Price hikes insufficient due to steel price inflation and discounts: Vinod Aggarwal, Eicher VECV
A big jump in July versus June was sort of pent up demand? I am assuming in April and May, you had tough times due to the second wave and the lockdown. Was that the key trigger for the rise in sales in July?
Absolutely, the pent up demand is definitely there and as we had mentioned earlier in the last interaction, situation is going to improve July onwards and it is in line with that expectation and every month is better than the previous month and that is what we expect going forward because the economy is going to pick up. The only uncertainty is about the wave three, and hopefully with more and more vaccinations we should not get that. Besides that, the economy will do well and the CV industry will have the best time because CV industry had been declining for last more than two years and this was quite a long period. Going forward, you are going to see better days for the industry and in line with that –VECV will also do well as you can see our month of July was almost double than the month of June and previous year figures are not comparable because first four months were absolute lockdown in the entire country last year. So, we are very positive going forward for the CV industry as well as for the company.
You are present in buses public transportation, heavy duty trucks, LCV segment as well. How was growth in all of these segments if you could break that down for us?
If you look at the heavy duty trucks, the growth is continuing very well led by the growth in the construction trucks, but if you look at the overall numbers for the month–even heavy duty trucks, the numbers are only 10000 in the month of Julyand this is for the industry. Now, 10000 is much lower if you look at the earlier peak numbers like for example in some of the months of 2018-2019, the numbers were as high as 30000. So, we are still at one-third of the earlier peak of heavy duty trucks. Similarly, if you look at the 5 to 15 tonne or 5 to 16 tonne—-which is light and medium duty trucks— there again the last month numbers are 7000 and the earlier peaks were 15000. So, still we are much away from the earlier peak numbers of the entire industry.
As far as the bus industry is concerned, it is still continuing to be highly depressed because the schools are continuing to be closed, there is very less movement for the staff because still work from home is continuing, inter-city movement is still less, tourists are less, so tourist coaches are also standing idle. I would say the bus industry continues to be the worst impacted. Going forward, we will see some slow recovery happening in the bus industry because we see some of the schools have started opening, we will see the more people attending the offices there will be more inter-city movement.
As far as the truck industry is concerned, truck industry is going to continue to recover. Still, there is lot of pain with the transporters because fuel prices have gone up significantly and freight rates have not gone up in line with that, as a result of that the transporters are still having very bad economics and especially the small transporters are the worst impacted. As far as the fleet operators or big transporters are concerned, they still have the contractual prices linked to the fuel hikes but the small transporters have to stand in the open market or the transport nagars or the places where they get the daily haulage requirements. Those are the people who are worst impacted with this fuel hike and the freight rates have to go up and they will start going up once the economy starts picking up more, because when the economy picks up there will be more demand for movement of goods and that is a time when you will see the freight rates going up and transporters coming back to their economics. As a result of that, there is more and more focus on highly productive trucks that is why there will be more replacement, all the old trucks will need to be replaced and at the same time overall cost of ownership of the old trucks is very high as compared to the modern trucks. So, therefore there will be more focus on technology, more focus on productivity for example from VECV, we are selling 100% of the vehicles now as connected trucks, so have are very advanced telematics. I would say they will be more focussed on productivity and then of course with the economy picking up there will be more demand for movement of goods and the CV industry.
How is it that you are tackling with commodity price inflation given that it is still elevated, suffice to say that you would be undertaking more price hikes to try and protect your margins?
Yes, we are trying to do that but as I mentioned the transporters’ current condition is not so good so, there is too much negotiation, too much haggling on the price. Since the overall numbers are still less in the industry, so there is lot of competition, so the discounts are continuing to be high and we are trying to make the price increases. We have made already some price increase in first quarter of this year, we have made another price increase this month, but I think these price increases are becoming insufficient in view of continuing increase in the steel prices as well as other inflation and at the same time also discounts are continuing to remain unabated. As a result of that overall pricing, overall margins continue to remain under very high pressure. For example, the steel prices went up by 30% last year from October to March and on top of that further increase has happened from the first quarter. There was some respite last month when we saw some drop in the retail prices of spot prices of steel but again this month the spot prices have gone up.
Large industry peers of yours like Tata Motors, Maruti have all sounded of warnings about the chip shortage. How is it that you are coping with this situation and given the restricted supply is it being able to meet your demand requirements?
We are able to meet the demand but the situation continues to be tensed because there is continuing shortage of microprocessors, ECUs and more electronic parts. However, we are trying to cope up with our efficient supply chain management but the situation is hand to mouth, the situation is very-very difficult so that is true and everyone is facing that problem and let us hope that this situation gets resolved but I still see that it will take some more time in resolution of this problem.
How much of your order book, how much of your sales is exports, how has that portion done in these last few months especially?
Exports continue to be very-very important segment of our overall sales and we export currently around 15% of our total sales. We see better traction happening in the new markets like for example, we are getting better numbers from African markets. We have started exports to south-east Asian markets for example – Indonesia or Malaysia and we have started exporting to some of the wealth markets of Africa, for example South Africa or we have started exporting more to Middle East.
However, the India like markets of Bangladesh or Nepal, they are continuing to behave like India and there are some pressure on the industry due to the lockdowns and this corona pandemic. However, the situation is better in some of the other countries like Africa or you can say some of the south-east Asian or Middle East countries but, of course, the Bangladesh and Nepal and Sri Lanka are still much lower than earlier months.
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