Interview with Vinod Aggarwal, Chief Executive Officer, VE Commercial Vehicles Ltd. (VECV)

Company Description: VE Commercial Vehicles Limited (VECV) is a 50-50 joint venture between the Volvo Group and Eicher Motors Limited. Formed in July 2008, the company’s operations comprises  the complete range of Eicher branded trucks and buses, VE Power Train (VEPT), Eicher’s components and engineering design services businesses as well as the sales and distribution business of Volvo trucks within India. The vision of the company is to be recognised as an industry leader in driving modernisation of commercial transportation in India and the developing world. The company has around 4,000 permanent employees across its different divisions in India.

How has the year 2012 been for VECV?

Even though the year 2012 was challenging for the Indian CV industry, VECV has done relatively better than its peers. There was an all-round improvement in market shares across all the segments during the year. Our bus segment’s market share reached 11.9pc, up from 9.7pc in 2011 and 6pc in 2009.  In the LD/MD segment, we are at 31.4pc, up from 30.5pc in 2011 and 25.6pc in 2009. In the HD segment we are at 4pc up from 3.1pc in 2011 and 1pc in 2009. In the high-end Volvo tippers, we are at 60pc from 58pc in 2011. Overall, we ended the year with a sale of 48,831 units against 49,043 units in 2011, a drop of 0.4pc as against industry drop of 11.6pc. In domestic market, we have in fact grown by 1pc against market drop of 11.5pc.

Besides improvement in the market shares, VECV invested in new product launches and made significant improvement in after sales infrastructure. It also achieved good progress in industrial infrastructure and CED paint shop productionisation. The engineering component and engineering solution business also achieved sound progress during the year as well.

It is now nearly five years since the Volvo group and Eicher Motors came together to create VE Commercial Vehicles Limited. What are the strengths of Volvo and Eicher and how have both the partners benefitted?

We will complete five years of partnership with Volvo in 2013. Our journey has been very eventful and the symbiosis has been very clearly experienced by all the stakeholders: dealers, suppliers, employees and investors. Eicher and Volvo have their own strengths and together under the JV, we have been able to create a lot of synergies. Eicher has a very strong presence in mass market products with a formidable institutional network. Eicher trucks and buses are known for fuel efficiency and over the years have created good value for its customers.

As far as Volvo is concerned, it is a global entity with very strong four brands – Volvo, Renault, UD in Japan and Mak in USA. It has very strong processes. It goes for highly advanced technology – high-end trucks, buses. It is a renowned multinational corporation with a hefty financial base. They have entered into the mass market segment through us. On the other hand, we have got access to their technology and processes.

India is going to become a global hub for medium duty engines to meet global automotive requirements of Volvo. The engine plant at Pithampur will manufacture engines which would be adapted for Euro III and Euro IV emission requirements to be used for Eicher branded heavy duty trucks and buses as well. The engine will be part of a global first initiative reflecting the growing Volvo-Eicher synergy under the JV.

VECV has recently announced plans to invest about Rs.2,500 crore by 2013-end. Can you please elaborate on this?

From the beginning of the JV in 2008 till 2012 end, the company has invested 1,300 crore. It will invest another 1,200 crore on ongoing projects like engine plant, bus body plant, new products and capacity expansions in 2013 and 2014 to meet the requirement for 2015.

Out of your total output, how much does the bus segment account for and how important is the bus segment for you?

We are steadily improving our presence in the bus segment and currently around 20pc of our volumes are contributed by the bus segment. We had just 6pc market share in 2009 and in the last 3 years we have doubled it to 11.9pc. While the bulk of these numbers come from our traditional strengths in the light and medium duty segments, HCV sales have also begun to contribute. We have achieved good breakthroughs in state transport undertakings with orders of 1,019 and 600 bus chassis from GSRTC and APSRTC respectively. The potential for our growth in this segment is very high.

Eicher is also setting up a bus body building plant in Dhar, Madhya Pradesh, with an investment of Rs.125 crore in the first phase. So when will you be commencing production? And what will be the total capacity by then?

The bus body plant is currently under erection and will start commercial production from Quarter II of FY 2013. Our initial capacity will be 7,500 units that will be scaled up to 15,000 units as we go along.

What are your aims in the bus segment?

We will continue to grow steadily year on year and we aspire to reach a market share of 15-16pc in the bus segment (both LD/MD and HD buses) in the next 2-3 years.

