The commercial vehicle sector in India is currently witnessing considerable activity both on the new product front and in meeting challenges in the form of an economic slowdown. SML Isuzu is one of the players gearing up for a new destiny.
Located on the banks of the Sutlej canal at Ropar, 45km from Chandigarh, in Punjab are the company’s old truck and new bus body building plants.
Following its association with CV maker Isuzu of Japan in 2006, the erstwhile Swaraj Mazda, now renamed SML Isuzu, is strengthening its presence in the medium & heavy commercial vehicle segment (M&HCV) both in trucks and buses where it was till recently conspicuous by its absence. Future prospects of the M&HCV segment are perceived to be bright though the sector experienced a degrowth of 19.13 percent during the April-December 2012 period.
Isuzu, having recognised the growth potential in the Indian market, is putting its shoulder to the wheel at the company. It now has its own director R&D, who heads the R&D wing and is also a whole-time director on the board. The division is currently studying the Indian market and taking a call on the products it can customise for India.
In the last two years, SML Isuzu has already invested Rs 14 crore on R&D operations on infrastructure, engine development and testing and development equipment. It now plans to add additional equipment and beef up manpower from the current 30 to 100 this fiscal, as per new project requirements involving designing of new components and for understanding Japanese designs.
The changed management has in the meantime, kicked off its entry in the M&HCV market by rolling out two buses and a cargo truck based on the Isuzu chassis.
It is also in the process of developing new 16-tonne plus cargo trucks for the heavy commercial vehicle segment. The company’s existing range spans 5.5-12 tonners in cargo and upto 16 tonnes in buses. The long-term gameplan is to become a player in the 5.5-49 tonne range, with Isuzu providing technical inputs for the 12-tonne and above category. This segment of vehicles will be branded Isuzu while the 5.5-12 tonne range based on the Mazda platform is badged SML.
Focus on localisation
The CV maker has also set up a captive bus body building plant for luxury and air-conditioned buses. Till recently, bus bodies were outsourced to external body builders. SML Isuzu has two major body builders in Punjab who develop bus bodies as per the technology, design and chassis given to them. In 2008, the company had entered the bus market with Isuzu-designed chassis on which bus bodies were assembled locally.
Since the earlier bus chassis was based on the Mazda platform, the company operates from two plants – the older one which produces the Mazda chassis for the SML-branded LCVs while the new plant produces chassis based on Isuzu technology for M&HCVs, and bus bodies.
Though initially about 100 units of chassis were imported from Isuzu, they are now being developed in-house leveraging the Japanese design. But production of the old models of buses built by external body builders also continues. “As long as there is a demand for the Mazda platform products, we will continue to market them,” says R P Sehgal, director (Works). The company’s focus is clear – the LCV market will be tapped with the Mazda platform that, over the years, has been completely indigenised, facilitating low product cost and competitive pricing versus the competition.
And for tapping the M&HCV segment in the 12-49 tonne range, the focus will be on Isuzu.
Sehgal says that to enter the sub-one-tonne category where the Tata Ace and Mahindra Maxximo hold sway, a smaller engine and gearbox will be required for which in-house R&D or a new technology will have to be harnessed. Isuzu is believed to be developing a full roadmap for India and prioritising the products it introduces.
The first agreement between the partners is for the rollout of M&HCVs though a constraint exists in the city bus segment, given that city buses in India are mostly used by state and central undertakings.
SML Isuzu is also looking at developing low-floor city buses for which Isuzu will have to design the relevant chassis. At present, the SML-Isuzu portfolio spans high-floor and semi-low floor buses. Also, it is not present in the bigger city buses like the Marcopolo buses that ply on Indian roads.
Among the new products in the M&HCV segment that the company has zeroed down is a 41-seater, 11-metre front-engine bus (IS12B) that will be positioned between the two buses already launched. Powered by a BS-III 5.2-litre, 4-cylinder Isuzu engine developing 173hp, it will be equipped with airbags, air suspension and ABS. The CV maker has analysed the market dynamics and expects that this model, which will be launched early 2013-14, has a large market potential.
Upgrading the bread-and-butter models
Current research at Ropar is mostly centered around upgrading SML-branded Mazda products that, according to Sehgal, are the bread-and-butter models. They contributed towards the majority of the 13,646 units sold in FY’12, of which passenger carriers accounted for 6,611 units and cargo 7,035 units. Of this, the Isuzu brand chipped in with sales of 154 units. During April-December 2012, sales stood at 8,915 units with passenger carriers pegged at 4,456 units and cargo at 4,459 units. The Isuzu brand contributed sales of 117 units. The company is expected to record similar numbers in FY13 due to the on-going slowdown in the CV market though the company’s targeted growth was 10 percent.
Engine localisation to trigger growth
Meanwhile, the 3.5-litre Mazda engine that is in use since 1984 has undergone several upgradations at the in-house R&D centre to meet BS I-IV emission norms with the existing lot of LCVs powered by BS-III and BS-IV engines.
