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    Enquiries for CVs on the rise, volumes and prices will follow: Girish Wagh, Tata Motors

    Synopsis

    Exports can be a good hedge for domestic slowdown. Beyond Saarc, we are looking at Asean and Middle East.

    Girish Wagh-Tata Motors-1200ETMarkets.com
    India's largest commercial vehicle maker Tata Motors said the market has bottomed out and there is a sign of a pick-up in enquiries and sales conversion month-on-month over the last few months suggesting hopes of a recovery. Girish Wagh, president of commercial vehicle business, told Nehal Chaliwala, Ketan Thakkar and Ashutosh Shyam that there will be a pre-buy effect in the coming months but not as big as one was expecting earlier in the year. However both volumes and prices should firm up here on, he said. Edited excerpts:

    What is your take on the current demand environment?
    The market has been hit by cyclical, structural and economic factors over the last 18 months right from consumption slowdown to infrastructure project getting stuck due to the finance squeeze. However, things are gradually changing.

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    We are seeing increased enquiries from fleet operators looking to replace their vehicles. It makes tremendous economic sense for customers to replace the older BS-II or BS-III vehicles for two reasons. First is that the government has come up with this accelerated depreciation for this year, so if they buy the vehicle now, they can leverage that.

    Second is the TCO (total cost of ownership) for our BS-IV vehicles are inherently more competitive or have inherently better TCO compared to the BS-III vehicles. So, if you replace one on one, then your total cost of operation will come down and you will earn more money. So, there is an economic and environmental case to replace their vehicles now and customers have realised that. Hence the increased enquiries for replacement demand.

    There are a few things which will also help demand — infrastructure projects should resume and new projects should also be implemented; mining activity will start now and that will bring some demand; liquidity and credit scenario is improving; the ban on over-loading should be strictly implemented. These things will start firming up the demand.

    How long will it take to reach a new peak?
    The industry scaled a new peak in FY19. It has taken two years or even five to six years to rescale the volumes peak in the past. But recovery in terms of topline has always been faster. If one looks at the past, the cycles have lasted 24-30 months, sometimes even lesser. So, it is very difficult to predict where we are in the cycle and when demand will pick up.

    "The market has been hit by cyclical, structural and economic factors over the last 18 months."

    — Girish Wagh


    The pre-buying in other markets has been healthy ahead of Euro VI implementation. How is it in India?
    There’s a strong economic sense in replacing BS-III vehicles with BS-IV and I think some customers will definitely come forward. Secondly, this whole thing is also determined by sentiment. We track a quarterly sentiment index. What we have seen is that the sentiment has fallen for the last eight-nine quarters. The sentiment is a function of satisfaction with the current operating conditions and the expectations in the future. The last sentiment index we did was in Q2 of this fiscal (September). Now, what I have seen a very interesting thing is, in cargo, the sentiment index actually bottomed out in Q1and it has seen a marginal increase in Q2. We are hopeful of the trend continuing.

    In tipper trucks the downward trend continues and that was expected. Q2 is generally the slowest quarter for tippers due to the rainy season. I think we are actually seeing a lot of customers who are at least coming forward and enquiring about the vehicles.

    For pre-buy, the lead will always be taken by larger fleet owners. Small fleet owners will always be followers as the risk is higher for them.

    Discounting has hit heady levels. Is this sustainable?
    Discounting has been ongoing as we are speaking. It is a function of demand and supply. We had stock when we were operating at an industry volume. The demand suddenly tanked, so the same stock now became more, and we had to give discounts to liquidate it. Saying that, the stocks are now at a multi-quarter low and enquiries are increasing. Hence, both volume and prices will pick up. Both volume and realisation will grow as we go ahead.

    Will there be more shutdowns?
    We have to run our facilities in the most optimum manner. The industry has tanked by more than 40% in M&HCVs. Our approach has been to first optimise the number of shifts and if that is not sufficient, then look at shutdowns. We have done both. Whether shutdowns will be a thing of the past, I can’t say right now.

    The drop has been sharp. How will you ride a similar cycle in future?
    Exports can be a good hedge for the domestic slowdown. Beyond Saarc, we are looking at Asean and Middle East. With regulations in India moving on par with global standards, it opens up more opportunities. Exports today account for 11-12% of total business, 20% will be a good target to gun for. Strengthening our position in intermediate and LCV is also a good hedge.



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    (What's moving Sensex and Nifty Track latest market news, stock tips and expert advice, on ETMarkets. Also, ETMarkets.com is now on Telegram. For fastest news alerts on financial markets, investment strategies and stocks alerts, subscribe to our Telegram feeds .)

    Download The Economic Times News App to get Daily Market Updates & Live Business News.

    Subscribe to The Economic Times Prime and read the Economic Times ePaper Online.and Sensex Today.

    Top Trending Stocks: SBI Share Price, Axis Bank Share Price, HDFC Bank Share Price, Infosys Share Price, Wipro Share Price, NTPC Share Price

    ...more
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