DICV's new mantra: Developing new revenue models

Since taking charge as President and Chief Business Officer, at Daimler India Commercial Vehicles, Sreeram Venkateswaran, has been on an overdrive on all business fronts, write.

By Shahkar Abidi and Ketan Thakkar calendar 12 May 2024 Views icon2814 Views Share - Share to Facebook Share to Twitter Share to LinkedIn Share to Whatsapp
DICV's new mantra: Developing new revenue models

In a bid to tide over the cyclicality of medium and heavy truck business, Daimler India Commercial Vehicles (DICV), the Indian subsidiary of the world’s largest truck maker Daimler AG, is looking at diversifying its revenue base in India. The company is accelerating its push into services, aiming to boost this segment's contribution to total revenue to 25% in the coming years, up from the current 7% to 10% range, according to a senior company official.

Increasing focus on fleet management services using telematics, bettering spare part supplies, making a stronger presence in company’s used vehicle sales, refurbishment of older engines, axles and gearboxes, among others, are some of the key areas under consideration by the company.

"Building the services business has been a long journey," said Sreeram Venkateswaran, President and Chief Business Officer, Domestic Sales and Customer Service, at DICV. "The Indian market is still getting
used to the concept of external support and data-driven fleet management."

DICV's business focus extends beyond new vehicle sales and its service expansion strategy reflects a broader trend within the commercial vehicle industry as manufacturers seek to diversify revenue streams and cater to the evolving needs of fleet operators who prioritise uptime and efficiency.

"These vehicles are more abused, than used and not used properly," explained Venkateswaran. "So we have an opportunity to really offer a variety of services there. So, we always ask: "How much can we target for spare parts per vehicle per year?"

Servitisation: the new mantra

Not to limit the scope of revenues, the Chennai-based company's "servitisation" efforts are helping create new business models and revenue streams through innovative features and services. These include extended warranties and maintenance contracts, on-site "spot services," and the monetisation of the telematics system by providing customers with business intelligence and fleet efficiency services.

"The goal is to develop new revenue models," said Venkateswaran, who is responsible for driving domestic expansion. His efforts encompass cultivating strategic relationships, expanding the BharatBenz sales and service network, and increasing brand awareness. Such a move is not surprising as Venkateswaran brings nearly three decades of experience to this role, having previously worked with companies like Mahindra Logistics, Hero Cycles Ltd., Bajaj Auto Ltd., Tata Motors Ltd., and Eicher Motors.

Banking on TCO

Elaborating further, the top executive highlighted that total cost of operation (TCO) is now becoming an important deciding factor for customers. To address this aspect, DICV has established round-the-clock services at about a dozen key locations, including a couple each in Gurgaon, Ghaziabad, Bengaluru, Cochin, and Hyderabad. "I am sure all our key hub locations will be operational 24/7 by mid-2025, totaling 170 locations," he continued.

“These 24/7 operations will further reduce vehicle repair time and help us meet our target of servicing most jobs within 24 hours," he explained. Interestingly, the company initiated a pilot programme called 'Rakshana' to address the average turnaround time of 48 hours for vehicles coming to their service stations. Within the first few months of the programme's implementation, the company successfully improved turnaround time to 24 hours for 90% of vehicles.

How does this compare with global benchmarks? While turnaround times vary depending on factors like OEMs, vehicle types, and geographies, industry experts estimate an average turnaround time of 36-48 hours for roughly 80% of vehicles in India.

With a smaller fleet compared to its larger competitors like Tata Motors or Ashok Leyland, DICV has a relative advantage in managing turnaround time. However, Venkateswaran said that while some customers might be willing to wait a bit longer for servicing, it doesn't make sense to make them wait, since a 10-15% premium is charged for the service. "We should have more and more levers to justify the premium we charge," he added.

Pre-owned business ticks the box

Venkateswaran said that the company's used truck business is proving to be another feather in the cap with strong potential for future growth. To attract customers, the certification process involves refurbishing trade-in trucks and providing a factory warranty. This approach aims to increase the perceived resale value of used vehicles and unlock broader market opportunities.

The used vehicle segment remains somewhat opaque, with various companies and agencies reporting widely varying figures. For example, Shriram Auto Mall, the largest player in this space, claims to sell over 350,000 units annually.

DICV initiated its vehicle exchange programme in 2023, and 15% of the 300-325 used trucks sold monthly are now from the certified pool. However, the company leadership recognised a greater opportunity in exchanging older Bharat Benz trucks, refurbishing them, and then selling them under the brand's superior market reputation. "Our focus has entirely shifted to Bharat Benz certified trucks," stated Venkateswaran, highlighting the company's stringent 270-point certification checklist. Due to strong demand, the programme has begun at 5-6 locations and is slated to expand to 35 by year-end. The company's ambitious target is to reach at least 60% certified sales, with the remaining vehicles falling under the non-certified category.

Expanding business with refurbished engines, axles, and gear boxes

Customers bank on the reliability of their vehicles and that depends very much on company prescribed service guidelines, OEM parts and consumables. While after-sales services, telematics, and certified vehicle sales remain crucial pillars for DICV's continued growth, Venkateswaran also highlighted the rising importance of engine refurbishment. He sees significant growth potential in this area, especially as the cost of new vehicle components continues to rise. "Our approach involves replacing damaged engine components and rebuilding them with a limited warranty offered at a cost-effective price point, typically between 60-65% of a new engine," Venkateswaran explained.

Recently, DICV conducted pilot testing by road-testing 45-50 remanufactured engines and the quick turnover of these engines on the market suggests a strong potential demand for this kind of OEM service. Remanufactured engines offer a reliable alternative that could capture 5-6% of the overall market opportunity over time. Looking beyond engines, DICV intends to explore the refurbishment of other critical components, such as gearboxes and axles, which can also be a significant cost burden for vehicle operators when they fail. The company anticipates a potential market of 5-6% for revamped axles and 7-10% for gearboxes.

This strategic shift comes on the heels of a strong performance in FY23. DICV's revenue surged 30% to reach Rs 10,665 crore, driven by a double-digit jump in sales volume. This impressive performance translated into the company's first-ever annual profit of Rs 304 crore in India, a significant turnaround from the nominal loss of Rs 1 crore in FY22. The momentum continued in CY23, with DICV achieving 39% growth in domestic sales and 13% growth in cumulative sales, translating to a 21% increase in both revenue and parts business.

Venkateswaran highlighted the significance of construction tippers for DICV, which currently account for 40% of DICV's sales. The company boasts a market share of around 8.2% to 8.5% in the heavy-duty truck segment, with its share in the tipper market nearly double at 15%. They recently introduced 320 hp mining tippers and have already deployed over 1,000 units. In the high-horsepower (up to 350 hp) mining tipper segment, DICV enjoys a strong position with a market share exceeding 50%.

 

This feature was first published in Autocar Professional's May 1, 2024 issue.

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