Volvo AB (VOLVB) plans to sell cheaper trucks and add capacity in India as it seeks to win market share from Ashok Leyland Ltd. (AL) and Mahindra & Mahindra Ltd. (MM)
Volvo, which began assembly in India 14 years ago, together with partner Eicher Motors Ltd. (EIM), aims to be among the nation’s top two truck manufacturers, Chief Executive Officer Olof Persson said, without giving a time frame. It will invest 20 billion rupees ($364 million) to add capacity and sell products targeting local markets and spend 18 billion rupees to expand venture Volvo Eicher Commercial Vehicles Ltd., he said.
The “value” Volvo model will help the maker of UD and Mack truck brands win customers in Asia’s third-largest economy where the cost of freight carriers is 51 percent lower than Volvo’s least-expensive offering. The company plans to triple production to tap demand as India prepares to spend $2.3 billion on highways to improve infrastructure ranked worse than Guatemala by the World Economic Forum.
“All the fundamentals are in place for growth in India,” Gothenburg, Sweden-based Persson, 48, said in Bangalore. “We want to grow and we want to grow faster than the competition.”
Volvo, along with Volvo Eicher and its bus unit, sold 48,298 units in India in the year ended March 31 making it the nation’s fourth-largest commercial vehicle maker. Ashok Leyland delivered 89,109 vehicles, Mahindra sold 127,029 trucks and buses. Tata Motors Ltd. (TATA), which controls 58 percent of the market, reported sales of 473,178 units, according to Society of Indian Automobile Manufacturers data.
Ashok Leyland’s share of the market dropped to 11 percent in the year to March 31, from 12.4 percent a year earlier. Volvo, along with Eicher, added 0.2 percentage points to 6 percent.
Ashok Leyland’s shares, which have risen 13 percent this year, declined 2.1 percent to 25.70 rupees at close in Mumbai. Eicher rose 0.8 percent to 2,355.20 rupees, while volumes surged almost 12-fold compared with the six-month daily average. Tata Motors (TTMT) added 0.8 percent to 266.10 rupees.
“The competitive intensity is likely to increase over the next couple of years,” said Joseph George, an analyst at IIFL Ltd. in Mumbai, who recommends reducing Ashok Leyland shares. “We’ve seen discounts rising as a result of competitive pressures.”
Volvo, the world’s second-largest truckmaker, plans to make the “value truck” at its plant in Bangalore. It will also produce the vehicle in Thailand and China, Persson said, without disclosing the price.
Volvo’s 49-ton truck starts at 6.5 million rupees, said Sunil Arolkar, a sales representative at the company’s Mumbai office. Tata Motors sells similar carriers for 3.17 million rupees, according to MG Motors, a Tata dealer in northern Haryana state.
“For the last 14 years, Volvo has been extremely slow to react to the Indian market,” said S.P. Singh, the senior fellow at the Indian Foundation of Transport Research & Training, or IFTRT, in New Delhi. “Differentiation today is price.”
Daimler AG, the world’s biggest truckmaker, this year opened a factory to build carriers under the BharatBenz brand ranging from 6 tons to 49 tons. Daimler will unveil 17 models by 2014, and the factory will be able to initially produce 36,000 trucks a year, Daimler said in April.
Sales of medium and heavy trucks, classified as 7.5 tons to above 49 tons, have declined 18 percent between April and October as slowing economic growth and low truck rentals damped demand for vehicles used to haul produce and goods, according to IFTRT.
Sales in the category may double to 500,000 vehicles by 2020 from 270,000 last year as growth accelerates, according to IHS Automotive. India’s economy will quicken to 6 percent next year from 4.9 percent in 2012, the International Monetary Fund said last month.
“The low truck density represents the large opportunity for manufacturers,” said Deepesh Rathore, the New Delhi-based managing director of IHS Automotive. “India is among the fastest growing truck markets in the world.”
Rathore expects demand to move to bigger and higher capacity trucks as highways improve. Traffic snarls cost India’s $1.8 trillion economy about $5.5 billion annually, according to the Indian Institute of Management in Kolkata and Transport Corp. of India.
Trucks take 65 hours to travel the 1,374 kilometers (854 miles) between Mumbai and New Delhi because of traffic and stoppages at toll plazas and state borders.
India accounted for 2 percent of Volvo’s group sales last year, according to the company’s annual report. In comparison Brazil contributed 8 percent.
“India is still a small market for trucks,” said Umesh Karne, an analyst with Brics Securities Ltd. in Mumbai. “However it will become a big market and it’s quite possible that Volvo will be able to get a good market share.”
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