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We are geared up for competition: Ravindra Pisharody of Tata Motors

16 July, 2015, Business Today

img_20150715113338710The commercial vehicle business of Tata Motors has recorded three-fourths of the overall domestic sales volume in the last financial year. The medium and heavy commercial vehicle (M&HCV) segment of the company grew 14.9 per cent and it has a domestic market share of 54.4 per cent. Ravindra Pisharody, Executive Director (commercial vehicles), Tata Motors, during an interaction with Nevin John of Business Today, says the competition is growing in CV business with the entry of global players and the company targets to grow 15 per cent annually until 2020 in the segment. Excerpts of the interview:

Q. The CV business seems to be failing to come back to the growth track. What is hurting the segment?

A. The sub-segments in the CV business are slightly different in nature. M&HCV segments, which are traditionally the lead indicator of state of the economy, are cyclical across the world. In terms of revenue, the largest part of the business is the medium and heavy trucks: long-distance travellers and tippers. But when a correction happens after a dip, especially after 3-4 years in saturated markets like Europe and Japan, it doesn’t peak to new highs but does reach the previous performance levels. 

The last three years were bad for the M&HCV segment, especially since January 2012. The global liquidity crisis driven by the 2008-09 slump didn’t last long. The M&HCV was impacted sharply during the time, but bounced back after 8-9 months. It fell 25-30 per cent during the time, while passenger vehicle (PV) segment was relatively consistent. The reason is that the industry is not structured. Even in good times, the capacity utilization of trucks is 80-85 per cent in the country because it is not well planned. When economy slides, the truck utilisation will slip drastically and the fleet owners find low utilisation. Resultantly, they postpone new purchases. During 2012-14, we had heavy fall in the industry. The truck utilisation was 20-25 per cent. Buses are a relatively smaller part; just one seventh of the 700,000-big CV market. It doesn’t drop drastically, the fall is usually 10-15 per cent. 

Financing is another critical point. In CV purchases, everybody takes a loan of 80-90 per cent. It is part of their business economics. Since paying instalments was directly related to their monthly income, many of the customers delayed new purchases for replacing the old trucks. But the business has started picking up now. 

Q. Has the downward spiral of the M&HCV segment affected the light commercial vehicles (LCV)?

A. Tata Ace, the LCV, is sold primarily to individuals compared M&HCV sold to truck fleet owners. LCV segment had been witnessing continuous growth since the launch of Ace in 2005, except for a brief period in 2008-09. But the M&HCV fall had started affecting LCV from 2014. It is primarily because of the lower job opportunities and reluctance of banks to disburse 80-90 per cent of vehicle value as loan. The situation has improved for M&HCV, but it will take some more time for LCV. We are talking to the financiers for improving loan disbursal percentage. 

We have seen these cycles and respond fast to them. We are conscious of the value of the inventory. Ten days of stock is valued Rs 800-900 crore for us. So we even go for block closures immediately for aligning the production with the demand. We expect the recovery to continue at least for two more years in the case of big trucks. Small vehicle sale is expected to pick up from this fiscal. Barring one segment of pick-ups, we are market leader with 80-90 per cent market share, including for Ace, Magic and Iris. 

Q. How is the competition panning out in HCV business?

A. The world’s number one and two (in the segment) are here-Daimler and Volvo-in addition to global giants like Scania and Man. We are still strong with 55 per cent market share and keen to protect our dominance in the market share. Today, there are eight players in the truck business, while it was 2-3 players seven years ago. Competition has been coming in. However, market share has not fallen more than one or two per cent. We are geared up for competition. 

When a global player comes in, their first phase of growth would be through adding new geographies (or states) and introducing new products. After that they will get into the year-on-year growth path, which is tough in today’s market conditions and it has reflected on some of the global players’ year-on year growth. 

Q. The PV segment aims at growth through new launches. What is the strategy for CV business in this context?

A. The mindset of PV and CV customers are completely different. If you offer new features and a jazzy look, PV customers will buy the car. They won’t bother about the cost variations. But CV buyer looks at cost of the vehicle, load carrying capacity, fuel economy, durability, service and overall return on their investment. Unless the vehicle gives better trip time and 25 per cent more fuel economy, it is not a saleable proposition. If you come up with a product which is superior to competition in value terms, the market share goes up in CV segment. The main drivers of the CV market are the economy, load availability, low-cost finance and freight rate-diesel price equilibrium. 

