27 June, 2015, Financial Chronicle
As the M&HCV segment witnesses healthy traction, Ravi Pisharody of Tata Motors tells Michael Gonsalves how the industry continues to be concerned, but optimistic, as it now awaits recovery in the light commercial vehicle segment. Excerpts:n What is ailing the commercial vehicles market in India, Asia’s third largest economy?
Demand for commercial vehicles is directly linked to the macro-economic environment in the country, and specifically manufacturing, mining and construction. Besides this, the fluctuating value of the rupee, fuel prices and financing availability are other key elements. On all these parameters, the last three years have been extremely challenging. We have seen some growth signs in sales figures of the M&HCV segment, on what is a very low base. Other CV segments, such as LCVs and pick-ups/micro-trucks are yet to show signs of recovery.
Key government policy interventions, improvements in macro-economic trends – especially speedy growth in infrastructural projects and a good overall investment sentiment – will be necessary to see a real and comprehensive turnaround in the CV industry.
n The heavy duty trucks and bus segment is on recovery mode. How long will it take to revive, be stable and on growth trajectory?
Over the past few months, there has been an improvement in the utilisation of trucks. This has gradually improved from about 50-60 per cent from about 5-6 months ago, to about 75-80 per cent, as per various operators. Freight rates have been firm with reducing fuel rates, which improved profitability for fleet operators.
This is because we have seen improvement in some key sectors, driven by road projects getting cleared, opening up of the mining sector, improvement in cargo trucks partly driven by the tenders for petrochemical vehicles, tankers, LPG products and partly due to the FMCG’s, which has largely contributed to better MHCV sales. There is a feeling that we may have bottomed out as far as M&HCVs are concerned, through the numbers sold are still much lower than what it was about two years ago.
One of the primary reasons for a relatively slower market is due to operators having postponed their fleet replacement, in the last two years and are now slowly coming back. If truck utilisation increases and freight rates go up commensurately with costs, the operators will surely buy new trucks. However, the biggest concern for the CV industry, is the challenging macro-economic environment in the country.
Also, with hopes of economic recovery gaining traction and improvement in business sentiment, bankers have now opened up financing to the CV sector, considering signs of growth, leading to a pick-up in CV loan disbursements for larger fleet buyers. However, this is not the case for buyers of SCV’s, who are largely retail buyers whom banks are practicing caution. Hence, even if M&HCV segment is witnessing some healthy traction, we continue to be concerned, but optimistic, as we await for recovery in the SCV segment.
We hope that a stable government at the centre will drive reforms to promote investment, develop infrastructure, revive mining quicker, and undertake tax reforms that will definitely help sustain demand in the medium and long term, for a real turnaround in the CV industry.
The bus Industry has been muted for last two years and replacement cycle is also delayed. However, with the recent JnNURM orders, we are busy introducing a number of new platforms, as specified by any MoUD for these orders. We expect a recovery in 2015-16 with signs of improvement in economy and replacement happening in stage carriage, staff and contract segments.
We are also hoping for the new bus body code to get implemented as soon as possible. A uniform bus body code is a welcome move for passengers ensuring that buses are built as per stipulated standards related to safety, design and comfort. Implementation of this code would completely transform the industry and help it evolve and get more organised, also motivating passengers to use public transport. This would apply to all companies and individuals engaged in bus manufacturing or bus body building with a seating capacity of 13 or more passengers, with all bus types being covered under the code.
As of now, there are no norms with which we can demand bus builders and operators to change their designs resulting in a cramped journey, extreme heat, intolerable vibration, noise and poor safety standards. According to this new bus body code, every bus manufacturing unit will have to obtain accreditation certificates to demonstrate their capabilities to build buses as per the safety standards set by ARAI.
n The light commercial vehicle segment is still in the slump. What is ailing this segment?
The SCV segment grew by 30 per cent CAGR between 2010 and 2012 out-performing all other segments and accounts for more than 60 per cent of the overall CV industry. The segment experiences a delayed effect of both upturns and downturns when compared to M&HCV segment. Now that the M&HCV segment is seeing some positive movement, we can expect the SCV segment to expected to follow with grow of 5 per cent by FY 16. The segment is heavily depends on financing with a currently high interest regime having affected the purchasing decision of customers.
While we plan to further our presence with new products for the segment, we also plan to further our efforts in offering ready-to-use off the shelve application based products, to further add value for our customers, also bringing back interest in the space.This will also include working with other stakeholders such as regulators, governments, permit authorities etc. to help extend the deployment of these vehicles for last mile transport of people and cargo. It will not only help the industry growth and ancillary benefits but significantly help bring in more safe and comfortable transport.
n What does the government need to do to revive commercial vehicles market?
The seriousness on the part of the government to improve infrastructure is one of the biggest driving forces of growth, as it will result in increase in the movement of goods across states. This will also trigger of movement of cement, steel, sand, aluminium and coal, for infrastructure, in in turn driving up growth in the CV sector.
Infrastructure development does not just influence segments like cargo haulage, construction of roads and mining activities that are directly linked to it, but it also has a multiplier effect across other secondary segments, and hence stands to feed the overall economic activity across the country.
With growing urbanisation and the government’s plan of setting up 100 smart cities, with a need for a comfortable transit system, thereby also increasing create demand for modern buses, including high-tech hybrid and electric vehicles. The need for a regulation to replace of older vehicles could also facilitate increased market acceptance for efficient and greener vehicles with better technology.
n What are the prospects of growth for the premium trucks, buses and light commercial vehicles in the Indian market?
Commercial vehicles are a key part of the modern transportation mix and is an important junction with technological development, emergence of segments, globalisation and growth in emerging markets, all of which are set to change the face of the industry in the next decade. In India a majority of commercial vehicles are based on traditional design and basic functionality and largely governed by customers who are price sensitive.
Premium trucks or high-end trucks comprise vehicles that are priced higher than conventional trucks seen on Indian roads. These trucks are based on unmatched performance, with added dependability of high standards of power, speed, hauling capabilities, operator comfort and overall performance, built to travel the distance.
Higher GDP growth, rapid urbanisation, boom in infrastructure and construction projects coupled with better road network fuelled the rapid growth of heavy commercial vehicle industry in India, hence the country is seeing better acceptance of high-end trucks, also sometimes termed as premium trucks, however is still at a very slow pace. This has also presented established global players with an opportunity in the Indian trucking space.
n With the government’s make in India call, will exports of commercial vehicles pick up pace?
At Tata Motors we have been working to increase our exports over the years, with a well-structured plan to become a significant global player and thereby de-risk the business dependence on domestic market. Recently, with the introduction of the new generation range of products like the PRIMA, ULTRA, XENON, which have found more acceptability in the international market, confirming to the requirements of many more markets, it has widened our export base, showcasing our world-class production quality on the global stage. This also gives us tremendous opportunity for growth across various International markets.
In 2015 alone, we’ve launched our new-generation range of PRIMA trucks in markets like Bangladesh, Kenya, Uganda, Malaysia and the UAE and we have also announced our entry into another market in Vietnam and Tunisia. We export to nearly 45 countries, constituting nearly 10-12 per cent of our overall volumes. In FY14-15 we exported about 50,000 vehicles from our passenger and commercial vehicles division and it jumped 30 per cent in April-May this year.