Ashok Leyland Is A Challenger, Has Chance To Disrupt Existing Model, Says CEO

Shenu Agarwal: Ashok Leyland is a purpose-driven company. Therefore, the vision is to be among the top 10 globally in the commercial vehicle space. That's the brief.

Ashok Leyland has come a long way in the last few years. Number one priority is to make the brand more prominent across the globe. In 75 years since its inception, the company has developed a lot of capabilities and relationships and partnerships.

The industry, in the meanwhile, is changing very fast—a lot of changes happening—be it in technology or in the marketplace. Ashok Leyland is a challenger and not a leader, even in India. Therefore, it is a great time for Ashok Leyland.

Challengers have the great chance to disrupt the existing model.  We welcome the change. The change gives us a chance to create a different position. The whole industry is plagued—I don't know why—by a few players.

In every other industry, there will be a long tail. But in our industry, we don't have a tail. The entry barrier is very high—both from the technology angle and distribution point of view. So, it is not easy to enter this space. If at all a tail exists, it is not there in the traditional space.  Only in the new alternative business, the tail exists. So, we have very few players—three or four—with significant brands. In the core traditional old business, there is no tail.

Surprisingly, the profitability levels are very low in this business. The industry still has around 6 to 8%. If you look at any other industry—even within the automobile space—I come from the tractor industry where the profitability is anywhere between 15 and 20%. What we see in the CV space is one-third of it. The competition in the tractor industry is even more intense. It has eight or nine strong players. And, they have a long tail as well.

Somehow, the CV industry doesn't realise that it has to make more money to be able to invest in the industry. It is our responsibility to bring the change and invest in the change. Otherwise, who will do this? This is very important, not just for the betterment of the industry but also that of the whole nation. The issues like carbon have to be handled somehow. Those are the focus areas for us now.

Shenu Agarwal: Being a challenger, everything you do is a gain. Underdogs are okay. I like to work in an underdog space. I don't like to work in a leadership space. The reason is simple. Leaders are normally —I am not commenting on anybody—very complacent. Underdogs always try harder. Whether they succeed or not is not the issue. But they try hard. Therefore, I feel the challenger's space is a good space to work in.

Shenu Agarwal: A lot needs to be done. The way it will happen is like this. First, we have to pick some India-like markets where our level of products and technology give us elbow room. That is the first step. Markets like SAARC, Africa, GCC and Latin America ...these are the markets we are focusing on. Over a period, we have already built considerable business. We have a very strong distribution network in many of these countries. We have a product presence, which is getting more and more respect in these countries.

The first step is to aim for a significant market position in these countries. The second step is to go to more developed economies for which we do not have a product range right now. So, the focus is on developing a product range over a period which can cater to countries in Europe, the U.S. and the like.

I think it is a journey. And, we are already in the first step. We are very enthused about the results we are getting. As far as India is concerned, we are number two overall and are trying harder to become a leader. We are now 30% in overall CV. In LCV, we are just about number two with a very small margin.  

Shenu Agarwal: There is a realisation in the whole industry that the change is inevitable. And, this change is there, and you have to respond to that. There is a realisation that to be able to respond to the change you have to invest.

An LNG truck or a hydrogen truck ... they are altogether a different animal. It has to be done almost from scratch. There are going to be huge investments. Whatever the companies had invested in the last 75 years would be of no use. You have to do it from scratch. And, that needs huge investment. The realisation has now come, thanks to the change that is happening.

Shenu Agarwal: I mean the transition in terms of new fuel and newer vision. When profit margins are low, where will the money come from?  If you have to invest in the new vision/technology, you have to start making money. Where will it come from? We have to generate money. We can't just keep on borrowing. To do that, they will have to have the right differentiation of the products. You have to manage your cost well. And, you have to think alike.  Only then can you invest. I think this realisation has come.

Shenu Agarwal: This is a big debate in the corporate world. Some people think market share and profit can't come together. I have a different opinion. You cannot buy market share. If you think you can do it ... you can do it only for a short while and not consistently. Therefore, market share and profit have to come together. In Ashok Leyland—in the last few quarters—the market share is up and also the profit. Otherwise, it will be just a losing fight.

