Govt mulling to give Rs 5 lakh for older vehicles is a positive move: Ashok Leyland

In a booster shot for commercial vehicles, reports indicate that the finance ministry has approved the vehicle scrapping policy which will allow companies to scrap commercial vehicles older than 15 years. The document will now go to Good and Services Tax (GST) Council which will fix concessions by states and center.

In an interview with CNBC-TV18, Gopal Mahadevan, CFO of Ashok Leyland spoke about the latest happenings in his company and sector. He also spoke about the impact of the scrappage policy if and when it comes.

Speaking about the vehicle scrappage policy Mahadevan said, 'I think it is a very positive development for the industry. It is something that the industry has been waiting for.'

The reports state that the government is mulling about giving Rs 5 lakh for vehicles which are over 15 year old. We will have to wait and see for the announcement. However, having said that, if this were to happen, some of the larger fleet operators who have older vehicles, may want to switchover very quickly to the newer vehicles. So this is a very positive development, he added.

A: I believe so. I think it is a very positive development for the industry, it is something that the industry has been waiting for. At the moment, the newspaper reports says that it is a voluntary scheme, the ministry of finance has approved it but I think it is going to the goods and services tax (GST) council for the next round of approval.

The reports also state that the government is mulling about giving about Rs 5 lakh for vehicles, which are over 15 years old. We will have to wait and see for the announcement but having said that, what I can tell you is that, if this were to happen, some of the larger fleet operators who have older vehicles may want to switch over very quickly to the newer vehicles. So this is a very positive development and I think in terms of demand, it is a little difficult to forecast but I would say that two-three years of industry volume is what we would see in the initial year or couple of years as replacement volume if things go well.

A: All I can tell you is that it is a very difficult guess at the moment because the 28 or 20 million vehicles, the statistics that is going – we don’t know whether it is purely commercial vehicle industry or does it include all other types of vehicles also. So we will have to wait out for a further amount of details on that but our guess is that if this were to happen, even if you were to add another two-three years of total industry volume coming over and above the current demand, it is a very healthy number. So you cannot service millions of vehicles over a year and I don’t think that is going to happen but even otherwise if you see the total industry volume jump up very significantly because of the voluntary scheme, even that would be a very positive for the industry, definitely a positive development.

A: I don’t have that level of statistics here but I can tell you the easier one which is the total industry volume would be anywhere between 320,000 and 350,000. So if you were to look at two-three years demand, that number translates to anywhere between about 550,000 to 800,000 vehicles. It could also go to a million vehicles but we will have to wait and watch.

A: The CV industry definitely has had a good pullback in November and December. Till September, the total industry volume was lower than last year but as I am talking to you today, the total industry volume is higher by about 14 percent in numbers over last year. If you were to translate that into tonnage or number of axles, that number would be something above 20 percent. So that augurs very well for the industry. We have seen the industry move from the middle ranged vehicles to higher tonnages, 37 tonner, the 41 tonner, the 49 tonner, all of this has happened owing to two-three reasons.

One is that there is definitely an infra push that is happening, the investment in road, mining is opening up. Other infrastructure spends or the government is also kind of triggering the demand. The second one has been the positive regulation. So you had some applications coming in some of the northern and central states that is again seen demand for vehicles.

The third one is if we see that FY18-FY19 is going to be a good year for the country, I see it to be very positive for the commercial vehicle industry. So to answer your question, I am expecting a growth in the CV industry next year as well.

A: It is a little difficult to estimate that kind of number. That is what we have done year-to-date, let us hope that number repeats itself next year but I would want to be a little more careful and possibly look at under-promising and over-delivering. So I would say a 10 percent growth to 15 percent growth seems likely.

A: I believe so. The immediate future looks very positive for the light commercial vehicle industry and we are very positive about our LCV business also because we have seen quite a bit of growth in our volumes and we are still to launch about 6-7 vehicles over the next 12 months. So as we keep feeling this slots in our LCV portfolio, we would see Ashok Leyland volumes also going relatively higher than industry. So extremely positive about our LCV business.

A: There are two reasons, one is the overloading width that you talked about that has not happened on a Pan India basis, we have seen it happened in some of these states like Uttar Pradesh (UP) and Rajasthan and the certain parts of Madhya Pradesh (MP) also. I am sure that it would happen in other states or that would be a driver for additional demand for CVs. As far as the higher tonnage vehicles are concerned, another reason for medium and large fleet operators to go for that is the economies have scaled.

We are seeing more loads and they find that it makes sense to go in for a higher tonnage vehicle like a 37 tonner or a 41 tonner because the economies of scale starts kicking in and the total cost of ownership and the profitability is much better in a larger tonnage vehicle than in a smaller tonnage vehicle like a 20 or 27 tonner.

The confluence of two of these reasons is actually driving up the volume. To answer your question as to whether we see this happening over the next 12 months, it is a calculated guess. It is 10-15 percent growth that I have shared with you. There is a lot of assumptions underlying it. The basic assumption is that the gross domestic product (GDP) is going to grow, the economy is going to grow. So if that were to happen, we would see demand for commercial vehicles going up. It is a logical conclusion because I keep telling that commercial vehicle industry is nothing more than just transporting GDP so if the GDP were to grow, CV industry definitely has to grow.