Contents

Industry overview
Section
1.0 Industry overview 10
- Introduction 10
- Industry classification 11
- Industry structure 15
- Industry characteristics 16
- Industry performance 17

Charts
1.1 Commercial vehicles: Industry classification 11
1.2 CVs: Evolution 16

Figures
1.1 Distribution of sales, population and BTKM capacity 12
1.2 Trend in demand for commercial vehicles 18
1.3 Demand for CVs versus turnover of the CV industry 18
1.4 Trend in raw material cost of the CV industry 19
1.5 Trend in employee cost of the CV industry 20
1.6 Comparison of employee costs of CV companies 20
1.7 Trend in working capital requirement the of CV industry 21
1.8 Trend in closing stocks of CVs 21
1.9 Trend in changes in stocks of CVs 21
1.10 Trend in receivables 22
1.11 Trend in operating profit and OPM 22
1.12 Sales revenue versus OPM 23
1.13 Trend in net profit and NPM 23
1.14 Trend in the gearing of the CV industry 24
1.15 Trend in ROCE 24

Tables
1.1 CVs: Industry overview 10
1.2 CVs: Physical aggregates 10
1.3a CVs: Share of passenger and goods vehicles 13
1.3b CVs: Share by product segments 13
1.4a Goods vehicles: Classification 14
1.4b Passenger vehicles: Classification 14

CRIS INFAC COMMERCIAL VEHICLES ANNUAL REVIEW: SEPTEMBER 2002, 164 PAGES i
 Industry overview

In 2001-02, the size of the commercial vehicle industry has been

estimated at around Rs 82.5 billion, which is around 16.5 per cent
of the total size of Indian automobile industry. As per the Motor
Vehicles Act, 1988, commercial vehicles are broadly classified, based
on the gross vehicle weight (GVW), into product segments, including
light commercial vehicles (up to 7.5 tonnes), medium commercial
vehicles (7.5-12 tonnes) and heavy commercial vehicles (over 12
tonnes). The Society of Indian Automobile Manufacturers (SIAM) further
classifies LCVs, MCVs and HCVs into various groups (product categories).

The competition in the industry is moderate due to the presence

of limited number of players. At present, there are three players
in the HCV segment and six players in the LCV segment. Telco
is the overall market leader and accounts for 61.2 per cent in
the total revenues of the commercial vehicle industry. However,
different players dominate different product categories within each
product segment. The market segments of commercial vehicles include
small truck operators, fleet operators, corporates, state transport undertakings,
government bodies and other institutional buyers. The small truck
operators (own up to 5 trucks), who account for 77 per cent of
the truck population, dominate the transportation sector. The fleet
operators (own up to 20 trucks) account for the 6 per cent of
the truck population.

The chapter describes the key characteristics of the commercial vehicle

industry including capital intensiveness, strong linkage with economic
growth, volatile demand and profitability. The chapter also gives
a review of the industry performance on parameters including demand,
sales, costs, working capital changes, profits and margins, gearing
and ROCE.

CRIS INFAC COMMERCIAL VEHICLES ANNUAL REVIEW: SEPTEMBER 2002, 164 PAGES 9
 Industry overview
1.0

Introduction
In 2001-02, the size of the commercial vehicles industry was estimated at around Rs 82.5 billion,
which accounts for around 16.5 per cent of the total size of Indian automobile industry. Growth in
this industry is closely linked to the growth in agricultural and industrial production, and the road
and rail network. In the index of industrial production, the automobile industry has a weightage of
2.2 per cent, which includes the weightage of the commercial vehicles industry at 1.37 per cent.

