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Last Updated : Oct 26, 2018 03:32 PM IST | Source: CNBC-TV18

Eicher Motors not disappointed over MHCV market share, says JV with Volvo successful

In an interview with CNBC-TV18, Martin Lundstedt and Siddhartha Lal, Managing Director and CEO of Eicher Motors, threw light on future plans with regards to the joint venture.

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Eicher Motors, which holds a joint venture with Volvo, announced that the joint venture (JV) is planning to come up with a new greenfield truck manufacturing plant at an investment of Rs 400 crore in Bhopal.

"The target is to go on stream with this plant in the next 18 months at an investment of around Rs 400 crore and an initial capacity of 40,000 trucks, in addition to the capacity of 90,000 trucks at Pithampur, near Indore," the company said.

Volvo Group and Eicher Motors have completed 10 years of partnership.

In an interview with CNBC-TV18, Martin Lundstedt and Siddhartha Lal, Managing Director and CEO of Eicher Motors, threw light on future plans with regards to the joint venture.

Here are edited excerpts of the interview:

Q: You have got the entire Volvo board here in India and the last time you were here was exactly 10 years ago when you inked this joint venture. What has the India experience been like so far?

Lundstedt: It has been very successful and to be able to be here with the complete board as the CEO, obviously I am travelling more frequently to India. But this is very important moment for us. 10 successful years together with Eicher Group and 20 years in India with our own operations ... so very important and great week.

Q: What can we expect now in terms of both investments as well as your aspirations to use India as an export hub? You have done over the last 10 years investments to the tune of little over Rs 3,000 crore, what more can we expect?

Lundstedt: We can continue to expect similar journey because there are so many things still to be done. If we start with India, obviously, with the growing economy that we see now at plus 7 percent in yearly growth rate and probably more also to come, the need obviously is of more sophisticated and sustainable transportation and infrastructure is a fact. There we see that we can continue to play an important role together with our customers and where the joint venture has played a very important role.

Also given the quick development that we have seen and with the competence of the people here, we are very proud also that we have a number of global hubs that we are sitting on in India. For example, our medium duty global competence centre, we are already exporting more 35,000 engines to Europe and to America and soon also will start to Japan, so proud to see that.

Q: So, Asia is an engine of growth for Volvo but let me ask you in terms of additional capacity- now the Pithampur plant is operational, you are looking at setting up additional capacity in Bhopal. Give me a sense of what we can expect over the next decade now for instance?

Lal: We have invested well over Rs 3,000 crore all out of internal accruals over the last decade and actually that trajectory has been growing over the last few years as we have been expanding our market and getting bigger in light and medium duty and now recently much more in heavy duty trucks which is the big pie. What we are doing is, our Pithampur facility which is our original facility, overtime it will be reserved more for medium and heavy duty and the light duty will come in a new plant which we are starting work now on, it will be ready in 18-24 months and that is in Bhopal.

That discrete investment is Rs 400 crore and on top of that is all the investment in Research and development (R&D), in our distribution in India and in various other areas. So, there is an increased level of investment from our part because we believe that the market is now moving towards higher value trucks which is where our partnership is extremely strong.

Q: So speaking of market share and speaking of the aspiration that you have with respect to this joint venture, if I am looking at the Society of Indian Automobile Manufacturers (SIAM) data now, in the MHCV market share is about 10 percent, the aspiration was at least 12 to 15 percent by the end of the decade. The decade is over now, you are not there yet, is this an area of disappointment?

Lal: Not at all, it has been an amazing journey. If you just take the element itself - in buses from the start of our joint venture, we were around 6 percent market share, we are at 17 percent today. In 5-15 tonne which is where the Eicher brand was always strong, we were around just over 20 percent, now we are over 30 percent, so that is 10 percent gain. It is in the heavy duty part in particular, the gain is not as much, but the point is that ... we have put in all the work and we have put in the infrastructure.

We expect that from BS-VI, when Indian consumers will be wanting a different product altogether, we are ready and right at that point for the inflection whenever that happens.

Q: If I could stress on what we are seeing happens as far as the MHCV space is concerned, the incumbents continue to occupy dominant market share there. What is it going to take? What will be the levers that you will be able to exercise in order for you to step up the game there? If I were to even look at some of your newer or the younger peers in comparison, they are sort of stepping up the game as well so what will it take for you to try and take on the competition?

