Having outdone the industry by growing at twice the rate in an extremely difficult market, Vinod Dasari, Managing Director of Ashok Leyland, explains to R Balaji why the company is not unduly concerned about competitive pressure.
Are you upbeat about Ashok Leyland’s prospects after two difficult years?
Ashok Leyland has grown over 20 per cent this year thanks to the restructuring work done over the last few years. Our truck prices are higher than before and the net sales realisation, which reflects in the profitability of the company, is up 2-3 per cent in the last 6-8 months.
When people spoke of cutting costs during the downturn, we did too but we also launched the maximum number of products, service stations and parts outlets. In the northeast, when people said our spares and mechanics were not available, we invested in containerised mechanic shops and gave them to mechanics to operate whether they paid us or not. We opened 50 of those in the east alone.
We have increased spare parts supplies to retailers and opened over 200 Leyparts centres in the last two years. This network transformation in the last 18 months helped us grow in the east to reach 15-20 per cent market share.
Do new products in the CV space help when sales are low?
They do if the product is good for customers and helps them make more profits. Your truck must eventually help users make more money than if they buy somebody else’s. We also backed them in service if they were stranded on the highway. Thanks to this, Leyland is operating at 50-60 per cent of rated capacity of about 1.5 lakh units annually.
How did you outperform the industry? Was it because competition largely comprised new entrants who could not stand up to the slowdown?
I would not agree with that view. Over 15 years back, it was just us and Tata Motors. Then Eicher and Volvo came in. It is not as if these guys were born overnight. BharatBenz and AMW have been here since 2006. Mahindra Navistar happened in 2007 though, yes, they broke off and restarted. We did not see any tidal shift but knew what to anticipate. What will make us win will be our ability to stay with the customer and earn his confidence.
Can Leyland cope with the challenge of world class technology from new brands?
What technology does my competition have that I do not? Even if BS-IV or Euro-VI comes, our Neptune engine can match the standards. We make cabs today that meet European safety norms. The Boss was selling in Europe and we not only brought it here but upgraded it too. The Captain was designed and engineered in Europe and is also made here. In safety and emission, we have absolutely no issue.
We make what the customer wants. Ashok Leyland was the first to introduce tractor-trailers and airbags. When BS-III came in and all went for common rail systems, we provided BS-III in inline pumps because it was easy for roadside mechanics to maintain. Our Jan Bus has 24 patented features. There are lots of people with lots of technology but we have the appropriate technology for India.
When is the joint venture with Nissan getting its own facility?
I personally do not see the need for a new plant in the near future. Also, it is not just about annual capacity.
If in the fourth quarter, there is 30-40 per cent increase in demand and we produce 12,000 units a month, it translates into nearly 150,000 units annually. So we will test that capacity first. Ashok Leyland-Nissan will make more profits going forward. Over the last couple of years, we have learnt to produce more from existing assets.
How is the construction equipment joint venture with Deere coming along?
Ashok Leyland-John Deere is not doing well simply because the market has not improved. Leyland does not know much about that industry but our partner is a world class player with a great but expensive product. To price it at a premium in a market that is down by 30-40 per cent is tough. We have to find ways to reduce cost without compromising on safety and wait for the market to turn.
What is the update on your international business?
Our Ras Al Khaimah facility (in the UAE) is doing well and we will be looking at a second assembling unit in the region. Africa represents huge potential and we are looking at it as a long term play.
We will not just supply buses but train mechanics and teach them assembling.
What is your outlook for CVs in the short-term?
In the domestic market, fleet operators will consider purchases by March to avail themselves of depreciation benefits.
They were not buying previously but may just do so this year if they sense the market is coming back.
If diesel becomes cheaper, truckers can offer a better deal on freight: every one per cent shift from train to trucks is roughly 20,000 additional vehicles to the total industry volume. People have not bought vehicles in a long time.
Typically the replacement cycle was 8-10 years but now it is 10-12 years.
Remember the growth is on a low base. Three years back, the industry was at 350,000 units which came down to 200,000 units which means a 10 per cent growth on that is nothing.