CVs: Industry overview Table 1.1

Commercial vehicles
Size of the industry Rs billion 82.5
1
Share in the automobile industry per cent 16.50
2
Demand million vehicles 143,715
3
per cent -0.12

000000000000000000000000000000000000000000000000000000000000000000000000000
Trend growth in demand
Market share of leader in demand per cent 62.6
Medium and heavy commercial vehicles
Size Rs billion 61.8
2
Demand million vehicles 88,656

000000000000000000000000000000000000000000000000000000000000000000000000000
Trend growth in demand
3

Market share of leader in demand

per cent
per cent
-0.64
55.4
Light commercial vehicles
Size Rs billion 20.7
2
Demand million vehicles 55,059
3
Trend growth in demand per cent 0.67
Market share of leader in demand per cent 67.0
1
For 2000-01
2
Includes domestic sales and exports
3
For the 1997-98 to 2001-02 period
Note
All figures are for 2001-02.
Source: CRIS INFAC

CVs: Physical aggregates Table 1.2

1997-98 1998-99 1999-2000 2000-01 2001-02
Production nos 165,114 135,733 173,219 152,054 146,205
Estimated capacity utilisation per cent 32.7 25.7 31.1 26.8 25.7
Domestic sales nos 136,803 130,101 160,914 136,634 132,287
Exports nos 13,069 9,928 9,864 13,779 11,428
Increase/(decrease) in stocks nos 15,242 -4,296 2,441 1,641 2,490
Source: SIAM, CRIS INFAC

10 CRIS INFAC COMMERCIAL VEHICLES ANNUAL REVIEW: SEPTEMBER 2002, 164 PAGES
Industry classification
Based on gross vehicle weight (GVW), commercial vehicles are classified into vehicle segments. In
general, vehicle segments include light commercial vehicles (LCVs), medium commercial vehicles (MCVs)
and heavy commercial vehicles (HCVs).

According to the Motor Vehicles Act 1988, LCVs are vehicles with GVW up to 7.5 tonnes; MCVs
are vehicles with GVW in the range of 7.5-12 tonnes; and HCVs are vehicles with GVW more than
12 tonnes.

Commercial vehicles: Industry classification Chart 1.1

Automotive industry

Automobile
sectors
Utility Commercial
Cars Tractor Two wheelers
vehicles vehicles

Product segments
& categories
LCVs MCVs HCVs
(less than 7 tonnes) (7.5 tonnes-12 tonnes) (more than 12 tonnes)

Applications

Passenger Goods
vehicles vehicles

Market segments

Institution Retail

- STUs - Truck operators

- Corporate
- Government bodies
- Transport companies

Compiled by CRIS INFAC

CRIS INFAC COMMERCIAL VEHICLES ANNUAL REVIEW: SEPTEMBER 2002, 164 PAGES 11
 Distribution of sales, population and BTKM capacity Figure 1.1

Distribution of sales: 1995-96 Distribution of sales: 2001-02

(per cent) (per cent)

LCVs
LCVs
38
41

HCVs
HCVs 55
58

MCVs MCVs
1 7

Distribution of population: 1995-96 Distribution of population: 2001-02

(per cent) (per cent)

LCVs LCVs
32 32

MCVs
HCVs HCVs MCVs
1
67 65 3

Distribution of BTKM capacity (Goods vehicles): 1995-96 Distribution of BTKM capacity (Goods vehicles): 2001-02

(per cent) (per cent)

LCVs LCVs
13 13
MCVs MCVs
0 2

HCVs
85
HCVs
87

Compiled by CRIS INFAC

12 CRIS INFAC COMMERCIAL VEHICLES ANNUAL REVIEW: SEPTEMBER 2002, 164 PAGES
CVs: Share of passenger and goods vehicles Table 1.3a
(per cent) Share
Industry1 Leader2
Goods vehicles 78.8 79.5
Light commercial vehicles 31.1 71.6
Medium commercial vehicles 26.2 73.8
00000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000
Heavy commercial vehicles
Passenger vehicles
21.5
21.2
97.7
54.4
Light commercial vehicles 9.3 53.5
Medium commercial vehicles 0.1 100.0
Heavy commercial vehicles 11.8 54.7
Total 100.0 74.1
1
Share in the total sales volume of commercial vehicles
2
Share of the leader in the sales volume of product segments
Note
All figures are based on the sales (domestic, export) of commercial vehicle producers for the
April-May 2002 period.
Source: SIAM

CVs: Share by product segments Table 1.3b

(per cent) Share
Industry1 Leader2
Light commercial vehicles 40.4 67.5

000000000000000000000000000000000000000000000000000000000000000000000000000000000000
Goods vehicles
Passenger vehicles
31.1
9.3
71.6
53.5
Medium commercial vehicles 26.3 73.9

