small carriers in India

AUTOMOBILES

01 Sep 2012

The Small Carriers

Light commercial vehicles are the new choice in wheels, and that has sparked intense competition

Vishal Krishna

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Picture by Subhabrata Das

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It is 5 am, and 30-year-old Ruba S. is waiting for her husband to load jasmine flowers from a field in Salem, Tamil Nadu, on to her new Dost, Ashok Leyland’s 1.25-tonne light commercial vehicle (LCV). At 6 am, she starts on her 160-km drive to Hosur, an upcoming industrial city in Tamil Nadu close to South Bangalore on the Bangalore-Madurai highway. Hosur is also a meeting point of flower traders before they finally reach Bangalore. Ruba arrives in Hosur by 9 am, delivers all her flowers to the market and leaves for Salem by 11 am with a load of fruits and vegetables. “The LCV has changed my life. It made me an entrepreneur when I noticed that with a small truck, multiple deliveries can be made inter-city or within a city,” she says. This is her second LCV in four years, and she is confident of being able to repay the Rs 3 lakh loan in three years. “The new LCV takes more load and is a powerful vehicle, allowing my deliveries to be faster and, consequently, recover cash faster too,” she says. Ruba bought her new vehicle after she sold a Tata Ace that she had for four years.

 

Six years ago when the first sub-1 tonne LCV was launched by Tata Motors, it sold 30,000 units. By 2011-12, it had sold close to 186,300. Since then the below-2 tonne LCV market has grown to 300,000 vehicles, and has more players in the fray.

Mazhar Alam Khan has 11 Ace vehicles in his cargo service fleet (BW Pic By Subhabrata Das)

 The leaders used to be Tata Motors, Piaggio and Force Motors. But not anymore. Emerging from nowhere, M&M became the second-largest LCV seller in India when it launched the Gio and the Maxximo in 2010. It sold 53,895 vehicles in 2011-12, and 14,348 in the first five months of the current financial year. Ashok Leyland launched the Dost in September 2011, and is now at the No. 3 position with sales of about 10,000 vehicles in the April-August 2012 period. Tata Motors remains at the top — it sold 61,326 vehicles during the same period. 

 

But competition is catching up in the LCV market, which is estimated to touch 1 million vehicles sold by 2016. 

Rewind a few years and the world was filled with the ‘tuk-tuk’ sounds of three-wheelers; about 600,000 three-wheelers were sold in 2005. But now, the 0.5-3.5 tonne LCV segment has caught up, and the sale of auto-rickshaws is declining. The Society of Indian Automobile Manufacturers (SIAM) classifies LCVs as up to 7 tonnes in load. By this definition, too, 809,500 LCVs were sold in 2011-12 — 19 per cent more than in 2010-11.

 

“The LCV segment has seen a natural rise because of four or five factors,” says Ravindra Phishrody, president of the commercial vehicles business unit at Tata Motors.
 

Increased urbanisation, rise in rural consumption, the hub and spoke distribution model, and better road networks.

At Mumbai’s Bhiwandi or Vashi markets, one can see the hub and spoke model at work. Large trucks drop off their

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goods at warehouses, from where the smaller LCVs take over. “About 80 per cent of the LCV market is dominated by market load operators,” says Turab Ali Khan, programme manager of the automotive practice at Frost and Sullivan, in Mumbai. And since the vehicle is critical to their owners’ livelihood, he adds, the segment has the lowest non-performing assets — just 1.5 per cent. This is another reason why the segment is predicted to grow 15-18 per cent even when the rest of India goes through a slump.have created a new class of entrepreneurs.

Defying The Slowdown

 

A report by rating agency Crisil says that LCVs, which are relatively less impacted by economic slowdown, grew 20 per cent in the first quarter of 2012-13 from the same period last year, mostly thanks to the launch of more powerful vehicles in the sub-1 tonne and pick-up segments. “Bankers lend to this segment because of the growth that has been witnessed in the last six years,” says Phishrody.

 

The market may be growing but the LCV to large CV ratio is still low in India – 1.2:1 — compared to that in other countries (South Africa and Turkey, 5:1; Brazil and Russia, 7:1; the US and the UK, 10:1), largely due to inter-state laws and taxes. “GST (goods and services tax) will create an LCV explosion. The sub-1 tonne is unique to India,” says Kumar Kandasami, director at Deloitte India. And manufacturers of commercial vehicles are evolving their marketing and product strategies accordingly.