All the uncertainties and disruptions starting with demonetisation, BS 3 to BS 4 transition and GST implementation, which were there for the past eight to nine months, are over now.
The medium and heavy commercial vehicles (M&HCV) segment was perhaps the biggest casualty of policy decisions such as demonetisation and GST implementation, which led to a significant drop in volumes. Vinod Aggarwal, managing director and CEO, VECV, in an interview with Malyaban Ghosh says volumes in the segment will improve as uncertainty and disruptions are a thing of the past. The company is expected to invest around Rs 450 crore this fiscal on new products and BS VI upgrade. Excerpts:
Is the prevailing economic condition conducive for the M&HCV segment to grow?
All the uncertainties and disruptions starting with demonetisation, BS 3 to BS 4 transition and GST implementation, which were there for the past eight to nine months, are over now. With all these behind, we are looking forward to a good run for the industry. In the last two months, we have seen good growth. Fleet owners were not buying new trucks since June. From July, they have started to come back to the market since there is pent-up demand. We have seen good growth in August and that was led by fleet owners because companies cannot pump new vehicles in the market unless the retail demand picks up. As a company, we always produce to sell and not stock and that is why when the BS 3 vehicles were not allowed to be sold, we had the least number of BS 3 inventory.
How much do you expect heavy vehicle volumes to increase for the industry and also for VECV in FY18?
The first quarter volumes were not at all good and they declined 25% y-o-y collectively, but if you look at July and August, the growth was excellent. We have the festival months ahead and I think we should see good traction in coming months. In the current fiscal, on a year-till-date basis, there is still decline despite the growth of the last two months. Last year, both second and third quarters were bad for the heavy vehicle segment and so we have a low base. In the third and fourth quarters, the growth will be better.
Is most of the retail growth in M&HCVs led by huge discounts being offered by OEMs?
Pricing is a part of the strategy and companies are very possessive about their market share. Though every one is resorting to discounts in order to hold on to customers, no one is admitting it. If you ask any one about discount, they say that others give discounts while they don’t. The fact of the matter is pricing is not very good at the moment.
How has the year been for VECV compared to the peers?
In the light and medium duty trucks, we are one of the strongest players and our strategy is to hold on to our strengths and steadily improve our market share. In heavy duty trucks – 6 tonne and more – that is a high potential growth area for us and we should steadily try to grow our market share therein. In buses, every year we are growing our market share. Last year, in the light and medium duty trucks, our market share was 33%, and in heavy duty, it was 5%. Our focus will be on all the segments, but growth is high in the heavy duty segment. Our strength has always been technology because of the association we have with Volvo. As per estimates, we will invest Rs 400 crore – Rs 450 crore on new products this year owing to BS 6 emission norm implementation in the next few years.
Will lack of freight availability from various sectors in the short term after GST roll-out adversely impact volumes?
In the short term, there may be some concerns, but in the long term, the economy will bounce back. In future, because of the impact of the GST, gross domestic product is expected to grow by 1.5-2% and economic activity will improve. Efficiency will improve in the system and that is bound to help.