000000000000000000000000000000000000000000000000000000000000000000000000000000000000
Goods vehicles 26.2 73.8
Passenger vehicles 0.1 100.0
Heavy commercial vehicle 33.4 82.5
Goods vehicles 21.5 97.7
Passenger vehicles 11.8 54.7
Total commercial vehicles 100.0 74.1
1
Share in the total sales volume of commercial vehicles
2
Share of the leader in the sales volume of product segments
Note
All figures are based on the sales (domestic, export) of commercial vehicle producers
for the April-May 2002 period.
Source: SIAM

The Society of Indian Automobile Manufacturers (SIAM) further classifies LCVs, MCVs and HCVs into
various groups. In the case of passenger vehicles, the product segments are grouped based on the
GVW and number of seats; whereas, in the case of goods vehicles, the product segments are grouped
based on their GVW. The goods carrying HCVs are further divided into rigid vehicles and haulage
tractors. The rigid vehicles have single unified body. The haulage tractors consist of two parts, a tractor
and a trailer. In general, these vehicles are used for the transportation of larger freights. Trailers with
different loading capacities can be attached to the haulage tractor, depending upon the availability
and type of loads.

CRIS INFAC COMMERCIAL VEHICLES ANNUAL REVIEW: SEPTEMBER 2002, 164 PAGES 13
Goods vehicles: Classification Table 1.4a
Segments and categories Share (per cent)
Industry1 Leader2
Light commercial vehicles 39.5 71.6
up to 3.5 tonnes 13.4 81.6
> 3.5 tonnes but < 5 tonnes 0.6 94.1
0000000000000000000000000000000000000000000000000000000000000000000000000000000
> 5 tonnes but < 7.5 tonnes
Medium commercial vehicles
25.5
33.2
65.9
73.8

0000000000000000000000000000000000000000000000000000000000000000000000000000000
> 7.5 tonnes but < 12 tonnes
> 12 tonnes but < 16.2 tonnes
7.3
25.9
38.0
83.8
Heavy commercial vehicles 27.3 97.7
Rigid vehicles 25.0 100.0
> 16.2 tonnes but < 25 tonnes 9.4 100.0
> 25 tonnes 15.6 100.0
Haulage tractors 2.4 73.5
> 16.2 tonnes but < 26.4 tonnes 0.5 100.0
> 26.4 tonnes but < 35.2 tonnes 1.8 65.4
> 35.2 tonnes 0.0 100.0
Total 100.0 79.5
GVW: Gross vehicle weight; HCV: Heavy commercial vehicle; LCV: Light
commercial vehicle; MCV: Medium commercial vehicle
1
Share in the total sales volume of commercial vehicles
2
Share of the leader in the sales volume of categories
Note
The categories are based on the GVW of LCVs, MCVs and HCVs.
Source: SIAM

Passenger vehicles: Classification Table 1.4b

1
Segments and categories Seating capacity Share (per cent)
Industry2 Leader3
Light commercial vehicles 43.7 53.5
up to 5 tonnes more than 13 22.7 47.9
> 5 tonnes, but < 7.5 tonnes less than 13 0.0 -

000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000
> 5 tonnes, but < 7.5 tonnes
Medium commercial vehicles
more than 13 21.1
0.5
59.6
100.0
> 7.5 tonnes, but < 12 tonnes more than 9, but less than 13 0.0 -

000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000
> 7.5 tonnes, but < 12 tonnes
> 12 tonnes, but < 16.2 tonnes
more than 13
more than 9, but less than 13
0.5
0.0
100.0
-
Heavy commercial vehicles 55.8 54.7
> 12 tonnes, but < 16.2 tonnes more than 13 55.8 54.7
> 16.2 tonnes more than 13 0.0 -
Total 100.0 54.4
GVW: Gross vehicle weight; HCV: Heavy commercial vehicle; LCV: Light commercial
vehicle; MCV: Medium commercial vehicle
1
Including driver
2
Share in the total sales volume of commercial vehicles
3
Share of the leader in the sales volume of categories
Note
The categories are based on GVW and seating capacity of LCVs, MCVs and HCVs.
Source: SIAM

