Volvo-Eicher Commercial Vehicles (VECV) has been one of the most active players in the industry last year. It was really an action-packed year for the company, thanks to its Pro series range of trucks and buses which have created a lot of buzz in the market, mainly driven by its overall performance and positive impact on the customer. VECV has stepped on the gas on all fronts, be it market share, customer connect and sales and service network, as a result of which it is in a very good position to make further headway in 2015. Mr. Vinod Agarwal, CEO, VECV, exudes optimism while explaining how 2014 was for his company and the times ahead.
Business in 2014
Even though the year 2014 was a very difficult one, we ended the same with an overall good performance showing tremendous resilience in challenging times for the last three years. Some of the highlights from the year include:
• Successful launch of new products – Eicher Pro 1000, Eicher Pro 3000, Eicher Skyline Pro Buses, and technologically most advanced Volvo Trucks.
• We made excellent progress in market shares; Eicher light and medium duty (LMD) trucks going up to 32.6% from 30.4%, and buses going up to 14.9% from 13.5%. With share in exports from the country going up to 14%, we exported a record 5824 trucks and buses. Volvo Trucks maintained close to 62% market share in the high-end truck segment.
• In spite of challenges in the CV industry and idle fleet of trucks, our ‘After Market Part Sales’ achieved growth with better penetration by both Eicher and Volvo brands, with Eicher sales growing by 4.3% and Volvo Trucks sales growing by 7.7%.
• Our continuous focus on productivity in manufacturing and operations led to good reduction in manufacturing costs, logistics costs and material costs.
• Even though we faced tremendous pressure on margins due to lower volumes, a lot of emphasis was laid on value selling by adopting the total cost of ownership model in our sales processes. This also helped us to generate relatively better profitability for the year.
• Production at in-house bus plant stabilized, offering high quality built-up buses.
• We further strengthened the Eicher dealer network in 2014 with several new dealerships becoming operational.
Major plans for 2015
The new products we have launched last year would help us achieve higher volumes and market shares in 2015.This year will see us commercially launch the Eicher Pro 6000 and Eicher Pro 8000 series of heavy-duty trucks. With these launches, both in Eicher and Volvo brands, VECV is truly driving modernization in commercial transportation in India and the developing world in line with its vision. Besides the product launches we would continue our focus on delivering higher value to customers in areas of aftermarket and various support solutions towards increasing the productivity and efficiency of the customer fleet and living to our promise of partnering the customer during the complete vehicle life cycle.
Expectations from CV industry in 2015
Based on the last quarter figures, I do hope that all segments have hit the bottom now. We should thus see growth right from Q1 in the year 2015. The only negative is that the excise duty has gone up by 4% from January 1. However, let us hope that it gets absorbed based on the expectations of good economic growth. The positive sentiments in the economy come from:
• Inflation at a very low level and WPI almost at 0% last month. Consequently, we may see interest rates softening from Q1 of 2015.
• Trade deficit is likely to narrow down further with softening of crude oil prices.
• Core sectors like coal mining and infrastructure, especially roads, are likely to see positive traction in 2015 based on removal of bottlenecks through Ordinances being issued.
• The chances of implementation of unified Goods and Services Tax from April 2016 are bright. We will thus need to prepare ourselves with a revamped distribution strategy based on this.
• With falling diesel prices (drop by 11% in the last three months), the CV industry is likely to get further positive stroking.
There are positive sentiments in the economy, and though the CV industry has turned positive, the uptick has been moderate. We expect industry to improve further in the coming months as infra-push gains momentum post monsoon. The heavy-duty (HD) industry has been growing since April last, and we expect this trend to strengthen further. The HD industry in 2014 grew 17.6% over last year. While big fleet operators and strategic buyers continued to lead the majority of sales, for the first time in several months, retail and FTU customers started buying in some geographies. In the last quarter of 2014, LMD trucks and buses growth also turned positive though LMD declined by 18% for the full 2014 and buses by 11.7%. However, we are confident of a sustained recovery in the LMD segment also 2015 onwards.
Industry policies & developments expected in 2015
With a stable government at the Centre, the overall sentiments in the industry have improved and we expect the revival of the CV industry.
• Implementation of GST is a key factor that would provide fillip to the overall GDP and will have a direct impact on the CV industry.
• Infrastructure and manufacturing growth would be the key drivers of the truck market. Around 60-70% of truck sales are accounted for by manufacturing and infrastructure sectors, including mining. The last 2-3 years saw stagnation in these sectors, which severely affected the growth of the truck market in India. The new Government is having its focus on these sectors, and we expect the turnaround soon. We also expect various announcements in the coming Budget towards increasing investment in infrastructure and manufacturing.
• A formal fleet replacement policy towards scrapping of old age vehicles would go a long way not only in boosting demand for vehicles but also reducing pollution and improving the transport efficiency.
Medium- to long-term outlook
The CV industry follows a cyclic trend in line with the GDP/economy trend. The industry is just coming out of recession and the next 3 to 4 years are certainly going to be very positive. With a stable government in place and optimism on its development policies and initiatives, the CV industry is poised for a handsome growth. The major demand of trucks is directly linked to the growth in the economy, particularly in sectors like roads & construction, mining, power & ports, and other infrastructure projects. Mining and quarrying registered a decent growth as per the recent IIP data. Moreover, the move to re-auction the cancelled mining contracts has provided a big boost to the sector.
The key to an economic turnaround is a revival in investment activity – in greenfield as well as brownfield stalled projects – supported by fiscal consolidation, stronger export performance and sustained disinflation, which has also been the focus of the government. Moreover, the government has rolled out some long-pending reform measures in the more difficult areas of labor and energy sector, signalling signs of good days ahead.
Infrastructure and manufacturing growth would be the key drivers of the truck market. The industry is also expected to grow because of increasing replacement demand. The last 2 years of downtrend has seen operators postponing replacement due to low fleet utilization and lower resale value