Q. What kind of innovations are happening in the segment?

A. The innovation is happening in engineering, especially in reducing the weight, saving the fuel cost, increasing the payload and reaching the top speed better. When we introduced Prima trucks, we built air-conditioned cabins for the driver with two bed bunks for the co-drivers to sleep. The concept is that the vehicle can run 20 hours a day with two or three drivers and that will increase the operating income of truck owner. We were the first truck makers who moved to radial tyres. There was opposition from tyre makers. But we insisted that radial tyres give fuel efficiency to customers. Later, everyone put up capacities. The four-axle is another engineering innovation. If the load is more than 31 tonne, the fourth axle can be used for power. Otherwise, the driver can fold the axle and save fuel. Now there are lot of things happening in safety and electronics. We are working on anti-lock breaking system (ABS) and telematics. In our business, innovation is doing something at a low cost. 

Q. Why didn’t you develop a product like Volvo?

A. The bus market is small as I said earlier. The luxury bus market is much less in the bus segment. When we sell 3,000-4,000 buses a month, the luxury bus category is 100-200. The segment needs specific investments. We look at size and scale to compete in a sub segment.

Q. You created Prima brand for trucks. Will you go for sub brands in trucks?

A. The truck power, for instance 25 tonne and a 31 tonne multi-axle truck, is the brand by itself. But after we came up Prima sub branding since it’s a distinct personality, there is a lot of thought happening in creating such sub brands. Most probably, we will come up with new names. When we introduced Prima, which was priced 40 per cent premium to the market price, the recession happened. Usually during such a time, the most affected in the CV segment would be the higher priced products. Now we have introduced Prima cabins in 25 and 31 tonne multi axle (called Prima LX) and the response is good. The price has also reduced. Soon we hope to sell 1,000 Prima trucks in a month.

Q. What are the plans to improve the potential of the dealer network?

A. We have 200 dealers operating in 1,000 locations. Every dealer is Rs 150 crore in average size considering our annual revenue. We do 2-3 years of due diligence before selecting a dealer. We hardly cancel dealerships. In many cases, the dealerships are there for three generations. Every year we have infusion of 8-10 dealers. Like MacDonald’s franchisees, our dealerships bear the corporate identity. We give training, technology and other supports to dealers. We plan to grow the CV segment by a compounded annual growth rate (CAGR) of 15 per cent until 2020.

The commercial vehicle business of Tata Motors has recorded three-fourths of the overall domestic sales volume in the last financial year. The medium and heavy commercial vehicle (M&HCV) segment of the company grew 14.9 per cent and it has a domestic market share of 54.4 per cent. Ravindra Pisharody, Executive Director (commercial vehicles), Tata Motors, during an interaction with Nevin John of Business Today, says the competition is growing in CV business with the entry of global players and the company targets to grow 15 per cent annually until 2020 in the segment. Excerpts of the interview:

Q. The CV business seems to be failing to come back to the growth track. What is hurting the segment?

A. The sub-segments in the CV business are slightly different in nature. M&HCV segments, which are traditionally the lead indicator of state of the economy, are cyclical across the world. In terms of revenue, the largest part of the business is the medium and heavy trucks: long-distance travellers and tippers. But when a correction happens after a dip, especially after 3-4 years in saturated markets like Europe and Japan, it doesn’t peak to new highs but does reach the previous performance levels. 

The last three years were bad for the M&HCV segment, especially since January 2012. The global liquidity crisis driven by the 2008-09 slump didn’t last long. The M&HCV was impacted sharply during the time, but bounced back after 8-9 months. It fell 25-30 per cent during the time, while passenger vehicle (PV) segment was relatively consistent. The reason is that the industry is not structured. Even in good times, the capacity utilization of trucks is 80-85 per cent in the country because it is not well planned. When economy slides, the truck utilisation will slip drastically and the fleet owners find low utilisation. Resultantly, they postpone new purchases. During 2012-14, we had heavy fall in the industry. The truck utilisation was 20-25 per cent. Buses are a relatively smaller part; just one seventh of the 700,000-big CV market. It doesn’t drop drastically, the fall is usually 10-15 per cent. 

Financing is another critical point. In CV purchases, everybody takes a loan of 80-90 per cent. It is part of their business economics. Since paying instalments was directly related to their monthly income, many of the customers delayed new purchases for replacing the old trucks. But the business has started picking up now. 

