Better late than never. From Raunak Varma’s point of view, the fact that CNH Industrial is finally beginning to appreciate what India has to offer in the tractor space is by itself a good reason to be optimistic about the road ahead.
As Managing Director & Country Head, CNH Industrial India & SAARC, Varma and his team have been working relentlessly over the last four years to put a strong base in place for the tractor business that has been sold for years under the New Holland brand.
He admits that its presence is little to write home about especially with bigger rivals like Mahindra & Mahindra, TAFE and Escorts but all that is hopefully a thing of the past with a firmer intent to put things back on track now. The CNH of today, which includes the Case construction equipment brand, is now keen on giving a fillip to the India business.
“We are late in the game but can leapfrog at CNH. When we are setting things up like the tech centre in Noida, it reflects a recognition of the strategic importance of India for the group and creating more value,” says Varma.
Eventually, it boils down to bringing “at par or even better competencies” along with better value. “We can produce, invest and develop products at cheaper costs for customers and at a better value,” he adds. By the end of this year or early 2023, CNH will be able to cover all of its R&D needs out of India and become more agile in the process.
Sure, there are still some components and certain validation where “I still have to go to Italy or the US” but all that will stop once India takes over completely. Quality issues can also be dealt with here and with CNH’s strong presence worldwide, it helps improve India’s prospects of developing equipment for overseas markets.
On the front-end of tractor retail, Varma admits that the group needs to cover more ground. For many years, it made a deliberate choice to play in a certain segment because it was seen as generating acceptable profit levels but yielded little in terms of building market share.
For instance, in the over 50 hp (horsepower) category, the New Holland brand has 12 percent plus market share and generates over 50 percent of its volumes in this space. The problem, however, lies in the fact that this is less than 25 percent of volumes for the overall tractor industry and therefore of little consequence in terms of brand visibility.
The key lies in participating in the 40-50 hp segment which accounts for nearly 55 percent of the market. “If you don't cover that well, you are not doing justice to the customer. We have a loyal buyer base which needs the right options for their needs. If we cannot cater to them, they will look elsewhere,” says Varma.
With CNH now lending more support to the India business, the team here has done a lot of work on drawing up a competitive cost structure. Consequently, the margins today are at par or even better than the export markets. “The group is ready to invest in growing India. Hence capacity expansions are happening along with product launches,” he says.
There will be a far more aggressive play in the more voluminous 40-50hp space and here is where New Holland will hope to expand its brand across the diverse Indian terrain. Varma also points out that with capacity limited at the Noida facility near Delhi, there was really little scope of having enough 40-50 hp products.
Things are changing now with the first phase of expansion to 65,000 tractors now underway which can also meet export demand. The other facility in Pune can also chip in to accommodate the 40-50 hp range. Now, with its own drivelines and four wheel drives, along with a powerful engine, CNH is hopeful of delivering greater customer value in the New Holland range.
In the process, it will also look at increasing its presence in growth markets like Uttar Pradesh, Maharashtra (where it is present in the higher hp segment but not in compact tractors), Madhya Pradesh, Karnataka, Andhra Pradesh and Telangana.
“In the tractor world, we are an aspirational brand. We did a pretty deep study with Nielsen where we saw that the emotional connect with our customers was the highest among all brands. There is a significant pride of ownership with New Holland,” says Varma while highlighting benefits offered like a six-year transferable warranty and a relentless focus on quality.
By the end of the day, the tractor is an earning equipment for the farmer and “we owe it to him for our equipment to make money for him”. CNH is now going the extra mile in investing in its network — “this is a product-led, distribution-led and commercial offering-led effort.”
The top priority now is to double market share in the next four years to about eight percent and also grow profitably. “A brand like ours does not offer any value at the entry level where differentiation is a challenge. We will not do justice to that particular customer since we cannot cater to his needs. Our base is at the higher end of the curve and our aspiration needs to be accompanied by profitability,” says Varma.
The bottomline is that the group has “no interest in the volume game” and would rather build an industrial footprint to be able to serve the world for sub 100 hp utility tractors — this is where India will play a significantly larger role. As he explains, the CNH team in India has to fight for the global investment pie unlike domestic rivals which have greater latitude in investing on their own. “I need to prove to HQ that returns are doable and cannot keep showing a dream about India being great.”
The good news is that all the work done over the last 3-4 years in terms of value analysis on customer needs, market feedback etc is finally paying off in terms of getting HQ’s attention. “All this has created a significant and competitive cost for us where the values can be offered back to customers with the right price points,” says Varma.
He admits that not having invested in capacity for so long did result in what could be termed a lost growth opportunity in 2021 where “we could not supply even for exports”. Things are different now and the India leadership team clearly does not want to be caught in such a situation again.
“The group is confident that we will deliver profitably. By 2023, we should have close to 80,000 tractors and beyond that we will target 100,000 units,” says Varma. Most of the expansion will happen in Noida while some of the production will shift to Pune which effectively means that there will be no need for new plants.
