Companies

Volvo Group keen to boost capacity utilisation

G Balachandar Chennai | Updated on January 16, 2018

Kamal Bali, Managing Director, Volvo India

Upbeat on GST implementation, dedicated freight corridors and high GDP growth

Swedish auto giant Volvo Group is hopeful of increasing manufacturing capacity utilisation levels across its various businesses in India to about 80-85 per cent in the next few years in view of the favourable demand growth drivers.

Currently, the group’s capacity utilisation in trucks and buses (under the Volvo brand) and construction equipment is a little lower.

“We are now looking forward to better capacity utilisation. The production capacities are not fully utilised as we have created more capacity in the past few years. Once we reach the level of about 80-90 per cent capacity utilisation, we will plan our next wave of capacity expansion,” Kamal Bali, Managing Director, Volvo India, told BusinessLine.

He felt that with the proposed implementation of GST, establishment of dedicated freight corridors and projected high GDP growth, there will be higher growth for trucks, and hence, the capacity utilisation will grow.

“With GST, there will be free movement of goods as inter-state barriers will be removed. This will provide us the opportunity to have larger volume of our (Volvo brand) long haulage trucks in the Indian market. With vanishing barriers, we see a value proposition to sell our haulage trucks. So far, we have been focusing mainly on the mining segment to sell Volvo Trucks,” he explained.

Logistics cost

He also mentioned that trucks in India were able to practically travel at a distance of 250-300 km a day against those in developed markets that were able to do trips up to 800 km.

It is estimated that the logistics costs in India is about 13 per cent of the GDP and, with better logistics eco-system, this could be reduced to as low as eight per cent, thereby resulting in potential logistics cost reduction of about $100 billion per annum, while also improving the competitiveness of the industry.

Commercial vehicle sector

According to him, the upcoming dedicated freight corridors such as Delhi-Mumbai, Amritsar-Kolkata and Bangalore-Chennai will also create demand for long haul trucks and there would be opportunities to sell larger volumes of Volvo trucks.

Since the commercial vehicle sector is largely correlated to general economic growth, projected higher GDP growth in the coming years will naturally aid the growth of the CV sector.

Volvo’s construction equipment is growing at over 40 per cent this calendar year and this sector is expected to sustain double digit growth due to bigger thrust by the government for infrastructure development.

The trucks business in India had some temporary moderation in growth recently due to speculations on GST rates. However, it is expected to normalise soon.

Volvo’s bus business is growing at 6-8 per cent and the group expects higher growth, supported by the expansion of product range.

Elaborating on GST and demonetisation, Bali said there could be some initial pains and inconveniences whenever any such transformative measures were taken.

“Be it our GST model or demonetisation, there could be minor short-term blips, but these will help the country and the industry in the long run”, he added.

Published on December 11, 2016

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