Localised Mazda products have enabled the company to notch a 13 percent market share in the 100,000-unit LCV market it is present in. Several variants of the 3.5-litre Mazda engine have also been developed over the years and the company is now further strengthening its R&D capability for which an investment of Rs 200 crore is envisaged.
The R&D division is also being further strengthened for developing future Isuzu products, with additional staffers, of which three are Japanese engineers.
The CV manufacturer will leverage different series of the Isuzu 4- and 6- cylinder engines in its M&HCVs that along with transmissions are currently imported from Japan.
With fuel and electronic adjustment carried out to them, these engines will develop different power outputs. For instance, a series of 4-cylinder engines will develop 150-175 hp while the 6-cylinder engines will develop 230-300hp and will be fitted in both trucks and buses. These CVs are currently being test marketed to gauge their acceptability in Indian conditions with imported engines.
The next step will be to forge an agreement with Isuzu for localising the engines. The current Isuzu-badged buses, a 27-seater bus NQR with a 4- cylinder 5.2-litre engine was followed by the launch of a 45-seater super-luxury bus (LT 134) with a 6-cylinder 7.7-litre engine. But the company visualises more market potential for the mid-segment 41-seater bus as competitors have done well in this category.
In 2011, SML Isuzu had launched a 12.5-tonne cargo truck IS12T (with a 4 cylinder 5.2-litre, 150hp engine) based on an Isuzu chassis.
While Sehgal says the customer response to the cargo truck is good, its price point is not acceptable as it is powered by an imported engine and hence the company is selling the vehicle on a no-profit basis.
“With the Isuzu engine, our buses can compete with Mercedes and Volvo products as our price is lower pitted against their imported engines. But we cannot compete against indigenous products made by Tata Motors and Ashok Leyland unless we localise the imported engines and transmissions for Isuzu platform products,” admits Sehgal.
SML-branded buses include mini buses, ambulances, school buses, executive buses and some city buses. Trucks include the crew cab truck, tipper and cargo carriers like Sartaj and Cosmo among others.
The growth strategy going forward is therefore to kick off operations with imported engines and transmissions and slowly localise them over a period of time as was done with Mazda products.
But all this will come at a cost and sizeable investment. The company is mulling localising the 4-litre Isuzu engine for trucks and buses in the long-term as higher horsepower engines come at an increased cost.
From 2008 till date, SML Isuzu has invested Rs 250 crore in its two plants. In 1984 it invested about Rs 20 crore in the old facility. Now, around Rs 600 crore will need to be invested for localising transmissions and engines over the next two years.
Further, considerable R&D work has to be still undertaken for making inroads in the city bus segment. Sales have so far been primarily to government organisations in UP and Bihar in small numbers. A new 32-seater bus, based on the Mazda platform, has been developed for the Delhi market but is yet to be marketed.
CNG power is available on the SML platform since 2001 and the company claims it has a 70 percent share in this segment in Delhi in passenger carriers. Also in the pipeline are more variants on the Mazda platform with an eye on tapping the market in areas where it does not exist at present.
The LCV market has also been performing better than other CV segments with the April-December 2012 SIAM results showing a 15 percent growth in domestic sales for LCVs from 327,406 units during April-December 2011 to 378,509 units in 2012. M&HCV domestic sales in comparison dipped 19 percent to 198,079 units in 2012 from 244,921 units in the earlier period.
What’s amply clear is that SML Isuzu now means business. It has developed a sizeable vendor base of 476 that will facilitate the future localisation process of Isuzu products. Though exports currently form a negligible portion of total production at 1,000 units per annum heading to Bangladesh, Sri Lanka, Nepal and African countries where the company was earlier exporting tractors, prospects are bright of the product basket expanding further in times to come.
INTERVIEW WITH R P SEHGAL, DIRECTOR (WORKS), SML ISUZU
The company has changed hands several times. What is SML Isuzu’s overall gameplan?
The strategy is obviously to develop products with technology provided by Isuzu in M&HCVs (12-49 tonnes) in which we don’t exist today. The concept is very clear but for developing each product, investment is needed. So we have to see what our investment capability is, how much support will come from Japan and how much we can generate here. These are issues that will determine the timeframe for each new product.
So is localisation the next step forward?
Two buses with an Isuzu engine have already been launched and a third bus will soon be coming. We will continue with Isuzu imported engines, establish the brand name, product image and operation in India and then, depending on which product can give us larger volumes, start indigenising. We are in the process of taking a decision on it.
Which products will be the first to be targeted for localisation?
We will start with proprietary items like starter, dynamo, the externals and then move on to the fuel injection system. Isuzu CVs use the Denso fuel injection system. On the Mazda platform, we leverage Bosch systems; we have to study whether Bosch can, at a minimum price, replace the system or can we get Denso products developed here at a viable pricing. The deciding factor will be which product can be made at the least cost.
Initially, we will start with 20 percent localisation of the engine without any investment and then develop castings, forgings, machining resources. When Mazda products were localised, we had large support from the Punjab Tractors base so indigenisation was faster. This is not available in this case and further investments are an issue. But success for SML Isuzu will depend on how it holds its price line and makes its products attractive to heighten product acceptability.
