'We anticipate a 15 to 20% increase in top-line growth': Vineet Agarwal

The Transport Corporation of India (TCI), with revenues of over Rs 4,300 crore, is one of India’s leading integrated supply chain and logistics solutions providers to automotive and other industries. The group moves more than 2.5% of India’s GDP by value of cargo every year through its network of over 1,500 offices.

In a freewheeling chat with Autocar Professional, the Managing Director of TCI, Vineet Agarwal opened up about the changing dynamics in automotive logistics, especially in the EV space, in addition to tailwinds from policy frameworks such as the Production Linked Incentive (PLI) Scheme, infrastructure push and the impact of the ‘China Plus’ strategy, among others subjects.

The PLI Scheme, meant to augment local manufacturing of advanced automotive technology products, including EVs and their components, must provide a boost to logistic companies like TCI. What is the situation on the ground?

Currently, there’s a significant surge in the automotive industry’s growth and performance. The increased utilisation of the scheme has notably enhanced its viability. Consequently, we anticipate a rise in demand, both domestically and for export, which will further boost the demand for logistics services. This is particularly promising, considering India’s relatively low share of exports in the automotive market. The PLI Scheme will, hopefully, contribute to expanding India’s exports. And with new investments flowing in, the growth of the overall industry will be further stimulated. It’s worth noting that the automotive sector accounts for nearly 40% of the manufacturing GDP and around 7% of the cumulative GDP, indicating its significant impact on the economy.

How do you see the changes in logistics technology impacting the sector?

Business models have begun to change. For instance, we’re currently collaborating with a specific battery-operated two-wheeler company, where we pick up the finished product directly from the factory and deliver it straight to consumers. There’s no dealership involved. We transport the products to our warehouses, where we charge the equipment, handle invoicing, conduct pre-delivery inspections and deliver the product to the consumer. The option of registering vehicles online with Regional Transport Offices also facilitates this shift. This change signifies a departure from the traditional model, where consumers would typically visit a dealer to make a purchase. Likewise, there’s increasing uptake in electric three-wheeler demand due to enhanced last-mile connectivity.

How has the hub-and-spoke model of logistics been working in the automobile industry since GST implementation?

One significant post-GST development is the establishment of the hub-and-spoke model. This model essentially involves the use of yards that existed previously. For instance, if you’re based in Guwahati and you visit a showroom requesting a specific car model in a particular colour, traditionally, it’d take around 15 days or more for the manufacturer, located either in the west, north or south, to deliver the vehicle.

However, there’s now a yard available near Guwahati, often managed by us, where the dealer can check whether the desired vehicle is available. If yes, it can be obtained within 12 hours, significantly enhancing customer satisfaction and reducing delivery time.

We oversee roughly 55 such yards for our clients, some of which may be exclusive to a particular customer, while others may be multiuser, multi-company yards. For example, a tractor manufacturer and a two-wheeler maker may share the same yard without competing with each other. Additionally, vehicles are transported in bulk via rail, adding a multimodal dimension to the business model.

This involves moving vehicles in large quantities from hub to hub via railways for distribution. So there have been two major changes: the shift towards direct-to-consumer delivery and the adoption of a multimodal approach, particularly through the hub-and-spoke system.

India’s automotive sector has the highest level of outsourcing in its supply chain. How do you see it grow in the coming years?

We anticipate a 15% to 20% increase in top-line growth within this particular division year on year for the next three to four years, on a CAGR basis. Despite having a small market share, there’s substantial demand, which suggests significant growth potential. Our commitment to providing exceptional services to our clients further bolsters this projection. With the introduction of new services, such as the multimodal approach and the direct-to-consumer model, we anticipate expansion of business opportunities in the coming years.

TCI’s supply chain division is deeply involved in the automotive sector, performing various operations from inbound logistics to outbound distribution. On the inbound side, we handle tasks such as collecting parts from suppliers on a just-in-time basis and supplying parts to OEMs on a vendor-managed inventory basis, along with line feeding services where we deliver components directly to production lines. Additionally, we manage the transportation of imported parts via containers. For outbound logistics, we manage the movement of finished goods, including automobiles like two-wheelers, three-wheelers, tractors and earthmovers, as well as spare parts management. This encompasses operating spare parts warehouses for OEMs across the country and handling the last-mile delivery process, where dealers’ orders are processed, packed, invoiced and delivered from our warehouses.

Over the past nine months (9M FY24), our business has thrived, coinciding with the overall positive performance of the automotive sector. The chip shortage that previously affected the industry is now resolved, and we’ve observed increased traction with the launch of new vehicle models. Our services extend beyond traditional vehicles to include segments like earthmoving equipment, commercial vehicles and cranes, reflecting the interconnectedness of the automotive industry.

Notably, the demand for two-wheelers and three-wheelers has surged recently, while EVs are also gaining momentum among our clients. In the years to come, industry forecasts and recent performance data both support our continued confidence in sustaining these trends. In this backdrop, we’re pleased to
report several new contracts, which indicates a promising outlook for our operations.

Amid ‘China Plus’ strategies being adopted by global companies, how do you see the trend in sourcing shift towards countries like India?

India’s manufacturing capacity is on the rise, both for OEMs and suppliers. The initial focus has been on meeting the growing demand in the domestic market — evident from the substantial backlog of vehicle orders, some of which have waiting periods of three to six months, or even a year. Additionally, there’s a noticeable trend of manufacturing shifting from China to India, albeit still in its early stages. This transition is expected to be facilitated by initiatives like the PLI Scheme. While it’s too soon to gauge the full impact of these developments, the overall outlook appears positive.

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