April 15, 2012: Vinod Aggarwal, CEO of VE Commercial Vehicles Ltd
The CEO of VE Commercial Vehicles Ltd speaks toShobhaMathuron the new Eicher brand of buses to roll out of the Dhar plant, doubling exports, and making the VE Powertrain facility a global hub for the medium-duty engine needs of Volvo globally.
You have been quoted as saying that ‘the best is yet to come’ for VECV. . .
If you look at our growth over the last three years, we have doubled our turnover from 25,000 trucks and buses in 2009 to 49,000 trucks and buses in CY 2011. The growth pattern has to continue and hence the best is yet to come.
What are your growth targets?
Volvo-Eicher has certain aspirational growth targets that we are working on. We have also put our strategies in place to achieve these with our long-term target being to reach 100,000 trucks and buses by 2015. Today our topline is $ 1 billion (Rs 5,000 crore) as in CY 2011.In 2013 our engine project will go on stream under our group company VE Powertrain and along with the expansion in our truck and bus portfolio, and subject to realisation of the long- term target of 100,000 units, the potential is to reach a topline of $ 3 billion or Rs 15,000 crore by 2015.
What is the strategy to achieve these goals?
We have to strengthen our position in the various segments that we operate in. For instance, we function in three major segments including light duty and medium duty, buses and heavy duty trucks (HDT). In light and medium duty, we are already in a strong position with a 30.5 percent market share; however, in the bus and HDT categories, there is a tremendous potential. We are still small players in these two segments with a 10 percentmarketshare in buses and 3.1 percent in HDT in the Eicher brand. Volvo and Eicher together hold 3.4 percentmarketshare. Hence, we have to continue strengthening our position in the bus and HDT segments to achieve our vision.
VECV recently laid the foundation for a new bus plant. What is the plan there?
Our gameplan is to introduce new and improved products on a continuous basis as well as to penetrate the market further, besides strengthening our channel partners and our infrastructure. Our buses are built by external body builders at Pithampur and Belgaum, where two of our main fabricators are based. We also have a few other body fabricators as well. We will have our own dedicated bus body plant based on the latest manufacturing processes with robotic painting.
What will the new range of Eicher buses be?
We already have an entire range from 21- to 69-seater buses ranging from the light and smaller buses to inter-city coaches including semi-low floor rear engine buses. In the first phase, the new bus plant at Dhar in Madhya Pradesh will produce 5,000 buses, and double this figure in three to five years. The chassis for the buses will come from our Pithampur plant. Some bus bodies will be built at Dhar while others will be sourced from body builders.
Will the investment entail the Rs 125 crore that you announced for the new bus plant?
This is the upfront investment that will be stepped up to Rs 180 crore in the second phase through internal resources funded by our surplus funds. The plant will be ready by end-2012 and we will commence sales by the first quarter of next year.
Any plans for producing low-floor buses?
We do not make low-floor buses and are into semi-low floor and normal buses. But it will happen with time. We are implementing an order for the Andhra Pradesh State Transport Corporation for 600 buses. We supply the chassis and they build the bus bodies. The APSTC order is for big buses where our potential for growth is very high with competitive products.
What are your plans for the export market?
We export trucks and buses to Bangladesh, Sri Lanka, Nepal, Middle East and Africa. Last year we exported 3,100 trucks and buses and wish to beef up our presence in more Middle East and African nations. Currently, exports constitute seven percent of sales and based on the potential in the market, the ratio of exports in our total sales can go upto 15 percent by 2015.
Will you also explore setting up an assembly plant overseas?
Right now no, but if the need arises it will not be difficult for us. However, it will be dependent on the overall economics. Currently, we have some assembly facilities overseas owned by third parties to which we supply truck and bus assemblies.
Powertrain seems to be the next happening area for VECV. What is your view on this?
We wish to make the VE Powertrain facility at Pithampur a global hub for the medium-duty automotive engine requirements of Volvo globally for five- and eight-litre engines. These will be four-and six-cylinder diesel engines. The plant will go on stream in July 2013 and will have the capacity to manufacture 100,000 units per annum. We will also meet our domestic requirements from this capacity. The Euro 6-compliant diesel engines to Volvo Europe will be adapted to Euro 3 and 4 engine technologies for VECV's requirements. These Euro 3 and Euro 4 engines will cater to the requirements of VECV and also other emerging and Asian country requirements of both Volvo and Eicher. With our existing engine capacity of 60,000 units manufactured by Eicher for its trucks and buses, the total engine capacity will be 160,000 units by 2016-17.
