing is that we have to still see the impact of various government actions – the government has taken a number steps, which has brought in a lot of positivity. Once we start seeing the impact of all those on the ground level then the industry will get further boost. For example coal mines - if government is able to keep up its word that they are able to auction these coal mines in next three-four months that will bring in tremendous boost to the entire industry.Sonia: In the quarter gone by, Eicher commercial vehicles did a sale of around 9,800 CVs i.e, close to 10,000 run rate - can it be maintained for the second half of the year or do you think you can do much better than that?A: No, it will grow further now. Going forward, the industry is growing and we should do better than this.Latha: What about the Volvo buses. That was 1,200 in Q3 in terms of exports, how is the bus output expected to pan out in the current and next quarter?A: Let me clarify, Volvo buses are not dealt by this joint venture, VE Commercial Vehicles. However on the other hand Eicher buses we are doing very well and our market share in buses has gone up from 11.5 percent last year to this year of 14.5 percent. So we are continuing to do much better in the buses relative to the industry and going forward also we will do better.Sonia: What about the margins itself, if you look at the consolidated numbers which includes the CV business, the margins for the company have been at around 13.5 percent. Given that 1] you are expecting sales to improve, 2] there is the benefit that we are seeing in terms of raw material cost etc, do you expect the margins to improve further from this 13 percent level?A: This 13 percent level is at the Eicher Motors consolidated level, which include the Royal Enfield margins. I am not speaking here about Royal Enfield. As far as the VECV is concerned which is the joint venture, our operating margins after depreciation are at around 4 percent and going forward, these margins also should become better once the discounting comes down in the industry. As you know the truck industry is experiencing very large level of discounting based on the ideal capacity, which is there with all the suppliers, with all the manufacturers, so once that capacity starts getting utilised with more and more industry revival, the discounts will come down and the margins will improve.Latha: Give us some ballpark idea of the kind of growth you see in 2015 both in numbers in terms of commercial vehicles and margins?A: For the commercial vehicle industry in 2014 we will have a growth of around 4 percent. 2015 going forward will be much better than 4 percent because we will see growth in light and medium duty. We will also see growth in buses and see better growth in heavy duty trucks. So 2015, and beginning of 2016 we should see the industry touching its earlier peak of 2011 numbers.I would say in the next two year we should go back to 2011.Sonia: Have you got any orders from the JNNURM scheme?A: Yes, we have got orders from some state transport undertakings. We have received order from Bihar state transport undertaking.