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By Ramnath Subbu
Agricultural freight movement is higher than the industrial freight movement both in value and volume terms. Therefore, a good monsoon and harvest augur well for the CV segment because agricultural production and consumption centres are dispersed and CVs are the all-important link. R. Seshasayee, Managing Director, Ashok Leyland (ALL), while announcing the company's results said, "Road infrastructure development is the single largest contributor to demand. Foodgrain movement from godowns compensates for a drop in agricultural production". The Indian CV sector is virtually a duopoly with majors Tata Engineering and Ashok Leyland (ALL), the two heavyweights, dominating. The CV segment grew by 28 per cent in 2002-03 and is expected to grow 7-8 per cent in the current year. Although this seems a significant drop, it is a more realistic level because 2002-03 was a correction. The industry had been stuck with inventories because in the 1997-98 boom period it grew at 40 per cent and the supply overhang took a while to come back to realistic levels. Greater housing demand, lower interest rates and finance costs and a shift to higher tonnage vehicles by players have helped. Ravi Kant, Executive Director, commercial vehicles division, Tata Engineering, said, the segment was going into an upcycle now. "There are a lot of positive indicators such as infrastructure and housing. There is also a restructuring of the market with buyers going in for higher tonnage vehicles which are more economical". Tata Engineering has managed a successful turnaround and from a loss of Rs. 53.73 crores in 2001-02, it earned a profit of Rs. 300 crores in 2002-03 with the CV segment contributing 60 per cent. During the year, the company produced 1.16 lakh (90,386) CVs and sold 1.06 lakh (80,687) units. CV volume sales were the highest in the last six years and the medium and heavy commercial vehicle (M&HCV) market share was up at 64 per cent. The successful launch of the 207DI pick-up last year saw the light CV (LCV) market share up at 32 per cent in March 2003. The company seeks to consolidate its position in this segment with more launches during the year. The company has targeted sector specific areas for demand creation for CVs having succeeded in cement "where we have converted rail transport to road. This year we will go in for steel," said Mr. Kant. Tata Engineering is also moving in a big way into non-vehicle business such as spare parts, reconstruction, and vehicle financing to bear the impact of a downcycle. "The non-vehicle business contributes 15-17 per cent of our business now. We are also taking steps to get into fully built vehicles. This year, it should double business and the next year, it should grow much more," said Mr. Kant. Ashok Leyland managed a 23 per cent growth in volumes in the domestic market during 2002-03. Also, its net profit was Rs. 120.22 crores (Rs. 92.26 crores) on sales of Rs. 3074 crores (Rs. 2630 crores). There was a substantial pick-up in north India where Tata Engineering has a larger presence. "There are early trends of a more balanced countrywide growth in demand for CVs," said Mr. Seshasayee. For ALL, the medium duty vehicles (MDVs) saw a 27.5 per cent growth last year and multi-axle vehicles accounted for 40 per cent of total sales. The 16 tonne 4*2 rigid haulage truck accounted for 40 per cent growth. In the north alone, it contributed half the business against the trend. For ALL, construction activity, which has boomed in the southern States, and the addition of kilometres in the Golden Quadrilateral will augment growth. In 2002-03, the company's exports were up 17 per cent at 2,250 units. It made a breakthrough in exports to Afghanistan and Seychelles. The company has an order for 3,222 cargo trucks worth $46 million to be sent to Iraq during the current year. ALL's products emanate from three platforms — Iveco, Leyland and Hino. The company had a technology transfer agreement and has brought out the Euro-1, Euro-2 and is now working on Euro-3 constituting the `H' series. The company is, in fact, planning 27 models in the current year under the `H' platform. Essentially, all the cargo vehicles use Iveco engines, the buses use Hino and trucks are to be shifted to the `H' platform in due course. A few weeks ago, ALL signed an agreement with Hino for `J' series engines above 260 hp, which will enable production of above 35 tonnes vehicles. The product should be out later this year and the company is setting up new facilities for this. ALL has a plant in Ennore and three in Hosur but has yet to decide on the location of the new facility. In 2002-03, ALL spent Rs. 120 crores on R&D and information technology. This year, it would be higher at Rs. 200 crores, excluding the new plant.
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