Shenu Agarwal: The inverse relationship between supply and price has outlived its time. There is no dearth of supply now. The customer decides. And, he has a clear choice. You have to create more differentiation and value in the product. It is as simple as that. But it is very hard to do.

In a natural market—which is not influenced—the only way you make profit is either by compressing the cost or by creating differentiation in the product. When we transitioned from BS4 to BS6, we created a very different platform. We are the first one in India to do that. It requires a lot of courage because initially the cost would be high. But it gave us a huge amount of flexibility. We have not yet matured the whole thing though. This is a new way of thinking. Once you have done that, it gives you enormous flexibility and your speed response to the market improves tremendously.

Shenu Agarwal: Right now, we don't have capacity constraints. For the next three or four years, we don't have capacity constraints. Our industry is very sensitive to the overall economy.  Capacity planning is a long-term decision and you don't build capacity in a year. You have to buy land and expensive machines. So, don't relate capacity decisions to the judgement of short-term markets. The commercial vehicle industry may have built capacity for 10 years. But ask if the industry would go to that level in 10 years ... then we can have a different discussion.

Given what is happening, it is time to build capacity. The only problem is that the change is happening at a fast pace.  And, the capacity that we have built so far may have to be built in a different way henceforth. In Ashok Leyland, we aren't building any more capacity. We have enough for the next 3-4 years. Whatever capacity we build for the future will be for the new technology.

Shenu Agarwal: It is going to take some time, though. How much time it takes is, however, not important. What is important is: are you ready? Is the ecosystem enough? Have you invested enough to bring about the change? Whether you want to lead the change or follow it. These are the issues.

In Ashok Leyland, we are very focused on right investment in this space.  We want to lead the change not just in terms of technology. We are also looking at a lot of other areas where we can partner or at least participate.  If EVs come, a huge set-up has to be created for fast-charging. Fast-charging for a CV is not the same as charging a bike. These are very different chargers. So, it is not just building a great electric truck but also participating in the ecosystem ... see how the battery cost can be brought down and see what we can do in terms of charging and participate in whatever the government is doing.  All these things are important.

I think that the EV transition will take a few years, and start from the bottom. Starting in two-wheelers, the EV transition is happening fast in three-wheelers and in entry-level cars also it is happening. But we want to be ready for that. If the ecosystem is ready, the change will happen fast.

Shenu Agarwal: Switch Mobility is focused on buses and some LCVs. We have another company called OHM. We knew that the CV change would happen in buses first ... Not just in the technology but in the way the buses are used. Switch will invest in technology and manufacture of EV buses. OHM will run these buses for the government.

Shenu Agarwal: We see huge opportunities in used vehicles. The company—if it were to be successful in the future—has to look at the entire value chain. It is the only way you are going to be successful and make money. Especially with the change happening—moving into hydrogen and electric vehicles, there is no way you can just be an OEM (original equipment manufacturer).

The Switch buses we are making, we are not selling them.  They are still on our balance sheet. We are actually operating them.  We have our own fleet of drivers. We give them on lease to state governments and we get paid per km. You see the whole value chain and how it is getting disrupted with new technology. It is not just about technology. But technology will have a huge impact on the way we do business.

In used vehicles, what is really important?  The normal thing is you want to have a better price for your vehicle. If the whole thing turns into EV, what will happen to those who have the traditional vehicles? It is not just getting into used vehicle space for the sake of it.

The idea is to help hold the value for millions of vehicles that are plying now at a reasonable level ... when you have raised the retail value of your vehicles, you have the advantage on the selling prices. We just started. We are not participating in the used vehicle sale. We are just creating a digital marketplace where people buy and sell used trucks. We facilitate the whole thing ... We provide the systems for billing, maintenance and knowledge about the vehicle. We try to build a lot of intelligence around the pricing so that the buyer can get maximum value. Any brand can be sold on the platform. The idea is to raise the value of it. Right now, we don't want to monetise it but we may look at that option later on.

Shenu Agarwal: Scrapping policy is welcome for us. Will we participate? What would be the business model?  It is still in a nascent stage. And, we are not in a hurry. There is still time to ponder.

Shenu Agarwal: The CV industry is now on a very positive momentum. This may be partially due to base effect. But the general momentum is very positive. This positive cycle will be longest this time around. That is my feeling.