Now that Isuzu has come in as a new partner, why are investments still an issue?
Firstly, product acceptability in the Indian market is under consideration. Currently, all engine and transmission components for the Mazda platform are bought from various sources and only assembled here. Whether we generate that same support for the Isuzu brand or offload to other vendors is under consideration. What is final is that we are bringing a bigger Isuzu truck with a larger cabin. We have a strategy for developing each component; for instance, we will introduce a 16-tonne higher horsepower Isuzu truck for which we will use an indigenous cabin that will be developed over two years. The current one is an improvised Mazda cabin that has been improved for the Isuzu product. The design and exposure to technology for the new cabin will be taken from Isuzu. The earlier cabins which we imported from Mazda are now being made by Jai Bharat Maruti in Gurgaon for Mazda trucks, Maybe 100 cabins can be imported from Isuzu initially. We are already talking to companies who are in stampings in India for it. So investment for Isuzu trucks will start with cabins, and then move onto engines and then transmissons.
Similarly, we imported about 100 units of the Isuzu chassis and then developed it locally. We have 128 acres of land here, of which 75-80 acres have been utilised. We will expand on the remaining 45-50 acres and add a new building to make 100 Isuzu trucks with imported cabins and test market them. For 16-tonne trucks, there are certain government design specifications as per ARAI that includes withstanding a crash of 16 tonnes. Hence, cabins also have to be stronger and bigger.
Further, running one-shift operations, we generated surplus capacity in the last four years at the old plant, so more enhancements are not required for the next three years. What is needed are investments for new products and not for assembly and testing, though we may add some balancing infrastructure.
The bus body plant is new and has a 42,000 square metre building where we can produce 12,000 buses annually of both the SML and Isuzu brands. At present, we are producing just 1,000 buses per annum, so we have a very large capacity.
The capex plan is based on profitability. We have committed Rs 100 crore for cabin development with local resources, self-generated or local funds. We already raised Rs 250 crore for the earlier investments of which around Rs 70-80 crore were raised from a rights issue after 2006. Rest is from our own generation. For development of engines and transmissions, we will require funds from Isuzu or will have to go to vendors and buy components that will reduce the bottomline.
Will SML Isuzu look at developing India as an export hub for engines once you localise them?
Isuzu products are manufactured all over the world and the company has a large number of plants in Asia that will be on par with or cheaper than India, namely China and Malaysia.
The company’s largest CV plant is in Thailand, so it has to make commercial sense as well.
Does SML Isuzu plan to enter the fast-growing sub-1-tonne segment?
Discussions are underway on whether Isuzu can give us the appropriate engines that can compete with the Tata engine. We are talking of entering a market where dominant players already exist. So the issue is of how to beat them. In India, beating competitors is only by price; so either we bring a product cheaper than them or that is far superior to them. Isuzu has a complete engine range but whether it can be produced at a lower cost to those made by Tata Motors is the question.
Do you have plans to set up a new plant?
Full capacity at Ropar will be utilised in 4-5 years. After that only can we look at it.
Does Isuzu have a plan to shore up its stake in the company?
The stake issue pertains to the major stakeholders concerned. Isuzu would like to establish itself in India and that will take some more time. In terms of products, they will be based on these two engines and for a third one the medium looks more attractive -- a 4-cylinder, 4-litre engine.
Last fiscal the company’s target was to cross a Rs 1,000 crore turnover? How do you perceive your growth in terms of topline and capacity going forward?
Last fiscal we achieved a topline of Rs 1,020 crore and we plan to reach a Rs 2,500-3,000 crore turnover in five years. The bottomline that was Rs 69 crore in FY’12 will deteriorate if we do not indigenise.
Our installed manufacturing capacity is for 30,000 vehicles per annum. We currently produce 14,000 units, so we hope to utilise full capacity in 5 years. Out of the total, the SML brand contributes 13,000 units and Isuzu less than 1,000 units.
Any special initiatives for training of truck drivers?
We have a training system for dealers, mechanics and dealer and service staff. A three-storey building is under construction here that will act as a training and spare parts centre. It will be completed by July-August and will impart product knowledge related to product handling and selling techniques to drivers, mechanics and salesmen. At present, our training duration is between 2-10 days. We hire graduate and diploma engineers as well as MBAs. Each year we add 40-50 people and have a one-year training programme for them. We have a manpower of 2,000 people in both our plants.
How extensive is SML Isuzu’s spare parts and service network?
We have 120 dealers pan India who also provide spare parts. In addition, we have regional offices, a spare parts distributor and servicing facility at dealerships.
In your opinion, in which areas does SML-Isuzu need to improve?
When you come into new products like we entered Euro IV engines, which involve electronic fuel handling, engineers and mechanics who can work on them have to be hired and trained.
Similarly, all Isuzu engines have the latest global technology in fuel and engine management, all are computerised and ECU-based, so existing dealers have to be upgraded for new technologies. They will also have to upgrade their showrooms to meet competition.