14 CRIS INFAC COMMERCIAL VEHICLES ANNUAL REVIEW: SEPTEMBER 2002, 164 PAGES
Industry structure
Competition in the industry is moderate, in spite of the oversupply situation, due to the limited number
of players. At present, there are three players in the HCV segment (Telco, Ashok Leyland and Volvo),
and six players in the LCV segment (Telco, Ashok Leyland, Swaraj Mazda, Eicher Motors, Mahindra
& Mahindra, and Bajaj Tempo). Some LCV producers are expected to diversify into the HCV segment,
as the demand for higher tonnage vehicles is expected to increase at higher growth rates. For instance,
Eicher Motors is planning to start manufacturing HCVs.

Telco is the market leader in the product segments of LCVs and M&HCVs. However, different players
dominate different product categories within each product segment. In the goods carrying LCVs segment,
Mahindra & Mahindra is the leader in the up to 5 tonnes category, whereas, Telco is the leader
in the 5 tonnes to 7.5 tonnes category. In the MCVs segment, Eicher Motors dominates the 7.5 tonnes
to 12 tonnes category and Telco leads the category of up to 16.2 tonnes vehicles. In the rigid HCVs
segment, Telco is the leader. In the haulage tractor segment, Ashok Leyland and Telco are dominant
in the specific tonnage categories. Ashok Leyland has presence in the higher tonnage tractors category
(up to 49 tonnes vehicles), whereas, Telco has presence in the relatively lower tonnage tractors (up
to 40 tonnes vehicles).

The market segments of commercial vehicles include small truck operators, fleet operators, corporates,
state transport undertakings, government bodies and other institutional buyers. The small truck operators
(own up to 5 trucks) dominate the transportation sector. Single truck operators own around 77 per
cent of the truck population. 6 per cent of the truck population is owned by transporters with a
fleet of more than 20 trucks, and are called fleet operators. The population of buses held by state
road transport undertakings is estimated at 31 per cent of total estimated population of buses on
road.

CRIS INFAC COMMERCIAL VEHICLES ANNUAL REVIEW: SEPTEMBER 2002, 164 PAGES 15
CVs: Evolution Chart 1.2
1865 Introduction of streamers (steam buses) for public transportation in india
1928 Assembly of CKD trucks by the subsidiary of American General Motors in Bombay
1948 Incorporation of Ashok Motors Ltd. as a subsidiary of British Leyland International
Holdings Ltd.
1948 Ashok Motors started the assembly of Austin trucks
1950 Assembly of Leyland trucks by Ashok Motors Ltd.
1953 Government asked the assembling companies to close their operations in 3 years
1953 The Government's approval for automobile manufacturing to 7 companies including
Ashok Motors, Premier Auto, Mahindra & Mahindra, Standard Motors and Telco
1954 Telco commenced manufacturing of commercial vehicles
1955 Ashok Motors was renamed as Ashok Leyland Ltd.
1958 Incorporation of Bajaj Tempo Ltd.
1958 Ashok Leyland started manufacturing commercial vehicles
1965 SMPIL started the manufacturing of light commercial vehicles
1966-67 Introduction of commercial vehicles by Bajaj Tempo
Early 1980 Liberalisation of the automobile industry
1986 Introduction of Isuzu trucks by Hindustan Motors in collaboration with Isuzu, Japan.
ALL entered into collaboration with Leyland Vehicles Ltd for the development of buses
1982-83 Government approved 4 Indo-Japanese ventures for light commercial vehicles,
namely DCM-Toyota, Eicher-Mitsubishi, Swaraj-Mazda, and Allwyn-Nissan
1983-84 Bajaj Tempo entered into collaborration with Daimler Benz for LCVs
1987 Hinduja Group acquired management control in Ashok Leyland
1991 Introduction of emission norms for petrol vehicles
1992 Introduction of emission norms for diesel vehicles
1996 Tightening of emission norms
1996-97 Highest ever sales of commercial vehicles
2000 Introduction of India 2000 (Euro I equivalent) emission norms
2000 Introduction of Bharat Stage II (Euro II equivalent) emission norms in the NCR
2002 Approval of Auto Policy 2002 by the cabinet committee of Central Government
ALL: Ashok Leyland Limited; CKD: Completely knocked down; SMPIL: Standard Motor Products of India Ltd.;
Telco: Tata Engineering and Locomotive Company
Source: SIAM

