Do you think the muted sales growth can be attributed to the high base effect and the deferred purchases during the elections?
I believe so. There was a high base effect in the fourth quarter. The industry de-grew marginally by about 4%. We have been flattish. We have gained market share. For us, it has been a good quarter in terms of our performance. You are right that beside the high base effect, there was also a little bit of uncertainty on the election side. We must also remember that the impact of the new axle load norms were being felt a little bit.
Overall, that is why this quarter’s volumes are a tad low. But overall, this industry has grown by 15% over last year. This is possibly the fifth or sixth year since the industry has been growing consistently and has been posting very healthy growth rates.
Experts are saying that the volume growth is expected to recover in FY20 but we could see a decline coming in post that. Is it safe to say that we are nearing the peak of the domestic CV cycle? It is already in the fifth year of its up cycle now?
I do not believe so because of the following factors; first, I am not going to profess to be a great economist but if I look at some of the macros; one of the challenges is that the supply chain cost as a percentage to the GDP, is one of the highest in the world. You are at about 13%, 13.5% and globally, the standards are around 10%. There is a lot of cost that has to be taken out from supply chain efficiencies for the country.
I am not talking about the company, I am not talking about a sector, I am talking about the country because GDP growth can be driven much better if supply chain inefficiencies are reduced. For that to happen, what is important is to have better roads and faster turnaround times. The government is stepping up the investment in roads. Why would the government be laying 21-25 kms roads a day? It is obvious that the commercial vehicle sector, be it trucks or buses, will benefit from the heavy investment that is happening in roads and infrastructure, this is one.
The second point I would want to share with you is if you look at the penetration of commercial vehicles per million of population, the global standards are at something like 1,000 to 1,100 commercial vehicles per million of population every year. We are far below it and India is regarded as the highest growth economy over the next 10 years.
If you were to look at this overall scenario at a very macro level, I would say there is a lot of good that is holding forth for this sector. This is one part.
The second part is I do not think the industry has peaked at all. It has been growing, we have not seen any major cycles coming in that is because I personally believe that this era of feasting and fasting are over. You are going to see sudden bursts of growth and then one or two quarters of de-growth or maybe flatness and then again growing. People are becoming extremely nimble footed about their investments. Data is available very quickly today, it is open and it is a global economy today. So people are able to understand what the demand is going to be. They place orders on trucks and other commercial vehicles based on the demand that they foresee.
The third thing is with respect to 2020-21 when BS-VI would be introduced. I really am not able to hazard a guess as to whether there is going to be a severe de-growth or whether there will be a de-growth only for the first quarter and that could actually pullback in Q2 to Q4 because if you look at it historically, when the transition happened from BS-I to BS-II and from BS-II to BS-III and from BS-III to BS-IV, each of the years when the transition happened, the industry has actually grown. As a sideline, I am not giving it as a forward looking statement. Ashok Leyland market shares have grown in each of these years.
So we will have to wait and watch how this whole thing pans out. If there is a tremendous pull from the customer side in terms of deployment of trucks and requirement for trucks, especially trucks, I do not think people are going to defer their purchases because it is a BS-VI vehicle.
Tell us about the key markets because the south seems to be outpacing the north and west regions due to relatively lower growth over the last two years. Given that you derive a high portion of your volumes from the south, what has been the growth from those regions and what is the market share expansion seen on the back of it?
I possibly do not share the details of market by market share. Yes you are right that we are a significant player in the south and we are growing our market share in the rest of the country as well in across segments. In some quarters, the basic strategy is to grow our market share across segments and across markets. We have to defend our leadership strategy for south and challenging the leadership strategy possibly in the rest of the country.
This quarter, the south has done well but I have also seen that last year, the north has done exceedingly well. The growth was stupendous in states like Rajasthan, especially in Jaipur. So we will have to wait and watch. I do not think there is any definitive pattern that south is going to grow and the rest will be muted. Growth, if any, will be pan India.
There is no single strategy. It depends on the type of vehicle, the segment of the vehicle, the geography that you are looking at and the pricing that you can fetch. Very clearly, the first thing that is important to us is growth. We exist for growth. We will pursue growth and we will pursue growth in volume as well as market share.
At the same time, we are not going to let the accelerator off profitability. It is something that we have to look at. So currently as I am talking to you, we are looking at our costs. These are completely different strategies. So one is to pursue growth, the second one is to look at your cost, take out as much of cost as possible so that we can continue to grow profitably and we have done reasonably well in April also.
The discounting persists because the industry is pursuing that strategy. Ideally, one should not be discounting so heavily because there is a healthy demand for commercial vehicles and we should be fighting on things other than price and our network. Finally, why I am confident about our growth is also because of the network. The network has grown stupendously over the last five to six years. It was possibly 300 to 350 points of presence and as of now, 10x in the last six years. Our presence, especially in the north-east, central and west has grown dramatically and we are seeing the positive benefits of that.