VE Commercial Vehicles recently acquired Volvo Group India’s bus business for Rs 100 crore. Vinod Aggarwal, Managing Director and CEO, VECV speaks about leveraging multiple synergies with the Swedish bus and truck major to make gains in India, why he is not keen on applying for electric bus tenders in India, the company's growth outlook for FY2021 and lots more.
What was the thought behind VECV’s move to take over Volvo’s bus business in India?
Volvo buses are known for comfort, safety, luxury. It has become a generic brand and people relate buses with Volvo. It is a very important and popular brand in India, and it is a big thing that we will now have both brands of buses — Volvo and Eicher. This will widen our product range. With this, we will re-shape the entire bus industry in India because we have world-class manufacturing technology, a wide range of products, best manufacturing process and the capacity. With both the brands, we will be able to do more synergetic work in the form of new product development, purchasing and manufacturing among others, which will bring advantage for both the brands (Eicher and Volvo).
Can you quantify the savings and efficiency improvement through the synergy?
We don’t want to quantify the savings. But the biggest outcome would be that there will be more of a new range of buses that can be introduced in the country. We will not create direct competition for our brands but will create lot of complementarity. For example, today, in the mass-market brand where Eicher competes, the bus cost is up to Rs 40-45 lakh, and Volvo bus prices start at Rs 1 crore. There is nothing between Rs 40 lakh and Rs 1 crore; we will see if we can bring some product in that range. The definitive agreements have been signed and the closure will happen in the next one-and-a-half month; after that we will start realising the synergies.
We have to be very clear that it can’t be a mix of both the brands. Both Eicher and Volvo stand for their own values, where the brand value and attributes are different. We will continue to follow the brand guidelines and will decide accordingly in the future.
Will you have a revised sales target for the new bus division?
In domestic sales, Eicher already has 15 percent market share in the bus sales in India. In the high-end premium segment, Volvo has a dominance position. We will now have to expand the market size.
The domestic CV market looks to be in a very bad shape this year. How do you view the overall CV market in India?
Currently, the domestic CV industry is having a lot of challenges because of the Covid-19 pandemic and the business activities being low. The GDP is also expected to shrink, but at the same time the medium to long-term outlook remains positive for us. There will be a lot of pent-up demand, I am confident of that. If you look at the CV industry trends, in FY2019-20 the industry had dropped by 40 percent. For FY2021, we expected a lot of pre-buying happening due to the BS-VI transition, but it has not happened because of the current situation and sales are significantly down. For Q1 FY2021, it was almost down by 85 percent for the 5-tonne-and-above segment. In July also, it was almost 65 percent lower albeit on a low base last year. It means the replacement demand that should have happened last year is not happening.
Similarly, the axle-load norms that kicked in two years ago, resulted in customers loading the trucks as per the new norms, but the designs (of the truck) did not change. The earlier designs were not made to carry that type of loads but people were loading more. Along with upgrading to BS VI, we have also made those changes in our products so that they are able to carry the additional 20 percent load.
This means the new products are designed to meet the new norms as well as offer more productivity, which means CV buyers will replace their old trucks as is the usual case in the replacement market that happens after 4-5 years. Truck owners who were supposed to replace last year didn’t do so since the industry and economy was down. This year too, those who had planned to replace haven’t been able to do that. But it doesn’t mean that they will get out of business. They will replace their trucks and, along with that, there will also be some people who will look at expanding their fleets. The replacement will come this year once there is some confidence in the economy. We will also see the pent-up demand convert into sales.
What is your view on the much-awaited scrappage policy that has been long delayed?
Beyond a point, there is no point in talking about the vehicle scrappage policy. If it is not coming, it means it is not coming. Let’s not talk about that. If it comes, it will be an added advantage. The government keeps on saying it is ready, but unless it is an incentive-based scrappage policy, it will be of no use.
In May 2020, the All India Transporters Welfare Association had urged its members not to buy new trucks till April 2021 as there was excess capacity in the market. What is your view on this?
Statements like this are all unnecessary hype, with which people try to create to gain attention and it has no meaning. People who need or get business to transport, they will not go with what anyone else says. The transporter will not want to lose business because someone said don't buy new vehicles. It doesn't impact the demand.