“The group has started to see — even while there were some sceptics — that we can deliver,” says Varma. The fact that the Indian tractor market is a robust $7 billion of the global $68 billion pie is a good enough reason to invest here. Factor in the 125,000 tractors exported annually from India and the market is actually worth $10 billion.
The growth that will come from here is the sub 100 hp segment where the markets are typically India, China, ASEAN, parts of Brazil and Africa. The CNH joint ventures in Pakistan and Turkey also cater to sub 100 hp tractors but India is the only 100 percent owned group company that has full scale operations in this space.
Procurement initiatives are also happening in a big way from the country. CNH has kicked off an initiative of procuring half a billion dollars’ worth of parts from suppliers here as a hedge to China whose policies have sometimes been disruptive for the group. India is the only market worldwide for CNH that is producing at or above plan “because we have the benefits of a localised supply chain”.
India also feeds a lot of components to CNH plants globally, continues Varma. The plants here make axles and PTOs (power take-off) — the operations here actually make the highest number of PTOs for the world and have taken over a large part of the output from CNH’s Belgium plant.
Additionally, cabs are now being made in Pune while the small square baler, which was being imported, has now been localised. As Varma explains, baling opportunities in India will be significant in terms of pollution control and fodder that will be needed in the future. “The group clearly wants to have a bigger part of India and leverage its industrial and service infrastructure for the world,” he adds.
CNH is also betting big on the country’s R&D competencies and it is in this context that the recently set up tech centre will emerge the largest digital hub in the group as well. It has 150 people on the rolls today and Varma believes that if things go according to plan, the numbers could rise over three-fold to 500 by the year-end and go up further to even 1,000.
“It is a race of hiring right now. There are enough projects out there and all of the new technology developments and the skills available are sent out of here. All of the software engineering etc will be based here and it is a great opportunity for young engineers to get exposed to the global world of CNH,” he adds.
Plans are on to forge partnerships with other universities to have specifically tailored courses which can then throw up the right talent for CNH. According to Varma, there can also be a great deal of cross-pollination of talent across regions which will benefit employees here in a big way.
The group is also working on electric tractors but nothing has been commercialised yet worldwide. In the Indian context, this is almost impossible to conceive at this stage given the reality of the farmer being “the highest value seeker”. As he wryly adds, “You are dead if you cannot meet his needs. We need to come up with frugal solutions.”
There are, of course, a host of challenges to reckon with especially when farmers use tractors beyond the field. They double up as a means of transport or to do haulage work. “You need an architecture to support those duty cycles which requires significant charging infrastructure,” says Varma.
Compressed natural gas could be a more practical option except that it is not freely available nationwide. Likewise, methane and hydrogen tractors could be looked at even while exploratory work is on for a flexible engine between CNG and diesel.
“We have to work with the customer and understand his pain points,” he adds. For instance, imposing tighter emission norms for tractors will result in higher acquisition and operating costs because the after-treatment is expensive. Yet, this is of little value to the customer in terms of applications.
“The cost of operations will increase and that needs to be solved. How to reduce cost and offer value is the challenge,” says Varma. It is not an easy exercise in a country which is already burdened by heavy inflation and joblessness across rural India. Further, the realities of global warming and erratic weather will only mean that manufacturers like CNH will have to double down their efforts to offer services that go beyond the farm equipment space.
CNH bullish on new tech centre
Chun Woytera, President of CNH Industrial’s Asia Pacific region was in India recently, and in a video interview told Autocar Professional that she was very excited about the competencies at the newly inaugurated tech centre near Delhi.
“There is tremendous energy and vibrancy among the employees to put new technology on the ground. Just the way of working is fundamentally critical to deliver the vision,” said Woytera.
On the Ukraine war which is already putting more pressure on the global supply chain, she said developments were being monitored carefully. “Supply chain challenges are not new especially during Covid and we need to plan proactively…it calls for very vast innovation and creativity to come up with new solutions for customers.”
According to her, the pandemic has taught everyone lessons “in different dimensions” whether it is in the sourcing strategy, shipping and logistics and even the supplier strategy. “Eventually, it brings an opportunity to reset and refresh plans,” said Woytera.
Raunak Varma, MD of CNH Industrial India, who was also on the call, said crises were nothing new and it was more important to “start to think about mitigating them”. The solution was to work on a de-risk strategy and look at alternative suppliers during such difficult times.
“Our production is at or above plans thanks to a local supply chain. We need to constantly engage with suppliers and a crisis hones your skills in handling situations. “Have mitigation on your mind when you plan anything,” said Varma.
Whilst on the subject of electrification, he said the need was to throw up a frugal solution since “the things we do here are for India and the world”. Charging infrastructure is a challenge in rural areas. “We are also exploring CNG as well as methane and hydrogen globally,” he added.
Even though there are no two ways about the fact that “we cannot keep cleaning the diesel engine”, the farm sector is very sensitive to price hikes. Emission regulations may compel such a move but the challenge for tractor manufacturers is to balance this with a competitive cost structure.
The feature was published in Autocar Professional's May 15, 2022 issue.
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