As you have just mentioned, you have earlier announced that VECV is setting up an engine manufacturing unit on a 12-acre plot in Pithampur, Madhya Pradesh. You have also shared that the proposed unit will make 100,000 medium-duty five and eight-litre automotive engines annually and will be operational by mid-2013.  Will these engines be employed on Eicher products too? If yes, can you put a timeline to that?

Of course, these engines will be employed on Eicher’s products too. By the end of this year, we will be rolling out next-generation Eicher-branded products that will be equipped with such hi-tech engines. The Euro 6 compliant base engines with 5L and 8L capacity will be manufactured at the upcoming engine plant to meet the global automotive requirements of Volvo for medium duty engines. These engines would also be adapted for Euro III and Euro IV emission requirements and the same will be used for VECV heavy duty trucks also.

According to VECV’s business model, the sales and distribution of all Volvo truck brands (and not buses) in India is routed through Eicher. But when will Volvo begin to distribute Eicher’s products in countries where the Indian firm does not have presence? And is Eicher planning to distribute the Swedish company’s buses too?

The Volvo Group has a very strong distribution network in South East Asia, Middle East and Africa. We are currently present in India like export markets with strong presence in South Asia and some countries of Africa and Middle East where our current product range is suitable. We need to develop more and more country specific products to make inroads into other markets. We are currently working on these products and once these products are ready, we can participate in new geographies and then we will also use the distribution network controlled by   Volvo Group. As far as distributing Volvo buses in India is concerned, we have no such plans under the JV.

Don’t you think the Indian CV market is getting tougher with well-entrenched players like Tata Motors and Ashok Leyland as well as competition coming in from the likes of Daimler, MAN, Mahindra and Scania?

Definitely, the Indian CV market is getting more and more competitive. We welcome competition as it is in the larger interests of the customers.

Volvo’s presence is largely confined to tippers assembled at its Hoskote plant near Bangalore.  So are you planning to launch more products in other segments? If yes, what are they?

Volvo is already there in tractor trailers, pullers, special application vehicles, etc. We will continue to come out with more vehicles with different applications to meet the market requirements as we move forward. Recently, Volvo Trucks launched the innovative, all new Volvo FM480 10x4 Dump Truck in India, built specifically for deep opencast mining. Keeping pace with the dynamics of the industry for over a decade and a half, this truck is an innovation that will set new benchmarks in the mining industry. Built on the powerful, reliable & proven Volvo FM13-litre platform, the FM480 10x4 Dump Truck is slated to be the next big ‘Game Changer’ in the mining application business. The Volvo FM 480 is the first 10x4 dump truck concept in the Indian market for mining applications. The Volvo 10x4 benefits the customers with higher productivity and lower overall operating costs. The higher capacity rock body enables the customers to derive the best-in-class productivity; thereby reducing their fleet size and helping them achieve increased profitability and higher operating efficiency.

VE Powertrain (VEPT), which is essentially a division of VECV, was reportedly in talks with Volvo Group for supply of various automobile components to Volvo’s global manufacturing plants. So what is the status on that? And what kind of components would you be looking to ship out?

VEPT has just initiated the supply of engine gears to Volvo and we are still in the early phases. Likewise, we are in talks with other Volvo Group companies for supplying other parts from India. I would say that there is a huge potential for VECV to supply automobile parts to Volvo’s global manufacturing plants in the near future.

How many units did VECV sell during the last fiscal? And what is your sales target for FY 2012-13? And do you have any wishlist in mind for the CV industry per se?

Last year, we have sold 48,262 units of Eicher branded trucks and buses and 569 units of Volvo.  The total number of units sold in CY 2012 comes out to be 48,831 units. This year, our sales target will be in line with overall growth in the market. Right now, the CV market per se is having a tough time. From an industry perspective, I would like to see our government contain the fiscal deficit, provide the necessary impetus in facilitating large-scale investments in the infrastructure sector and remove bottlenecks in the mining sector to provide the necessary fillip to the CV sector.

Lastly, what is your vision for the company in terms of numbers and market share?

Our aspirational target for 2015 is to achieve sales of 100,000 units of trucks and buses (for both the brands).  Out of that, a sizeable growth will be derived from heavy-duty trucks and buses.  We would definitely like to sustain the growth momentum with additional penetration in the domestic market and entry in new overseas markets riding on the development of new and modern products.