Q. Has the downward spiral of the M&HCV segment affected the light commercial vehicles (LCV)?

A. Tata Ace, the LCV, is sold primarily to individuals compared M&HCV sold to truck fleet owners. LCV segment had been witnessing continuous growth since the launch of Ace in 2005, except for a brief period in 2008-09. But the M&HCV fall had started affecting LCV from 2014. It is primarily because of the lower job opportunities and reluctance of banks to disburse 80-90 per cent of vehicle value as loan. The situation has improved for M&HCV, but it will take some more time for LCV. We are talking to the financiers for improving loan disbursal percentage. 

We have seen these cycles and respond fast to them. We are conscious of the value of the inventory. Ten days of stock is valued Rs 800-900 crore for us. So we even go for block closures immediately for aligning the production with the demand. We expect the recovery to continue at least for two more years in the case of big trucks. Small vehicle sale is expected to pick up from this fiscal. Barring one segment of pick-ups, we are market leader with 80-90 per cent market share, including for Ace, Magic and Iris. 

Q. How is the competition panning out in HCV business?

A. The world’s number one and two (in the segment) are here-Daimler and Volvo-in addition to global giants like Scania and Man. We are still strong with 55 per cent market share and keen to protect our dominance in the market share. Today, there are eight players in the truck business, while it was 2-3 players seven years ago. Competition has been coming in. However, market share has not fallen more than one or two per cent. We are geared up for competition. 

When a global player comes in, their first phase of growth would be through adding new geographies (or states) and introducing new products. After that they will get into the year-on-year growth path, which is tough in today’s market conditions and it has reflected on some of the global players’ year-on year growth. 

Q. The PV segment aims at growth through new launches. What is the strategy for CV business in this context?

A. The mindset of PV and CV customers are completely different. If you offer new features and a jazzy look, PV customers will buy the car. They won’t bother about the cost variations. But CV buyer looks at cost of the vehicle, load carrying capacity, fuel economy, durability, service and overall return on their investment. Unless the vehicle gives better trip time and 25 per cent more fuel economy, it is not a saleable proposition. If you come up with a product which is superior to competition in value terms, the market share goes up in CV segment. The main drivers of the CV market are the economy, load availability, low-cost finance and freight rate-diesel price equilibrium. 

Q. What kind of innovations are happening in the segment?

A. The innovation is happening in engineering, especially in reducing the weight, saving the fuel cost, increasing the payload and reaching the top speed better. When we introduced Prima trucks, we built air-conditioned cabins for the driver with two bed bunks for the co-drivers to sleep. The concept is that the vehicle can run 20 hours a day with two or three drivers and that will increase the operating income of truck owner. We were the first truck makers who moved to radial tyres. There was opposition from tyre makers. But we insisted that radial tyres give fuel efficiency to customers. Later, everyone put up capacities. The four-axle is another engineering innovation. If the load is more than 31 tonne, the fourth axle can be used for power. Otherwise, the driver can fold the axle and save fuel. Now there are lot of things happening in safety and electronics. We are working on anti-lock breaking system (ABS) and telematics. In our business, innovation is doing something at a low cost. 

Q. Why didn’t you develop a product like Volvo?

A. The bus market is small as I said earlier. The luxury bus market is much less in the bus segment. When we sell 3,000-4,000 buses a month, the luxury bus category is 100-200. The segment needs specific investments. We look at size and scale to compete in a sub segment.

Q. You created Prima brand for trucks. Will you go for sub brands in trucks?

A. The truck power, for instance 25 tonne and a 31 tonne multi-axle truck, is the brand by itself. But after we came up Prima sub branding since it’s a distinct personality, there is a lot of thought happening in creating such sub brands. Most probably, we will come up with new names. When we introduced Prima, which was priced 40 per cent premium to the market price, the recession happened. Usually during such a time, the most affected in the CV segment would be the higher priced products. Now we have introduced Prima cabins in 25 and 31 tonne multi axle (called Prima LX) and the response is good. The price has also reduced. Soon we hope to sell 1,000 Prima trucks in a month.

Q. What are the plans to improve the potential of the dealer network?

A. We have 200 dealers operating in 1,000 locations. Every dealer is Rs 150 crore in average size considering our annual revenue. We do 2-3 years of due diligence before selecting a dealer. We hardly cancel dealerships. In many cases, the dealerships are there for three generations. Every year we have infusion of 8-10 dealers. Like MacDonald’s franchisees, our dealerships bear the corporate identity. We give training, technology and other supports to dealers. We plan to grow the CV segment by a compounded annual growth rate (CAGR) of 15 per cent until 2020.

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