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Discounts will not go until the market runs into a strong phase: Ravindra Pisharody

6 July, 2015, The Financial Express

Tata Motors – India’s largest commercial vehicle manufacturer – has managed to stage a successful recovery in the medium and heavy commercial vehicles (M&HCV) segment by increasing volumes 18% year-on-year (y-o-y) in June to 11,450 units despite the challenging economic conditions. Ravindra Pisharody, president-commercial vehicles, Tata Motors, points out that although demand has picked up since the October 2013-March 2014 period, the worst phase when M&HCV volumes dropped to 11900 units, the industry is still not out of the woods. In an interview with FE’s Malyaban Ghosh, Pisharody says low cargo volumes from the manufacturing and infrastructure sectors remain a concern even today. Edited excerpts:

Growth in the M&HCV segment for Tata Motors has come off from 34% y-o-y in January to 18% y-o-y in June. Is the CV cycle at all turning?

Our growth in the latter half of the last year came off a very low base with the October 2013 to March 2014 period the lowest point, following which we saw a recovery. Before  the slowdown we were growing at 30-40% which is not sustainable in the current circumstances. The growth forecast in the M&HCV segment has been around 10-15%, but we have been going ahead of that. The economy, while showing some positive signs, is still impacted by real economic activity and most purchases of trucks are driven by replacements.

Your market share in the M&HCV segment was at 60% in FY12 but is now at 52%. When do you expect to get back to that position?

We have to be realistic in setting targets. If we can maintain the 55-56% market share in the M&HCV segment, I would say that we have done a great job. Five years ago there were only two or three competitors but now there are seven to eight players and despite this our market share in the M&HCV has increased. In the months of April, May and June, we have grown more than our new competitors thanks to products like Prima, multi axle trucks and variants. So, I expect we will successfully hold on to our market share.

Freight from the infrastructure and manufacturing sectors has not increased significantly in the last four months. Does that worry you?

The growth in M&HCV will not be hampered due to poor freight from certain sectors. Obviously, less cargo is an issue and we have spoken to a number of big fleet owners who are our customers to take stock of the situation.

Despite having under-utilised capacity, they are buying trucks because of new contracts they have won in recent times. The period of 2009-12 was the peak time for truck purchases and many of the fleet owners are now due for replacements. They delayed purchases in the 2012-14 period but are not delaying it any more. I expect that this fiscal will see a slope (downward) but cargo load will improve in the second half of the year. It continues to be an area of concern.

Despite the increase in volumes, original equipment makers (OEMs) continue to offer huge discounts on heavy commercial vehicles. What is Tata Motors’ pricing strategy?

Since the capacity to manufacture vehicles is far higher than the demand, discounts will not go away until the market runs into a strong phase like we saw in 2010-2011. Right now, the recovery is very slow and there is a lot of capacity left with the manufacturers. As far as we are concerned, the initial period was a bit of a problem, but we have now factored in the discount into our cost structure. So the prices of our vehicles are improving 2.5% to 3% every year to recover the cost of higher wages and materials. We are working heavily on reduction of costs to further offset the impact of the discount. Right now, it is not causing any major dents in our margins.

How have the Prima trucks performed in the domestic and export market?

The highlight of Tata Motors’ performance in the premium segment is the 34% y-o-y growth that we managed to achieve from the export of the Prima and the Ultra trucks in 2015. Prima and Ultra are products that can compete in the developed markets as well. The Prima has been performing well in the Middle East, ASEAN and the South African markets. The Indian economy is still very weak and exports as a result will get a lot of emphasis. When we developed Prima and Ultra products we wanted to introduce premium trucks to protect our 55-56% market share. Besides that, we always had an eye on exports.

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