Industry characteristics
Capital intensive nature
The average cost to set-up a new plant for the manufacture of commercial vehicles, with a capacity
of 100,000 vehicles, is estimated at around Rs 20-25 billion. Given the high capital intensity of the
industry, the entry barriers in the sector are high. The high capital cost to set-up a plant, results
in high capital servicing costs, and hence, low net margins. As a result, capacity utilisation should
be high, in order to reduce fixed costs per unit. A new entrant would also need to develop sales
and service network across the country.

16 CRIS INFAC COMMERCIAL VEHICLES ANNUAL REVIEW: SEPTEMBER 2002, 164 PAGES
Strong linkage with economic growth
Transportation activity is significantly influenced by industrial and agricultural production. The correlation
of the freight movement with the aggregate GDP (industrial and agricultural) was significantly high
at 0.9933 times during the 1970-71 to 2001-02 period. During the 1991-92 to 2001-02 period, the
total freight movement (BTKM) increased at the trend growth rate of 4.8 per cent, in line with the
trend growth rate of 4.7 per cent in the aggregate GDP (industrial and agricultural).

Volatile demand
The growth in demand for commercial vehicles is significantly volatile in nature. During the 1970-
71 to 2001-02 period, the annual growth in demand for commercial vehicles has varied from negative
36 per cent to 43 per cent. (The trend growth rate in demand for commercial vehicles during this
period is estimated at 5.7 per cent per annum.) The volatility in demand growth for commercial vehicles
is attributed to very high sensitivity of demand for commercial vehicles with industrial production and
economic growth. Given that the demand is volatile in nature, the working capital management is
critical for commercial vehicle producers.

Volatile profits and low margins of players

Profits of players are driven by the offtake of commercial vehicles. As profits are sensitive to offtake,
small changes in sales volumes would result in significant changes in profits of commercial vehicle
producers. Players with high financial leverage are vulnerable to volatility in demand, due to high
capital costs.

Industry performance
Demand
During the 1991-92 to 1996-97 period, sales of commercial vehicles increased at the trend growth
of 14.5 per cent. In 1996-97, sales of commercial vehicles were at a peak of 0.24 million vehicles.
The high growth in sales of commercial vehicles was driven by the significant growth in the sales
of goods vehicles, including medium and heavy commercial vehicles (M&HCVs) and light commercial
vehicles (LCVs). Sales of goods vehicles increased due to the high level of growth in industrial and
agricultural production. During the 1997-98 to 2000-01 period, the trend growth rate in sales of commercial
vehicles declined to 2.1 per cent, mainly due to the slow-down in the growth of M&HCV sales.

In 2001-02, sales of commercial vehicles declined by 4.5 per cent, to 0.14 million vehicles. The demand
for commercial vehicles declined, as the significant decline in sales of LCVs and M&HCVs (passenger
vehicles) was partly offset by the increase in sales of M&HCVs (goods vehicles). The increase in
sales of M&HCVs (goods vehicles) was attributed to the increase in growth of aggregate GDP (industrial
and agricultural) from 2.6 per cent in 2000-01 to 4.7 per cent in 2001-02. However, sales of M&HCVs
(passenger vehicles) declined significantly, due to the significant decline in purchases by state transport
undertakings.

CRIS INFAC COMMERCIAL VEHICLES ANNUAL REVIEW: SEPTEMBER 2002, 164 PAGES 17
Trend in demand for commercial vehicles Figure 1.2
Demand
('000 nos.)
140

120

100

80

60

40

20

0
1990-91 1992-93 1994-95 1996-97 1998-99 2000-01

M&HCV demand (Goods vehicles) M&HCV demand (Passenger vehicles)

