Volvo AB, the world's second-largest truck maker is betting on India to be one of its key production hub, as its Indian Joint Venture with Eicher MotorsBSE 0.49 %, VE Commercial Vehicle (VECV) takes a bigger role as a supplier of engines to Europe and new generation trucks and buses under works to the other emerging markets eventually.
The engine plant at PithampurBSE 4.77 %plant, on the outskirts of Indore in Madhya Pradesh, which was inaugurated on Wednesday will ship almost 30,000 units of medium duty 5 litre to 8 litre Euro VI engines to Europe over the next few years, besides serving Euro III, Euro IV and Euro V engine requirement of Volvo AB in other emerging markets, said Bertil Thoren, representative of Volvo AB on the VE Commercial Vehicle Board.
Set up with an investment of Rs 375 crore, the engine plant will have an initial capacity of 25,000, which will be scaled up to 1,00,000 units in the next few years with an additional investment of Rs 125 crore. VE Commercial Vehicle sees an export of 30% to 50% engines from the Pithampur plant.
Vinod Aggrawal, CEO, VE Commercial Vehicles said, "India will play a larger role of engine exports hub for Volvo. The engine exports may not boost the top line significantly but it will definitely boost our margins. With these new engines and the new generation trucks which are under development, it opens up potential for exports to Indonesia, South East Asia and Middle East."
ET learns VECV is developing country specific products to make inroads into other emerging and developed markets of SEA and Africa.
Volvo already has the dealership and service network in some of these markets, VECV will sell Eicher branded Trucks and Buses through Volvo's dealerships.
"Both these brands will play a complementary role instead of competing against each other," added Thoren.
Formed in July of 2008, VECV, a 50:50 JV is already inching towards a billion dollars in turnover (Rs 5442 crore in 2012) and is dishing out healthy profits to both the joint venture partners. The company's volumes have doubled, PAT has more than tripled (Rs 330 crore-2012) in the last four years. VECV has secured a strong number three position in India with a market share of 12-14%.
Having invested Rs 1,300 crore, the company has now lined up an additional investment of Rs 1200 crore over the next two years to meet the requirement of ongoing projects like engine plant, bus body plant, new products etc and also for capacity expansion beyond 5500 units/month to prepare for 2015 requirements.
Thoren says VECV's position in the light to medium duty truck space it enjoys a 30% market share and a 5% market share in the heavy duty truck space. With the new range of products of coming in, the company is aiming to triple its market share to 15% in the next five years.
"We have the potential to double our volumes in the next five years. India plays a very important role for Volvo in the future. North America, Japan, France, China are all very big for Volvo, and I think India has a potential to be among the top 4,5 or 6 in the coming four years,(from the current 12-14 position)" Thoren added.
Experts say the diversification of geographies can help VECV in de-risking itself from specific country volatility. The exports will not only bring in incremental volumes but will boost the margins too.
While the sales in the first six months of 2013 have declined by 10%-11%, the company says it is much lower than the market de-growth of 20%-25%. Aggrawal expects the second half to be much better than the first half.