The commercial vehicle (CV) industry goes through cycles of downturn, such as the current one, which has lasted a year. Ashok Leyland’s Chairman, DHEERAJ HINDUJA, tells T E Narasimhan on how the firm is coping with this, among other things. Edited excerpts:
When do you think CV demand will improve and what needs to be done?
Improvement of the finance sector is one; it would bring back finance into this industry. Talking to banks and NBFCs (non-bank fnance companies), one finds they are definitely showing a lot more appetite for financing of vehicles, which is good for us. Second, if the hovernment continues to invest in infrastructure, that will have a major incentive for the sector. Finally, the (awaited) scrappage scheme (for older vehicles). If this is announced, that will push the sentiment. The government has given an indication that by July there will be some level of certainty on the scheme.
You set a vision of becoming among the top 10 global CV players. Will this downturn affect your plans? When will you achieve this?
Our earlier vision, to be in the global top 10 in medium and heavy CVs (M&HCVs), was set in 2009 and we achieved it in nine years. I will be disappointed if we don’t achieve this (current aim) in less than the earlier time-frame. To achieve the global vision, the volume required will be about 400,000 units. Light CVs will be one of the key drivers. The firm is developing a new platform for LCVs and products launched from this will help us to address 65 per cent of the market by fiscal (year) 2024, with (annual) volume of around 150,000 units, as compared to 34 per cent now.
Anything OEMs (original equipment makers) can do to revive demand?
There is very little in terms of how OEMs can incentivise customers. Only giving discounts is not a good idea. One will only purchase a vehicle when one can use it optimally. For example, for a tipper, they need infrastructure; for long-haul vehicles, they need the goods and movement. I cannot see what is that we (alone) can do (more) for encouraging the customers. Definitely if the sentiment improves and (better) infrastructure kicks in, a scrappage policy if it does come, would all help. We continue to believe this is not a luxury project, so GST (goods and services tax) reduction could be good for the industry.
How do you plan to address future cyclicality?
Light CCVs, international operations, spare parts business, power solution business, defence sector, customer solutions — all of these can de-risk us from being purely an M&HCV company. Over the past five to six years, whenever a recessionary trend comes, we have not been drastically affected. We have seen the (current) results already. M&HCVs has been contributing to a little over 70 per cent of our business and, going forward, it should be definitely less than 50 per cent. The global business has traditionally been 10 per cent — more than ever before, we have a product range ready to address international markets; so, the contribution will improve significantly.
Are you cutting on investment/capital expenditure?
In core areas like modular vehicles, BS VI and a new LCV platform, we have not slowed. As we move forward, it depends on the need and we will get into more cycles of investment, regular ones.
In the next two years, where do you see Leyland?
The worst is behind us, even if we do not see double-digit growth in the next few months. Once the first quarter of the next financial year is past, people would have got experience with BS VI vehicles, we will start getting feedback on fuel efficiencies. After July and August, the market will start reviving very strongly.
We have five months to go (before BS VI standards take effect). So, there is likelihood of good pre-buying and we might see four months of strong sales. The first quarter (of 2020-21) might be slightly slower (in sales). This industry will grow 1.5 per cent more than that of Gross Domestic Product, if the GDP is growing at five per cent. So, if the government saying there will be seven per cent GDP (growth), there is a lot of opportunity. So, we are bullish.
Will you be looking at inorganic growth?
The industry is already consolidated; there are very few opportunities to consider acquisition. If we look at acquisitions, it should add technology or give us new geography. At the moment, we have a lot to do in India and a lot to do with the products we are bringing out. These products itself will help us to expand in new countries. From the UK perspective, Optare (their Yorkshire-based bus manufacturing subsidiary) will help to address developed markets. Be it electric or diesel, they are expanding.