LCV demand

Source: CRIS INFAC

Sales
The growth in the revenues of commercial vehicle manufacturers is largely driven by the growth in
demand for commercial vehicles. During the 1991-92 to 1996-97 period, the revenues of commercial
vehicle industry increased at a high trend growth rate of 23.7 per cent, mainly due to high growth
in demand for commercial vehicles. Further, average price realisation increased, due to the gradual
increase in the share of higher tonnage vehicles in total sales, which has increased since 1993-94.
Subsequently, in 1997-98 and 1998-99, the revenues of the commercial vehicles industry declined significantly,
due to a significant decline in demand. The decline in demand for commercial vehicles was partly
offset by the increase in average price realisations due to the increase in the share of higher tonnage
vehicles in total sales. In 1999-2000, the revenues of commercial vehicles industry increased, due to
a significant increase in demand. However, the demand recovery in 1999-2000 was not sustained, and
in 2000-01, revenues in the commercial vehicles industry declined.

In 2001-02, the net sales of Telco increased by 10.6 per cent, due to an increase in sales of M&HCVs
(goods vehicles), higher tonnage vehicles (MAVs and tractor trailers), which also resulted in an increase
in average price realisation. Net sales of Ashok Leyland increased marginally, as the increase in sales
of M&HCVs (goods vehicles) was largely offset by a significant decline in sales of buses. In the case
of LCV producers, a significant decline of 12 per cent in the sales volumes of LCVs was partly offset
by an increase in the sales of higher tonnage LCVs.

Demand for CVs versus turnover of the

CV industry Figure 1.3
CV demand Aggregate turnover
('000 nos.) (Rs billion)

255 110
235 100
215 90
195 80
175 70

155 60
135 50
115 40
95 30
75 20
1993-94 1994-95 1995-96 1996-97 1997-98 1998-99 1999-2000 2000-01

CV demand Aggregate turnover of CV industry

Source: CRIS INFAC

18 CRIS INFAC COMMERCIAL VEHICLES ANNUAL REVIEW: SEPTEMBER 2002, 164 PAGES
Costs
Raw material cost
During the 1990-91 to 2000-01 period, total raw material cost, as a percentage of net sales, in the
commercial vehicles industry varied in the range of 65.6-74.8 per cent. The raw material cost of commercial
vehicles manufacturers depends upon their product mix (LCVs, M&HCVs), tonnage category of vehicle
produced and the degree of outsourcing. The main raw materials used in the manufacture of commercial
vehicles are components, steel and steel products, and tyres and tubes, accounting for around 78-
83 per cent, 10-12 per cent, and 7-10 per cent respectively of the total raw material cost of the
commercial vehicles industry.

The total raw material cost, as a percentage of net sales, increased from 65.5 per cent in 1993-
94 to 70.9 per cent in 1996-97, due to the increase in prices of steel and components. The increase
in prices of components during the 1993-94 to 1996-97 period, was attributed to the increase in
demand for commercial vehicles. During the 1997-98 to 1998-99 period, the raw material cost to net
sales declined, mainly due to the decline in the prices of components. The prices of components
declined due to the decline in offtake by the commercial vehicles industry, as a result of the significant
decline in demand for commercial vehicles. Subsequently, the raw material cost, as a percentage of
net sales, increased from 65.6 per cent in 1998-99 to 71.4 per cent in 2000-01. The raw material
cost increased due to the lower growth in sales, as compared with that in the total raw material
cost.

Trend in raw material cost of the CV industry Figure 1.4

Raw material cost Raw material cost
(Rs billion) to net sales
(per cent)
120 76

74
100
72
80
70

60 68

66
40
64
20
62

0 60
1990-91 1992-93 1994-95 1996-97 1998-99 2000-01

Raw material cost Raw material cost to net sales

Source: CRIS INFAC

Employee cost
During the 1990-91 to 2000-01 period, employee cost, as percentage net sales, of commercial vehicle
manufacturers varied in the range of 8.5-11.9 per cent. The employee cost of the commercial vehicles
industry is amongst the highest, due to the labour intensive nature of assembly line operations. During
the 1998-99 to 2000-01 period, the average employee cost to net sales was lowest for Eicher Motors
(at around 5 per cent) and highest for Bajaj Tempo (at around 15.2 per cent). Commercial vehicle
manufacturers, like Telco (since 1998-99) and Ashok Leyland (in 2000-01) have introduced voluntary
retirement schemes, in order to reduce the employee costs.

