Ashok Leyland plans to redesign LCVs to target e-commerce sector
Within the light commercial vehicles (LCV) segment, Ashok Leyland currently lags Mahindra and Mahindra and Tata Motors by over 100,000 units in sales
Mumbai: The Hinduja Group flagship, Chennai-based Ashok Leyland, plans to redesign its light commercial vehicles (LCVs) to serve the fast-growing Indian e-commerce industry’s last-mile delivery needs, according to a senior company executive.
LCVs are defined by industry body Society of Indian Automobile Manufacturers (Siam) as vehicles having a maximum mass under 7.5 tonnes. The move puts India’s second-largest truck maker, with a no-discount policy for this segment, in direct competition with Volvo Eicher Commercial Vehicles Ltd (VECV), among others.
Online retailers, who outsource transportation to third-party logistics providers, require LCVs to have a wider and taller loading area (at the rear of the vehicle) to accommodate larger, but not necessarily heavier, cartons.
“One of the areas we are working on is to make our rear body area wider and taller to accommodate larger volumes of goods which are primarily sold by e-commerce companies, meaning white goods which are larger in size but not proportionately heavy,” Nitin Seth, president of the LCV division at Ashok Leyland, said in an interview last week.
The effective working of the hub-and-spoke model (a pared-down network in which smaller centres are connected to large distribution stations) post the implementation of the goods and services tax (GST) prompted the move as well.
“LCVs are the biggest beneficiary of GST. We saw much higher growth in the second half of the fiscal, a good part of which came from GST,” Seth said.
“The hub-and-spoke model, which was the intention of the GST, is coming into play very, very effectively in the market as the truck can carry loads from the hub more effectively and the LCV serves the spokes (in last-mile deliveries),” Seth added.
For the 2018 fiscal, Ashok Leyland’s LCV sales (of goods carriers) grew 34.07% to 41,156 units, according to Siam data. Within this segment, the company falls behind Mahindra and Mahindra Ltd and Tata Motors Ltd by over a lakh units in sales.
Seth did not spell out the quantum of this growth that could be attributed to the e-commerce industry because the vehicles are not directly bought from original equipment makers, though he added that the market was seeing good traction in “purchases of hub-and spoke-models with higher capacity”.
To be sure, the company already caters to the e-commerce industry with the Dost+, launched in September last year with a higher tonnage and a larger and wider loading area.
Analysts say there is scope for growth within the LCV segment, especially when catering to the e-commerce industry.
“E-commerce, education, hospitals and hospitality are driving LCV sales. Ashok Leyland should bank on these and keep growing its LCV division at 25-30% for the next two to three years to achieve significant volumes,” said Shaukat Ali, an analyst with Quantum Securities Ltd.
Though the LCV segment is getting crowded, there is scope for growth with product differentiation because it is not mature yet, Ali added.
Competition to cater to e-tailers is set to heat up. VECV is set to increase its thrust on the e-commerce industry.
“This is a segment which no company worth its salt can afford to overlook. We are absolutely focused and clearly want to have a customer preference being given,” said Shyam Maller, senior vice-president of sales and marketing at VECV.
Late last year, VECV created close to 10 variants to cater to e-commerce transportation based on a combination of three cargo body lengths and as many payload-carrying capacities.
Ashok Leyland also aims to grow its LCV numbers by exporting to “very developed markets such as the Gulf and Russia” during the next two fiscal years with the development of left-hand drive vehicles.
“The broader strategy is to introduce more products across categories and expand the distribution network as we address only 38% of the LCV market,” Seth said.
The target is not to remain a small player, he added.
More variants in the Dost range are to be expected every quarter with Rs400 crore allocated to the LCV division late last year.
Analysts say the emphasis on diversification between divisions and markets will help Ashok Leyland beat the cyclicality and stiff competition in the domestic medium and heavy commercial vehicles market.
Editor's Picks »
- Spot power prices hot, Indian Energy Exchange’s shares cold
- Cement prices in central India buck the trend in October
- IndusInd Bank’s Q2 results show a peek into the IL&FS booby trap
- So which liquid, money market funds did investors flee from in September?
- Dr Reddy’s: API unit sale should lower costs, may not be a windfall