Commercial Vehicles

One wonders how well founded is the correlation that one is tempted to draw between India's postindependence history and the evolution of commercial vehicles industry in the country. The rapid growth that marked the commercial automobiles' sector after independence can be, to a great degree, seen as a fruition of Nehru's pregnant visions of an industrialized nation and the subsequent exodus of masses to the cities. Today, India's commercial vehicles sector is one of the rapidly growing industries in the country. The output of commercial vehicles in India has shot up to 2.8 times between the years 1998 to 2004; the figure is significant in the light of the fact that the growth in passenger cars has been only 2.2 times between the same period. One can choose between new and used commercial vehicle, if planning to buy with a number of commercial vehicle insurance options flooding the markets. Ashok Leyland Some of the automobile companies that are operating in the commercial vehicles sector in India areAshok Leyland - One of the first automobile companies in India, Ashok Leyland was born when Mr. Raghunandan Saran responded affirmatively to Nehru overtures to enter the vacant automobile sector in 1948. Since then the company has seen many tie-ups with reputed international companies and built up a formidable reputation in the country. Ashok Leyland dominates the commercial vehicles sector in India with as many as 375,000 vehicles battling on the Indian roads. Bajaj Tempo Bajaj Tempo - Apart from two wheelers, Bajaj also manufactures extremely strong tempos well suited to the Indian roads. These three wheelers help in taking a substantial load off the road and also provide a cheaper alternative to the ubiquitous passengers. Eicher Eicher takes great pride in its commercial vehicles that are touted as low priced as well strong. Eicher has a range of Buses, Truck and Chassis. Tata Motors The first Indian company to come up with an indigenous car, Tata Motors' credentials goes further. In the commercial vehicles sector, Tata Motors manufactures Luxury Buses, Trucks and Tractors. Volvo One of the latest entrant into the commercial vehicles sector in India, Volvo is the largest producers of heavy trucks in the world. Mahindra and Mahindra Manufactures extremely durable buses, trucks, and three wheelers. Mahindra and Mahindra gives a clear priority to vehicles that are meant to survive rugged use.

Tata Motors is king of the road

Tata Motors, the market leader in the commercial vehicles segment, beats Ashok Leyland hands down. First, just consider the sheer size of the company. Its FY04 sales were almost 4 times that of Ashok Leyland, and its net profit was 4.5 times more.

What's more, the Tatas seemed to be a leaner organisation -- it's balance sheet size was only 3.2 times more than that of Ashok Leyland. As a result, Tata Motors' net return on investment (net profit/total assets), at 17.1 per cent in FY04 was far superior to Ashok Leyland's 11.9 per cent net return. This is both because of better profitability and superior asset turnover. Total asset turnover (sales/total assets) for Tata Motors was 2.46 times, compared with 1.99 times in the case of Ashok Leyland. Also, the former's net margin stood at 6.92 per cent in FY04, higher than Ashok Leyland's 5.98 per cent. (All earnings-based calculations exclude any exceptional expense/income). It is no surprise then that the markets value Tata Motors at almost 13 times the estimated FY05 earnings, while Ashok Leyland lags far behind with a valuation of a little over 9 times FY05 earnings. There are other reasons for the difference in valuation. First, unlike Ashok Leyland, Tata Motors has diversified into passenger vehicles. This partly helps the company in hedging the risk in the commercial vehicles sector, which is cyclical in nature. Besides, even in the commercial vehicles segment, Tata Motors is better placed, courtesy its wider product portfolio. What's more, despite its higher base, its commercial vehicles sales have grown at a faster rate. Between FY01 and FY04, Tata Motors' commercial vehicles sales grew at a compounded annual growth rate of 24.4 per cent, compared with just 14.4 per cent for Ashok Leyland. But the difference in size makes any comparison between Tata Motors and Ashok Leyland a problem. So, let's look at Maruti's financials, which are comparable at least in terms of size of operations. For instance, Tata Motors' sales are 1.4 times that of Maruti, and its net profit is 1.5 times higher. Maruti does better than Ashok Leyland, but still falls short of Tata Motors on most parameters. Its net return on investment was 14.6 per cent, compared with 17.1 per cent for the Tata Motors. Again, Tata Motors scored higher on both profitability and asset turnover. Its free cash flow as a share of sales was almost double that of Maruti (9.6 per cent). In short, based on financial parameters, Tata Motors does rule the roost in the four-wheeler space.

In the wake of the excise duty cut, the market could see a steep cut in the prices of heavy motor trucks and other ferrying automobiles. Finance Minister Pranab Mukherjee had announced a two per cent excise duty cut as part of the interim Budget, on Feb 23, 2008. The government also cut tax rates on services to 10 percent from 12 percent. Truck manufacturers have decided to pass on the benefits to their customers, to boost a sluggish market. Tata Motors has reduced the prices of its trucks by 2 per cent. Eicher Motors chairman S Sandilya said, The third stimulus will boost demand for commercial vehicles facing declining sales. The further cut in excise duty will improve the financial position of truck makers who are under severe constraint. The impact of the duty reduction will work out, on an average, to over Rs 16,000 per vehicle, it added. On February 24, 2009, Ashok Leyland said that they will reduce the cost of their units by Rs 16,000. In line with the excise duty reduction from 10 per cent to 8 per cent in respect of trucks and auto components, Ashok Leyland will pass on the full benefit to its customers, the company said in a statement.

Point To Be Noted:(postings in the net) Leyland wins hands down. In Kerala, KSRTC buys AL and Tata bus chassis in 2:1 proportion. The drivers invariably prefer Leyland due to its strong low end torque and driveability and in the ghat sections in Kerala, the KSRTC depots have only ALs. Off course Tata scores in refinement but as far as buses are concerned low maintenance cost and greater reliability takes the front seat. But in the truck sector, the most popular vehicle here is Tata semi forward trucks due to their lightweight and low initial cost. I do not know much about BEST in Bombay but had travelled in one of their old fleet of rear engine automatic transmission Ashok Leyland Air Conditioned Buses and I was stunned. It was quiet, Full Air Suspension (Front & Rear) excellent refinement after all the abuse and had superb acceleration. I later discovered they used ZF Automatic Transmission and boy were they good. Makes me wonder why it never was a hit, probably due to cost during the time it was launched but they should re launch this bus. Leylands simply rule in and around Karnataka, Kerala and Tamil Nadu. They are a lot slower to accelerate but once speed is built no TATA can come close. I also feel the braking is far superior than a TATA and they had developed an Full Air Brake system much earlier. Leyland had a proper bus to offer to the customer much before TATA. In the sense that their buses used proper suspension struts along with the usual leaf springs. Comfort has always been better with Leyland which is probably why it is the preferred choice down south for long haul operations.