CRIS INFAC COMMERCIAL VEHICLES ANNUAL REVIEW: SEPTEMBER 2002, 164 PAGES 19
Trend in employee cost of the CV industry Figure 1.5
Employee cost
to net sales
(per cent)
14
12.1 11.9
12 11.0 10.7 10.6
10.3 10.1 10.2
10 9.3 9.0
8.5
8

0
1990-91 1992-93 1994-95 1996-97 1998-99 2000-01

Source: CRIS INFAC

Comparison of employee costs of CV companies Figure 1.6

(per cent)

16 15.2

14

11.4
12 10.6 10.5
10

8
5.4
6 5.0

0
BTL M&M ALL Telco SML EML

Employee cost to net sales (Average for the 1998-99 to 2000-01 period)

Source: CRIS INFAC

Working capital changes

The working capital requirement in the commercial vehicles industry is primarily driven by the demand
for commercial vehicles. Further, inventories and receivables have to be managed efficiently due to
the significant volatility and the seasonality of demand for commercial vehicles. The net working capital
of commercial vehicles manufacturers increased continuously from Rs 10.1 billion in 1990-91 to Rs
46.9 billion in 1996-97, in line with the growth in demand for commercial vehicles. Subsequently,
during the 1997-98 to 2000-01 period, net working capital declined, due to the slow-down in demand
for commercial vehicles. Further, the decline in net working capital was due to the rationalisation of
current assets, which has resulted in significant improvement in the turnover of current assets. The
gross working capital cycle of the commercial vehicles industry declined significantly from 191 days
in 1997-98 to 126 days in 2000-01.

20 CRIS INFAC COMMERCIAL VEHICLES ANNUAL REVIEW: SEPTEMBER 2002, 164 PAGES
Trend in working capital requirement of
the CV industry Figure 1.7
NWC (Rs billion) GWCC (days)

50 240

45
220
40

35 200

30
180
25
160
20

15 140
10
120
5

0 100
1990-91 1992-93 1994-95 1996-97 1998-99 2000-01

Net working capital (NWC) Gross working capital cycle (GWCC)

Source: CRIS INFAC

Trend in closing stocks of CVs Figure 1.8

NWC (Rs billion) GWCC (days)

50 240
45
220
40
35 200

30
180
25
160
20
15 140
10
120
5
0 100
1990-91 1992-93 1994-95 1996-97 1998-99 2000-01

Net working capital (NWC) Gross working capital cycle (GWCC)

Source: CRIS INFAC

Trend in changes in stocks of CVs Figure 1.9

Changes in stocks to
Changes in stocks
sales volume
('000 nos.)
(per cent)
6 4

4
2
2

0 0
1993-94 1994-95 1995-96 1996-97 1997-98 1998-99 1999-2000 2000-01 2001-02
-2
-2
-4

-6 -4

-8
-6
-10

-12 -8

Increase/(decrease) in stocks of CVs Changes in stocks to sales volume of CVs

Source: CRIS INFAC

CRIS INFAC COMMERCIAL VEHICLES ANNUAL REVIEW: SEPTEMBER 2002, 164 PAGES 21
Trend in receivables Figure 1.10
Receivables Receivables period
(Rs billion) (days)
60 100
90
50
80
70
40
60

30 50
40
20
30
20
10
10
0 0
1990-91 1992-93 1994-95 1996-97 1998-99 2000-01

Receivables Receivables period

Source: CRIS INFAC

Profits and margins

The profits of commercial vehicle producers are determined by the offtake of commercial vehicles.
During the 1990-91 to 1996-97 period, the operating and net profits of the commercial vehicles industry
increased continuously in line with growth in demand. Subsequently, in 1997-98 and 1998-99, operating
profits declined, due to the decline in demand and increase in raw material cost. In 1999-2000, operating
profits of the commercial vehicles industry increased, following significant increase in demand. However,
in 2000-01, operating profits declined significantly, as the recovery in demand was not sustained. Further,
higher increase in raw material cost affected the operating profits of the commercial vehicles industry.
In 2000-01, the commercial vehicles industry reported a net loss of Rs 2.8 billion, due to the significant
decline in demand and higher interest charges. (The net loss includes loss due to the car division
of Telco.)