Lal: It is extremely complex, but to try and break it down- what it really takes is a shift in many different areas and therefore the value to be seen - today it is a very initial price driven market because a lot of the players are single, small operators who are just about able to afford a truck. As it moves on and as the logistics becomes more aggregated and more professional, that is when people look at lifetime value of truck. We offer a much better lifetime value of truck than others, but we may lose out on initial cost today.

We are going to move to tractor tillers soon and that is where the mark is going to shift to already, it is going to move to more professional logistics and they want lifetime value not just initial cost.

Q: What does it also mean in terms of profitability, if you are not going to get into taking on the incumbents on price cuts then what does it eventually mean in terms of margins as well as profitability for this joint venture?

Lal: Again from the inception of the joint venture till now in the last 10 years despite two downturns — one was immediately after 2007 as soon as we started joint venture everything just went tumbling down and after that in 2011-2012 — the Volvo-Eicher Commercial Vehicles (VECV) operations have always been profitable. Our minimum profit was 4 percent in the worst year which is 2011-2012 and we have gone up to 10 percent, that has been our range. We are very focused on profitability at VECV, we don't buy short-term market share, that is not how we play the game. We are a very long-term focused company and profitable growth is our mantra. We look at other players but we don't follow them.

So, what it has resulted in is a very resilient company. We are generating cash all the time. We are investing that cash back into long-term areas for our company. It does not sound so nice but it is the right thing to do. Maybe it is not the most outrageous strategy but its chipping away, doing small things and over time gaining share. If we can do what we have done in other businesses and I believe we can in other areas, if you see the growth rate of the joint venture it has been 15 percent compounded over the last 10 years that is what we want and that is what is happening in heavy duty already.

Q: Going back again to the product mix and the product portfolio, we have got a massive pollution issue here in India, the government is moving towards smart mobility, electrification, etc, what is it that is going to mean in terms of your plans?

Lundstedt: If you think about it more from a macro perspective, the world will need considerably more transportation both of goods and people because that is linked to the general aspiration of driving prosperity. Higher prosperity in terms of middle class development and also annual economy means more transport and that must be considerably more sustainable in order to have true sustainability - ecological, economical, social and ethical. Therefore we will see a number of different alternatives when it comes to powering.

I would like to say that BS-6 is a major step forward. So we are not forgetting what we can do here now with the current infrastructure. We are also proud to say that we are already producing and engineering these type of vehicles in our joint venture, which makes us unique.

Q: So you are ready for BS-6 rollout?

Lundstedt: We are already producing and developing it here, that is number one. Then obviously there will be different type of performance steps and it will not be a sliver bullet. It will be as you say CNG because it is both energy from a sustainability point of view but it is also energy security. Then it will be electro mobility where we are already one of the leading actors because we were early out and in many cases almost too early out before the need was there - in 2008-2009 with buses and today we have a massive experience of that,  not only when it comes to technology of electro mobility but the infrastructure, what does it takes to build up the system and we have already projects ongoing in our joint venture to drive from.

Q: So what is the aspiration if I can go back to market share? On the buses side 17.5 percent in excess of that, on light and medium duty trucks about 30 percent plus, so what can we expect both in terms of market share addition as well as volume outlook?

Lal: We are not giving forward looking statements. Generally, what we have been working towards is one percent per year market share improvement - that means beat the market every single year but it doesn't happen every year. In some years where competitors give huge price discounts etc we may flatten a bit. But over the decade if we can say that we have grown on an average of a 1 percent a year or 0.8 percent a year that is the kind of market share that we aspire to and where that will take us is beyond. At the end we are part of the industry, so as the market grows for trucks and buses we will grow.

Lundstedt: I couldn't agree more but it is also important to take two complimentary perspectives to what Lal was saying. First perspective is that as the market will mature with more advance statistics, every truck will represent a completely different value not only for us but also for the customer and therefore it is not only unit game, it is about what type of solutions you are selling and that is one of the things.

Another measurement of success for us as Volvo Group is how well we can actually utilise the success of what we have done in India both as Volvo Group and our joint venture with Eicher because today we have 3-5 global platforms out from here - some of the engineering hubs, IT, exports now of engines and we are also exporting construction equipment, buses. So it is success in India for India but it is also India for the world.

Source: CNBC-TV18 
First Published on Oct 9, 2018 02:08 pm
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