Bloomberg TV India caught up with Vinod K Dasari, CEO of Ashok Leyland, who spoke about what the next year may hold for his company as well as the commercial vehicles industry.
You’ve had a phenomenal year. What is the outlook for 2016? What targets have you set?
I think a combination of two-three things worked for us. Firstly, the market momentum did come back. Secondly all the investments we made in new ventures and networks have started to bear fruit. It has led to an improvement in our market share. Thirdly, the cost reduction efforts that we had done over the last couple of years to reduce our fixed costs as well as our product costs have started to show impact. I am hoping that the fourth quarter will be very strong, which it normally is for the commercial vehicle industry. If it is, I hope to close the year on a very good note. The industry should grow about 15-20 per cent by yearend. We hope to maintain the market share gains that we have made.
Out of the four markets that we are right now focussed on, SAARC and CIS did not do well this year, primarily because of the downturn in Sri Lanka. But West Asia and Africa did very well. They continue to do so. I must thank the government for extending the line of credit and EXIM Bank funding, especially to African countries.
Commercial vehicle makers hiked prices in October because of the new safety additions. Then, in January, we traditionally see car manufacturers raise prices. What will Ashok Leyland do in January — will you hike prices?
I don’t think so, I think we have done it October and many others didn’t follow suit. We held on to it, and lost quite a bit of market share because of that. I don’t think we need to do it again.
Budget 2016 preparations are under way. What are the expectations this year? Have you had interactions with the government on the Budget?
We met the Revenue Secretary. He was very receptive to all our comments. There are several technical suggestions that we have made. We have suggested reducing the number of slabs for excise duty, and reducing the types of duty. For example — believe it or not — there is a National Calamity Contingency Duty. It applies for alcohol, it applies for tobacco, and it applies for the car industry. Just to group us with those two industries is sort of wrong to begin with. India’s auto industry is one of the highest taxed in the world. We showed them that. We said — you decide the total tax but keep it clean and simple. Merge the NCCD with excise duty, don't have so many different pluses and minuses which cause confusion. They were very receptive to that, and they said they will look at it.
The Chief Economic Advisor’s recommendations on GST include a luxury goods levy of 40 per cent. Do you agree with this?
I am not aware of the specific luxury segment classification, it is a small segment. But if the government feels it necessary to tax them higher because they are vehicles for the rich, I don’t see any problem with that.
How is 2016 looking for the automobile sector as a whole? 2015 was mixed with some doing well and others not…
I like that question. I can’t predict what will happen this month, you are asking me to predict what will happen next year. But let me give it a shot nevertheless. This industry’s sales three years ago were at 3.5 lakh medium and heavy commercial vehicles. It fell two years in a row to 25 per cent each and came down to 2 lakh. Then it went up by 15 per cent and everybody was very excited. So this year, even if the final number is around 15 per cent, it will go up to 2.6-2.8 lakh. It is still not at the previous high. We had calculated that it needs growth of 15 per cent for another two-three years to just reclaim the previous high. Obviously, as the IIP, GDP improve further, as more road infrastructure comes about, and as GST comes into play, the medium and heavy commercial vehicle industry which rides on a booming economy will do well. So I am quite bullish for 2016.
The government was to come up with a newer version of the Jawaharlal Nehru National Urban Renewal Mission Scheme. When we last spoke, you said it was stuck. Where do things stand now?
To be honest and blunt, the entire JNNURM-II exercise was a disaster. The total number of vehicles that were to be tendered was 14,000. Against that, roughly about 10,000 is what got tendered. We got about half of those — 4,000-5,000 — after winning the tender. Out of that only half of them were placed orders on. A further half was all that delivery got taken for. So we have all of these vehicles for which we have got raw material inventory, we have not been able to convert to finished. For those that we converted to finish, we have not been able to sell them. And whatever we have been able to sell, we have not been able to get the money for a lot of them. So it’s been a complete disaster. And it’s not just Ashok Leyland. It’s the same with Tata Motors too I believe.
Have you taken this up with the government? What are they saying?
We have taken it up with the government. Sometimes the government says — look we have released funds to the States. When we ask the States they say — we haven’t got the funds, we are waiting for the Centre. So we are being a ping-pong ball going back and forth between the Centre and the States. So it has been a very bad experience. So, I don’t know what is the solution for it. Whether the funds have been released to the States and the States have used them up for something else, I don’t know. As of now, we are stuck with some inventory, we are stuck with raw material inventory and we are stuck with receivables.
This government has spoken a lot about the changes that they are bringing on the ground. But you’ve just listed many areas where there is lack of clarity. So have things really changed on the ground?
Well, these are two examples of what has not gone right and for the benefit of the government it’s not like they haven’t talked to us. They are approachable, they are willing to talk to us and they also express their genuine concerns about both these problems. Having said that what I must compliment this government for they are trying their best to reform the labour situation. I mean the five things that are important to a businessman — they are trying to fix the labour situation, they are trying to fix the tax reform, they are trying to fix the land registration, they are trying to fix the power situation and they are trying to fix the infra, now they are facing tremendous headwind in Parliament but as a businessman you want these five things to be fixed. We don’t need sops to run the business or you know some reduction in duties or something which is short term. You fix the core elements of business and the businesses will do what they are good at — to run the businesses better.
And for the first time I think the government is taking these issues head on and trying to resolve them. They are facing a lot of headwind and maybe these other two issues that I mentioned which are negative have probably got lost in all of this turmoil. But I actually feel that this government is trying to do a lot.