The operating profit margins of the commercial vehicles industry increased from 11.6 per cent in
1992-93 to 16.2 per cent in 1996-97, due to higher increase in net sales, as compared with that
in the raw material cost. Subsequently, the operating profit margins declined continuously to 8.3 per
cent in 2000-01, due to higher increase in raw material costs and decline in net sales.

Trend in operating profit and OPM Figure 1.11

Operating profit OPM
(Rs billion) (per cent)
30 18

16
25
14

20 12

10
15
8

10 6

4
5
2

0 0
1990-91 1992-93 1994-95 1996-97 1998-99 2000-01

Operating profit Operating profit margin

Source: CRIS INFAC

22 CRIS INFAC COMMERCIAL VEHICLES ANNUAL REVIEW: SEPTEMBER 2002, 164 PAGES
Sales revenue versus OPM Figure 1.12
CV revenues OPM
(Rs billion) (per cent)
120 17

100 15

80 13

60 11

40 9

20 7

0 5
1993-94 1994-95 1995-96 1996-97 1997-98 1998-99 1999-2000 2000-01

CV revenues Operating profit margin

Source: CRIS INFAC

Trend in net profit and NPM Figure 1.13

Net profit NPM
(Rs billion) (per cent)
12 8

10
6
8
4
6

4 2

2
0
0
1990-91 1992-93 1994-95 1996-97 1998-99 2000-01 -2
-2

-4 -4
Net profit Net profit margin

Source: CRIS INFAC

Gearing
During the 1990-91 to 2000-01 period, the gearing (debt to equity ratio) of the commercial vehicles
industry has varied in the range of 0.61-1.81 times. In general, commercial vehicles producers should
maintain lower gearing, due to high operating leverage. The gearing of the commercial vehicles industry
declined from 1.81 times in end March 1993 to 0.61 times in end March 1997. During the 1992-
93 to 1996-97 period, commercial vehicles companies financed most capacity expansion projects largely
through internal accruals, due to high profits by the commercial vehicles producers during this period.
Subsequently, the gearing increased to 1.05 times in end March 1999, which was due to the lower
growth in internal accruals. In end March 2001, the gearing of the commercial vehicles industry was
low at 0.94 times. In end March 2000 and end March 2001, the gearing of the commercial vehicles
industry was low, as most players repaid their high cost long-term debt. Further, the rationalisation
of current assets by commercial vehicle producers resulted in a decline in the short-term debt.

CRIS INFAC COMMERCIAL VEHICLES ANNUAL REVIEW: SEPTEMBER 2002, 164 PAGES 23
Trend in the gearing of the CV industry Figure 1.14
Gearing (times)

1.9

1.7

1.5

1.3

1.1

0.9

0.7

0.5
Mar 1991 Mar 1992 Mar 1993 Mar 1994 Mar 1995 Mar 1996 Mar 1997 Mar 1998 Mar 1999 Mar 2000 Mar 2001

Source: CRIS INFAC

ROCE
Till 1996-97, the ROCE of the commercial vehicles industry was at higher levels, due to higher levels
of operating profits. During the 1990-91 to 1996-97 period, the ROCE varied in the range of around
14.7 per cent to 30.3 per cent. Subsequently, during the 1998-99 to 2000-01 period, ROCE varied
in the range of around 5.5 per cent to 14.8 per cent.

The ROCE of the commercial vehicles industry declined from the peak level of 30.3 per cent in
1995-96 to the lowest level of 5.5 per cent in 2000-01. The significant decline in ROCE has been
attributed to the decline in capacity utilisation and operating profit margins of the commercial vehicle
producers, during the 1997-98 to 2000-01 period.

Trend in ROCE Figure 1.15

(per cent)

35

30

25

20

15

10

0
1990-91 1992-93 1994-95 1996-97 1998-99 2000-01

Source: CRIS INFAC

24 CRIS INFAC COMMERCIAL VEHICLES ANNUAL REVIEW: SEPTEMBER 2002, 164 PAGES