What are your investments in the pipeline for VE Powertrain?
The total investment will be about Rs 450 to Rs 500 crore of which Rs 325 crore will be incurred in industrial infrastructure. The balance is largely for product development, to adapt Euro 6 engines to Euro 3 and Euro 4 emission norms.
Once Euro 6 norms come into India, will you tweak these engines?
Since these engines are Euro 6-compliant, we have a huge advantage as we will already be making them in our plant here for Europe . The same engines can be adapted for our needs at that time.
How is Eicher’s components business doing?
The component division is a strategic supplier for our trucks and buses for captive requirements of parts like transmission and axle parts including crown wheel pinions, transmission gears and shafts. We also supply to some large tractor OEs as well as construction equipment parts. We also source some specific parts from other suppliers in India. The current export basket for components is Rs 50 crore.
How has business been affected by the coal mining issue?
With very few tenders being floated for opening of coal fields, work is moving at a very slow pace. As a result, demand for high-end mining trucks has fallen significantly. The demand for high-end mining trucks came down significantly to 700 in 2011 from 1,100 in 2010. But the government of India is taking a lot of positive steps to increase coal production in India, based on which the demand for trucks will pick up again.
How do the various divisions stack up in terms of contribution to topline?
Eicher-branded trucks and buses hog the largest share at Rs 4,000 crore while the Volvo trucks business is worth Rs 800 crore. Eicher components contribute Rs 270 crore, and design services account for Rs 60 crore.We performed well in terms of both topline and bottomline. We sold 49,043 vehicles, which is a 25 percentgrowth on volume terms. With the industry growth at 10 percent, we outperformed it by 15 percent. In Eicher, we grew in market share in all segments and as against industry growth of 10.4 percent (447,318 units over 405,259), our growth was 26.6 percent (48,337 units over 38,181). Eicher Trucks & Buses achieved a market share of over 30 percent in the LD/MD segment. Eicher has also made progress in the Heavy Duty trucks segment of 16T-40T with the 'VE' series of fuel efficient heavy duty trucks, with 12,000 of them on the road today. We also made inroads into the bus segment by achieving a market share of 9.7 percent for Eicher-branded buses in 2011, an improvement of 3 percent in market share as compared to 6.7 percent in 2010. All our divisions are growing in tandem with the rising number of our trucks and buses. Eicher is setting up a greenfield plant for critical components in Dewas at an investment of around Rs 85 crore funded through internal accruals. We have a surplus of Rs 1,200 crore. The new plant for gears will go on stream by the last quarter of 2012.
What is your capex for 2012?
We have firmed up plans of a capital expenditure of Rs 1,000 crore to be spread across the board over two years. This will be in addition to Rs 700 crore incurred on capex in the last three years.
What about growth in light and medium duty trucks?
We are in the five- to 12-tonne light and medium duty truck segment and have no plans of entering the sub-one-tonne segment. Our current range in the Eicher brand is five to 40 tonnes while the industry portfolio ranges from five to 49 tonnes. We are already in the 49-tonne segment through Volvo trucks. We have also introduced the 14-tonne GVW model this year and more products will follow.
Can you tell us more about your engineering solutions division?
Our engineering solutions division is headquartered at Detroit. It underwent its own share of problems during the US recession but has now started growing and can take on development projects from Eicher and Volvo as well as offer design services to other companies in Detroit. Eicher’s own R&D centre takes care of its captive needs and a delivery centre in Gurgaon handles design solutions, and design assignments are undertaken in India and China through offshore delivery centres in both countries.
Can the Indian commercial vehicle industry outpace China’s?
China is already a heavy duty truck market of one million vehicles while India is at 240,000 trucks. In India, the five-tonne and above market accounted for 447,000 units last year and is worth around Rs 45,000 crore. The sub-five-tonne market with sale of around 417,000 units would be around Rs 15,000 crore.
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