Companies

CV industry to see growth in Q4 of FY21: CEO of Volvo Eicher

Nandana James Mumbai | Updated on September 29, 2020 Published on September 29, 2020

Commercial vehicles suffered more than passengers vehicle during lockdown, as CV industry is directly linked to businesses activities, says Vinod Aggarwal

Factors like the ‘long-overdue’ replacement demand, investments in infrastructure projects, growth in rural economy, revival of economic activities and the consequent effect on the GDP, easing of travel restrictions, and opening up of schools will lead to a revival in the commercial vehicles industry, with a growth expected in the sector from the last quarter of the financial year, said Vinod Aggarwal, MD and CEO of Volvo Eicher Commercial Vehicles (VECV).

CVs have been the worst-hit in the automobile sector amid Covid-19 as the sector is directly linked to economic activities, which had come to a standstill due to the abruptly enforced lockdown to curb the pandemic. As per the Federation of Automobile Dealers Associations (FADA), CV retail sales fell 57.39 per cent year-on-year in August 2020.

 

Overdue replacements

“Things are improving month on month. From the festival season, we are hopeful that things will be better for the CV industry. Last year, there was a 40 per cent decline in sales in the CV sector and, similarly, the first six months of this year has also been very low. So, the replacements have not been happening. Therefore, the normal replacement cycle that didn’t happened last year as well as this year, has to happen now.

“There are a lot of overdue replacements — this is one big factor which will work in the industry’s favour. These are business assets and these assets need to be replaced. The second positive factor is that infrastructure investments have started happening, and you will see more and more projects starting in infrastructure,” Aggarwal told BusinessLine.

VECV, a joint venture between Eicher Motors and Sweden-based Volvo Group, is currently operating at 40 per cent capacity, said Aggarwal. He expects the company to scale up to full production capacity by the last quarter of FY21.

“The third positive factor is the rural economy — it continues to be relatively much better. We are expecting agriculture to grow by 2.5 per cent this year. The fourth factor is that economic activities are coming back and people are learning to live with the pandemic. More and more sectors will start opening up, and positive news is coming in the economy. Q4 will be much better than Q1 and Q2.

“Sectors like two-wheelers, cars and agricultural tractors have started doing well. This means that you will need a lot of movement of parts and components to produce these. You will see better and better traction happening because of revival in the industry,” he further stated. With easing of travel restrictions and schools set to resume again, the demand for passenger buses will also increase, he added.

On what kind of an increase in demand he expects in the CV sector, he said: “The GDP dropped by 25 per cent in the first quarter. This quarter, it will fall by 10-12 per cent. Quarter three will be flat or a 2-3 per cent drop. In quarter four, there will be some growth. So you can extrapolate the same thing for the CV industry.”

The CV sector has been suffering the most while the passenger vehicle, tractor and two-wheeler sectors have fared better, said Aggarwal. “If business activities are not happening, people will not buy business assets and business assets are directly linked with the economy. The economy is down, and the sentiments are not positive. That’s why the CV industry got impacted the worst.”

Since the CV industry depends heavily on infrastructure development and economic growth, support from the government would be crucial. On what he would expect from the government, he pointed out that the industry has been requesting the government to reduce taxes, at least temporarily. If the Centre also implements the scrappage policy, it will help in further propelling replacement demand, he said.

Ccentral help for State transport

“Third, the government should support State transport undertakings to renew their fleet of buses. They can provide some financial assistance to State governments so that they can replace their fleets. The government also has to invest in infrastructure, which it is already doing,” he said.

In August, Volvo Group and Eicher Motors announced a ₹100-crore deal, under which Volvo Buses India, which has been assembling and selling premium buses, will be merged with VECV. When asked about this, Aggarwal said that post the signing of the definitive agreement, the deal is in the final stage and is likely to happen in the next few days. “We will have access to the Volvo Group’s technology in buses...We will be able to create more and more synergies between Eicher and Volvo Buses and we will be able to reduce costs and come up with more variants in the buses segment. So, it’s a very good step in the long run.”

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Published on September 29, 2020
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