What are your plans about entering the electric bus segment? VECV has been quite silent on that front.
We don’t want to lose money. We are ready with the products; if we get the right offers, we will do it. We don’t want to sell it (electric buses) just for the sake of selling them. If we have to sell an electric vehicle, we have to make money; we don’t have to sell it at a loss.
The conditions that are being put in the tenders, somehow, we are not able to understand how to do business with that kind of conditions. The upfront cost is very high, you are trying to structure things in a different manner. For instance, a 10-year AMC for batteries, which no one knows. What will the life of those batteries be? How can you give a guarantee for that?
Your competitors have won various state tenders to supply electric buses. Don’t you think they may take a lead over VECV in the e-bus market?
Why are they not supplying? Those who have got the tender should supply. There has to be commercial sense for the manufacturer, the operator and the customer. Right now, the infrastructure is not there. You have to import almost everything from China and the initial cost is also high.
It is not that as if VECV is not ready with the product, we are ready with it. We are ready with the 9-tonne electric bus and can sell as many as the customer wants. But if we don’t get the right offer, we won’t bleed by selling. We haven’t participated in the last tender that came, because it came at a very obnoxious price.
Will you need to make any new investment or have planned capex on the back of the new announcement?
There will be the routine investments. We will make the required investment as and when needed. There is no immediate need to invest, but when we build new products, we will require some investment.
Will Eicher and Volvo Bus look at developing new products on modular platforms?
Platforms will be modular, whenever we do the new thing. We will commonise lot of aggregates, this are the synergies. commonise lot of aggregates, this are the synergies. The products will have their own attributes, depending on the brand guidelines. We will explore common synergies for instance in terms of common buying and developing common suppliers, among other things. We will have to take care the requirements of both brands. We will also look at combining our orders.
Since VECV will create a new bus division headed by Akash Passey, what will be its immediate goals and targets?
The initial target will be the same, which is to realise all these synergies. It is also to expand the product range and shape the bus market in India. He (Akash Passey) has to take both the brands to a new high.
Do you think with BS VI norms, in effect VECV will become more competitive?
At present demand is low. BS VI is an opportunity, the cost has increased (technology) for everyone. If someone wishes to give a discount, which is not justified you will only incur losses. Every company will have targets for its financial performance.
How do you plan to differentiate your products from the competition?
The key differentiator is that we have more than six years of experience in Euro 6 technology. We have been supplying Euro 6 engines to the Volvo Group. We know the nuances of BS VI much better than anyone else. We also have lot of learnings from the Volvo Group on the experience of our customers in Europe. Secondly, we have now decided to offer 100 percent factory-fitted connected vehicles to our customers. We are not selling a single truck or bus without the connected technology. With our connected technology, the productivity of the vehicle is taken to a new level. We have set a first-of-its-kind Uptime Centre, which remains connected with all the vehicles that are on telematics. Our customers get a range of value-added services in the form of fuel management, uptime management and trip management. Our team can provide a host of reports based on advanced analytics, and provide the customer a detailed understanding. We can slice and dice various information and data; for instance, how the fuel economy is when a particular driver is at the wheel. Plus, fuel efficiency based on the route, trip and driving condition among others. Fuel efficiency alone accounts for almost 50 percent of the TCO, and if we are able to give the customer some savings in that, it means more profit for them. Through our Uptime Centre, we will be able to provide vehicle diagnostics anywhere on a real-time basis. For the first two years, the subscription is being provided by the company, so that the customers can understand the benefit of such a technology. Also, we can offer this solution as a retrofit option for our existing customers too.
Lastly, will the new buses to be developed be considered for export markets?
Of course. We have added quite a few markets in our domain. We are exporting to Southeast Asia, Indonesia, Malaysia, South Africa, Middle East and South Asia. These markets are quite big. We will look at exporting the products under the Eicher brand; for the Volvo brand, we do not have the automatic route. We will need to discuss the same with the Volvo Group as they themselves export buses to different countries. We will look at how we can leverage the network, and if it makes sense to export the buses from here, that needs to be discussed. There is no automatic route right that we can start exporting Volvo buses from here.