The automobile industry may be in the throes of a pronounced economic slowdown, but Ashok Leyland chairman, Dheeraj Hinduja, believes that the worst may have already passed. “It has been a tough few months, but the last quarter is traditionally a very strong quarter for all CV (commercial vehicle) OEMs. So, we are looking forward to a strong Q4,” said Hinduja, in a rare and exclusive chat with CNBC-TV18.
Hinduja spoke to CNBC-TV18 in Chennai along the sidelines of Ashok Leyland showcasing its BS-6-compliant fleet. On Monday, the commercial vehicle manufacturer announced that it had become the first in India to have its entire fleet of heavy-duty trucks receive BS-6 certification. Hinduja said the transition itself could signal renewed growth for the CV industry early next fiscal, after an initial hurdle. “With the new technology coming in, Q1 of next year (FY21) will see a slower uptick, but after that, the year of transition is generally a very strong year,” he said.
‘The worst is behind us’
Other factors like the promise of better liquidity and the possibility of OEMs focusing more on retail sales versus the wholesale market, Hinduja said, could also give the CV sector a much-needed boost.
“Inventory has built up into the sector, but as all OEMs have been saying, it will be much better when measured on retail sales as opposed to wholesale. Once that is corrected — since most OEMs have not corrected their inventory status — I believe the next few months will be positive,” said the chairman. “I’m not saying the market is going to recover overnight, but I think the worst is behind us.”
‘BS-6 transition will spike costs’
Amid the positivity, Hinduja hinted that Leyland’s new BS-6-certified fleet might well come with a steeper price tag on account of a spike in costs by way of the transition. However, he did not specify the projected change in cost or pricing.
“We are not going through a transition of BS-4 to BS-5 and BS-5 to BS-6 like most countries have experienced. We are moving in a three-year time frame — one of the shortest anyone has experienced globally,” he said. “Others have taken seven to ten years, so even cost absorption has been done in a phased manner. So, there will be a cost-push, but at the moment we are not disclosing our pricing, at least for another four to five months. The only thing I can assure you is that we will be cost-competitive as ever.”
‘Major production cuts only in MHCV segment’
While the management may be trying to send out positive feelers about the transition hoping for a better market, the fact remains that Ashok Leyland has also announced that it could shut its plant for up to 12 days in November, on account of tepid demand. What’s more worrisome is the fact that this comes on the back the company announcing that its sales for October had fallen by 50 percent. Leyland sold a mere 4,565 units last month, versus 9,062 vehicles in October 2018. Hinduja, however, played down fears of a continuing slowdown.
“You can’t view the industry as a whole (while gauging the extent of the production clampdown). The long-haul (segment) has been affected the most with reductions of 50 to 55 percent,” he said, “However, the ICV segment hasn’t had that level of reduction in production, and even buses have seen a reduction of only 6 percent, while LCVs are at 8 to 9 percent (reduction). So, it’s a mixed bag. We’ve had to correct our production based on the volume requirements, as have all OEMs.”
‘New CEO in the next few months’
With the company expecting to ride the BS-6 transition to better sales, Hinduja also said that the appointment of a new CEO was finally set to take place. Almost exactly a year ago, in November 2018, then-MD Vinod Dasari had resigned from the company, citing personal reasons. The last year has seen Hinduja at the helm, with the company steering clear of appointing a full-time MD and CEO.
“At the time of Mr Dasari’s resignation, the board took the decision that owing to the important changes coming in this financial year — with BS-6, our new modular platform, and the introduction of a whole line-up of LCV products — we did not want major disruption within the management,” said Hinduja, adding that a board-appointed search committee has been on the lookout for Vinod Dasari’s replacement.
He added, “As we’ve said, a CEO is required. Our family philosophy is that we should have the best professional management team running the company. I’m very sure that the board in the next few months would be announcing who the successor is.”
‘Modular platform, the big differentiator’
With Leyland displaying its BS-6 fleet for all to see, the company is also playing up its much-hyped modular platform that lets customers pick and choose the kind of truck they want to buy. Hinduja believes the modular approach to selling trucks could be a major differentiator for the company.“A customer can really look at customising what he wants for his application rather than buying something that is not suitable but is being accommodated,” he said, “For the first time, a customer can really pick and choose his engine, his body and his cabs. This will not only position Ashok Leyland very strongly but from a technical perspective, I see us really being at the forefront.”