The Hindu Business Line : `LCV, passenger bus segments promising'

HAVING spent 29 years in the company, Mr S. Sandilya, Group Chairman & Chief Executive, Eicher, is an all-out Eicher man. In fact, when he joined the group in 1975, Eicher was a single plant company making only agricultural tractors. Now it is a fairly diversified group with interests in product categories such as commercial vehicles, motorcycles, automotive gears, industrial gears, tractors and even in publishing (of maps).

In an interview with Business Line, Mr Sandilya talks about the way forward for the company in light of the recent restructuring undertaken and shares his outlook for the automotive market.

What is the reasoning behind the recent restructuring at the Eicher Group? What benefits do you hope to accrue from the same?

We have two entities in the group - Eicher Ltd and Eicher Motors Ltd (EML). Eicher Ltd has got tractors, motorcycles, diesel engines and automotive gears. We have demerged all these into Eicher Motors, which was so far only a commercial vehicles company. With these four businesses now going to EML, the company has all the five different businesses of the group related to the auto sector under one roof. The primary benefit is that we now have a large-sized company. If you take the 2002-03 gross turnover of the combined entity, it would be about Rs 1,350 crore. The size of a company is also important, especially from a global perspective where it helps when one is looking at any sort of alliance, co-operation or other initiatives.

The second benefit is that when you have all these under one entity, there are other synergistic advantages that exist and will benefit all stakeholders. For instance, in terms of operational savings, you have sales tax savings due to inter-unit transactions since we make a lot of captive components. Because of the size, the combined entity would also be able to borrow at lower rates and other bargaining abilities too go up.

Eicher Ltd then remains an investment company, and that is available as a vehicle for doing operations other than auto as we go along.

Are you looking to diversify into other businesses as well, in the near future?

We recently forayed into the engineering solutions business. We have done a lot of product development in the commercial vehicles, tractor and motorcycle categories ourselves. For instance, the recent HCV 16-tonne that we launched is completely indigenously designed. Similarly, we are piloting a 25-tonne multi-axle vehicle, designed by us.

So we have developed product development capability of a significant order. Thereby, Eicher has created a centre for excellence for engineering services which has got good design capability, good analysis capability and that we have started offering to outsiders, both international companies as well as domestic companies that want to get their engineering services outsourced. It's a very small outfit, but we do believe that it has potential.

We have also been examining diesel engines as a potential business opportunity. We have in May 2003 hived it off as a separate business.

The commercial vehicle segment has been seeing double-digit growth. In your view, is this growth sustainable for long? Which are the sub-segments that hold promise for growth?

This is a question that everyone is asking and I don't think anyone in the industry has a specific answer to it. The growth in the current year is of course extremely high. From an industry perspective, we would say that it is not sustainable at that high a rate, but the fact that there will be significant growth cannot be ignored since commercial vehicle growth is always linked to the growth of the economy. And with overall growth for the current year projected at seven per cent and with the set of feel good factors in the economy, commercial vehicle growth will follow suit without any doubt.

In the current year, all segments have seen growth. What will happen in the future is difficult to predict, because once the Government completes the project on the golden quadrilateral, the transportation scenario as a whole may change. There would be changes in what kinds of loads get carried and distances vehicles travel. Therefore, the concept of hub and spoke that we have been talking about for many years may come into place, in which case the largest vehicles will carry load on the highways. Also, with the Prime Minister's Gram Sarak Yojna, a lot of investment is likely to go in the rural sector. Once the rural roads also get built, I think there will be a lot of potential for the light commercial vehicles (6 tonne - 9 tonne range).

And with the roads becoming better and faster, the passenger usage will also go up, opening opportunities for the passenger bus segment.

How would you assess Eicher's growth in the segments it is present? Particularly, with the depression in the tractor market, what potential does the sector hold?

In the commercial vehicles segment in the last seven to eight years, Eicher has been doing consistently better than the average growth in the industry. We have the entire range of vehicles from 5 tonne to 16 tonne and the 25-tonne is currently being piloted. We also have the platform and scope for enhancing this range. We would be able to sustain the growth in the future as well.

The second thing important from our group perspective is the agricultural tractor segment. Eicher Ltd, that had a bad patch a few years ago in terms of heavy losses, is on the turnaround path. With the tractor industry doing better and the cost reduction exercises in place, the turnaround is happening in the right direction for Eicher Ltd. About 5-7 per cent growth in the tractor industry can be expected.

Motorcycles too are a very high growth segment. We have a presence in the upper-end of the market and believe it has potential for future growth.

How about automotive gears...

We have also diversified into industrial gears and are exporting gears to many countries. This is one segment that is bound to grow. With the component sector itself growing in India, the domestic original equipment (OE) demand is on the increase.

But there was a strike by one of your key component vendors this fiscal year... will that have any bearing on your sales?

That has affected us in the current year, therefore volumes have not grown as much as we would have liked. But that problem is behind us now and we have been able to make up. In fact, we had the highest-ever sales of more than 1,600 commercial vehicles in December.

In which areas are you cutting costs? What kind of savings have you been able to achieve?

Our cost management exercise has been done across the group and is a continuous process. Through the cost management exercises, we have been saving anywhere between 3-5 per cent of our gross turnover at any point of time. The quantum, however, varies from business to business.

More Stories on : Interview | Automobiles

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page

Stories in this Section
Eonour planning business rejig

Stir for Indal reopening

`LCV, passenger bus segments promising'

Sun Network plans to enter print media — Second Malayalam channel on cards

KRL obtains high safety ranking

Piaggio eyes Rs 1,000-cr turnover in India by 2005

Have your diet delivered at your office!