With economic reforms coming in through various government initiatives, demand for cargo vehicles has improved to 24 percent in the second quarter from 5 percent in the first, says Gopal Bansal, Wholetime Director of SML Isuzu. The company further expects the demand to increase and to maintain FY15 margins going forward, he tells CNBC-TV18.However, the company is still facing some problems in getting money for buses supplied under Jawaharlal Nehru National Urban Renewal Mission (JnNURM) scheme, he says. Below is the verbatim transcript of Gopal Bansal's interview with Latha Venkatesh & Sonia Shenoy.
Sonia: It has been a very good run that the company has seen in the year gone by and even in the quarter gone by, just take us through what the projections are for the year ahead?
A: In the first quarter we have done a growth of 5 percent and in the second quarter the growth has been better at 24 percent because the demand for our cargo vehicles has now started growing and picking up. It has not been good for the last two years
However, Q1 is mostly a passenger category quarter when school buses are mostly sold and Q2 and Q3 are mostly the sale of cargo trucks and volumes are lower, but this time demand has been better for cargo trucks on account of various economic or reform measures taken by governments, there is some pickup. I feel this pickup should continue going forward.
Sonia: We were speaking with Eicher Motors yesterday and they made a point where they said that the Jawaharlal Nehru National Urban Renewal Mission (JnNURM) scheme since its transfer to the new Atal Mission for Rejuvenation and Urban Transformation (AMRUT) scheme, there is some problem is terms of funds being released by the government. Are you seeing a reduction in number of fresh school bus orders that are given out by the new government?
A: The JnNURM is not giving school bus orders. We get school bus orders from the schools. There is no connection between school bus sale and JnNURM scheme. JnNURM scheme is for city buses. Yes, there is a problem in funding because the release of funds from the central government is not taking place and the buses have been already supplied to state governments under that scheme, we are facing a problem in getting the money.
Latha: How would you size up your expectations of the second half demand?
A: As is said, the demand for cargo vehicles has shown a pick up in the quarter two and we are seeing positive vibes from our dealers and the marketing staff from all across the country, where demand for cargo vehicles is improving, so based on that I feel the growth prospects are good. As the reform agenda of the government, although it has come bit late, implementation and actual results, but I think it will bring results specially reduction in interest rate and infrastructure spending etc, should bring demand for cargo vehicles.
Sonia: Your capacity is increasing by FY17. How much will your total capacity go up to? In what segment is that that you are increasing your capacity and what will that do to your utilisation?
A: We have a capacity of 18,000 on two shifts basis currently and we are doing about 14,000, but the issue is, in quarter one and quarter four we fully utilise it because we needed about 1,500 per month in those two quarters. And we expect the demand to further pick up, so we are raising the capacity. I cannot give you a number but we have started the process._PAGEBREAK_
Sonia: Could you give us a number for what your FY16 growth would be because in FY15 you saw about a 25 percent growth on the topline and your margins too have improved to almost 6 percent in the fiscal gone by. In FY16 given that the demand is picking up how much growth do you see?
A: I cannot put a number to it as I already explained, based on our first half results and based on the positive vibe we are getting from dealers and general staff, I think there will be further pickup in the demand but very difficult to describe a number because there are so many uncertainties relating to regulations, ABS implementations, BSIV (Bharat Stage emission standards) implementation, so it is slightly difficult to describe any number.
Latha: Can you just give us something directional in the sense that your margins have improved considerably from last year to now would you say at least your earnings before interest, taxes, depreciation and amortisation (EBITDA) run rate will be maintained at 20 percent?
A: Growth will depend on volume growth. I can only say margins will be protected despite increase in costs on the account of regulations but I cannot say what growth we will get.
Sonia: Is Isuzu increasing the stake in the company anytime soon from the 15 percent currently?
A: no I cannot say anything about it is because Isuzu’s decision and I am not privy to that at all.
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