Economic revival critical for industry growth: Sundaram Fin

Though Sundaram Finance’s sales growth in medium and heavy commercial vehicle (M&HCV) segment was on an extremely low base, there are signs of revival in the industry over-all, says TT Srinivasaraghavan, MD, Sundaram Finance.Speaking to CNBC-TV18, Srinivasaraghavan says only with an overall growth in economy will the consumer goods business profit.He also says that though car sales have increased, only the commercial vehicle industry will be a barometer of what is happening in the wider and deeper economy. The demand has slightly risen due to the new emission norms and replacement, which has led to a ‘preponement’, he explains. “People have put off replacements for the last one-two years and they are at a point where it is counterproductive now not to replace,” he adds.Below is the transcript of TT Srinivasaraghavan's interview with Latha Venkatesh and Sonia Shenoy on CNBC-TV18.Sonia: This is one sector or the sector that you lend to which has seen a big revival in the last six to twelve months and specially players like Ashok Leyland continue to reap the benefits of that. Do you think that this sector can continue to grow at the pace it is growing or are there some pockets which are still not seeing any revival? For example the mining segment has not recovered much so tipper sales are not picking up. What are the pockets where you think there is still some growth left to be seen?A: You asked two question so I will answer the part about the revival first. It is important to bear in mind that we are coming off an extremely low base because you will recall that in FY12 Medium and Heavy Commercial Vehicle (M&HCV) sales had hit 3,50,000 which dropped to below 2,00,000 in FY14. So, whatever growth you are seeing now, whatever numbers you are seeing now are coming off on extremely low base. So, it is sometimes possible to get little carried away with any kind of percentages that we are seeing. Having said that is there a revival? The answer is yes there is a revival and as you say mining there has been lots of positive noises but we are yet to see actual action on the ground so that so that is potentially something that would play out. Also you talked about tippers; I think the whole world is waiting for the infrastructure story to unfold so that clearly is an area. To me the heart of this industry is the haulage industry. So, you have to see an overall pick up in economic activity. People have to start producing more things. People have to start buying more things because haulage is really is what at the heart of this industry. That is something that we are not seeing and the answers are not far to seek because consumer goods have been depressed for a very longtime so that has to pick up. Car sales were depressed for a longtime but they have started sort of moving up. So, we need to see ultimately the commercial vehicle industry is only sort of a barometer of what is happening in the wider and deeper economy. So, that is what I would say. So as you see more and more segments of the economy starting to grow and thrive then you will see the action coming back across the spectrum here as well.Latha: You spoke about this fall from 350,000 commercial vehicles two years ago to 250,000 in FY14. Where are we standing at now, are we still a distance from 350,000? A: Yes, we are, because 350,000 went to 195,000 and FY15 that climbed back to 235,000-240,000 something like that. So, we are still away as of for sure. Latha: What is the sense you are getting of this quarter and the next where you can see visibility? Is there a decent demand growth, volume growth?A: There is. Again, I am a little wary, I am often accused of being pessimist but there is certainly some uptick, there is certainly little more demand but some of this demand could be because there is talk that the new emission norms are kicking in, in many parts of India. So, that is leading to what in Indian idiom we call preponement. There is advanced buying if you like so that could explain some of this buying.There is also some replacement which can’t any longer be postponed. People have put off replacements for the last one-two years and they are at a point where it is counterproductive now not to replace. So, some of that is happening as well. As your colleague said, there are some areas for example in some pockets, in Maharashtra for example and Gujarat we see there is a little bit of activity starting to pick up, maybe there are specific projects that are getting awarded. So, there are sort of geographically some pockets of action and that is driving some of the growth, some of the oil companies are awarding contracts for LPG transportation, stuff like that. So, there are specific things that are happening in pockets and that is driving growth. As I said, you have to reckon with the fact that we are starting from a very low base.