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The Rediff Business Interview/S Sandilya

'Unlike families, professionals run businesses better'

If Subodh Bhargava was the high profile chairman of Eicher Group, the new incumbent S Sandilya is a quiet, composed man, who rose to the prime slot from 'within the system', thanks to sheer perseverance and hard work. Sandilya took over as chairman and group chief executive of Eicher Group recently, succeeding Bhargava who retired after 25 years in Eicher.

Sandilya's rise to the top underlines the trend of professionals running businesses hitherto managed by promoters themselves. His appointment has got the hitherto owner-run Eicher the label of a forward-looking corporate.

He is a commerce graduate from Madras University and an MBA from the Indian Institute of Management, Ahmedabad. He started his career in 1969 in the finance division of the DCM Group of Companies. He left DCM in 1970 to join Union Carbide and worked for five years with the multinational. In 1975, he joined Eicher and moved to Eicher Motors Limited, or EML, as its chief executive in 1987. He became the managing director of EML in 1994. He then moved to the Eicher Group headquarters in 1998.

He is an active member in the Confederation of Indian Industry, or CII. He is also an executive committee member of the Society of Indian Automobile Manufacturers and a governing council member of the Automobile Research Association of India.

Sandilya shared his plans for the Eicher Group and the industry with Neena Haridas.. Excerpts from the interview.

The multinationals are stepping up the challenge in the tractor segment, what with John Deere and New Holland entering the market. How is Eicher facing up to the competition?

We have been in this business for many decades now. Multinationals are not a threat to us or, for that matter, any Indian tractor manufacturer. Indian players have an edge over multinationals in terms of reach and network. Also the relationship that we (the Indian players) have built with our customers over the years puts us way ahead of our foreign rivals.

The yuppie urban crowd which is influenced by multinational brand names, does not buy tractors. Our core customer is the down-to-earth rural farmer who takes a decision based on the relationship that a company has with him.

Eicher, for instance, has a network of over 350 dealers. Moreover, we have an efficient after-sales service and spare parts availability throughout the country. For a new entrant, it is not easy to make inroads easily. Further, an international player even with a small import content would find it difficult to compete with Indian manufacturers on price (with the import duty structure being what it is) till their products are indigenised.

Despite its reach and brand equity, Eicher seems to be losing out to competition in terms of tractor sales.

It is not that we are losing out completely. It is just that there has been a segmentation shift in the market because of the changes in the excise structure.

There is one segment attracting excise duty of 8 per cent, while for the rest the duty has gone up from 13 per cent to16 per cent. We are the market leaders in the under-1800cc tractor segment, which is attracting a duty of 8 per cent. However, we have lost some share in this segment as more players started entering. But we are expanding our stable.

We have introduced a range of tractors in the 30-40 HP segment where we see great potential. We have also introduced new models -- the 485 and the 586 -- in the higher HP range. The latest is a 61 HP tractor in collaboration with Valtra.

We have also set up a new plant in Bhopal and are growing very well in the export segment. We are currently exporting only to the United States. We expect the exports volume to increase considerably because we have a wider range to offer.

Pride of possession drives the buying behaviour in the higher segment. The nature of soil also has a bearing. For example, in the South, soil is hard and needs high-powered tractors.

All segments are growing, but growth is higher in the medium to high power segments.

The farm productivity drive, coupled with emerging rural affluence, will result in the tractor market shifting towards higher-powered vehicles. Hence, we will also focus on high-powered tractors in the markets that demand them.

But more than pride and soil structure, is not price the bigger barrier to tractorisation?

The lower HP segment is price-sensitive, whereas the higher HP segment is not. Moreover, brand name and the associated prestige are important attributes for purchase too.

Coming to the commercial vehicle business, Eicher Motors seems to be way ahead of the industry and competition (unlike its tractor sales). Are these segments going to be your core business areas?

It is not that this is our core business and the other is not. In fact, all our businesses are equally important. In the light commercial vehicle, or LCV, segment we have been able to strike the right chord with the customer. We have been focussing on ready-to-use, custom-built vehicles like ambulances, soft-drink carriers, aluminum container vans for the courier segment, chicken/egg carriers for the poultry/hatchery segment, etc. Our Skyline school bus is a unique product and has been developed in association with the Indian Institute of Technology, Delhi, and the Institute of Road Transport Education.

Eicher Group, with a turnover of Rs 10 billion, has diversified businesses: it manufactures, markets and exports tractors (Eicher Tractors), commercial vehicles (EML), power motorcycles (Royal Enfield Motors)and auto-aggregates and components.

We look at the niche segments, find out customer needs and work with them in developing products that suit their requirements.

Moreover, our products are ready to use from day one. For example, the specialised vehicle for egg transportation is so designed that losses in transportation are minimal. Vehicle reliability and speed have brought down the transportation time for the poultry segment which transports broiler chickens overnight through long distances.

The advantages of fuel efficiency, high reliability, lower overall maintenance costs, etc, have not only nullified the higher initial costs of our vehicles, but given higher returns to the users. This has brought us a number of repeat buyers.

Where do you see the commercial vehicle industry heading?

The entire commercial vehicle industry is showing growth due to political stability, overall economic growth and a buoyant market. A growth rate of 8 to 10 per cent is sustainable. The rate of growth in the next 4 to 5 years will not be as buoyant as seen in the current year which is on a low base because of a significant drop in the previous year.

In cargo and passenger segments, growth is high. And state transport undertakings have not replaced their buses in the past few years where we see a big opportunity.

In 1997-98, the growth in heavy commercial vehicles, or HCVs, was 23 per cent. In the current year, it is 50 per cent and the growth over a two-year period is 16 per cent. The growth in LCV segment last year was minus 17 per cent. In the current year, it is 30 per cent and over the two-year period, it is minus 14 per cent. If we combine the two segments, the growth is four per cent for the commercial vehicle industry as a whole.

LCV segment growth for Eicher over the two-year period has been 26 per cent, which is the highest in the industry. At the international level, the break up of LCV and HCV is: LCV -- 55 per cent to 60 per cent, and HCV -- 40 per cent to 45 per cent. In India, it is HCV 55 per cent and LCV 45 per cent. But, in the long run, India will also catch up with the international trend. The rural market is catching up. Both the goods and the passenger segments will grow in the rural market that is likely to boost up the demand for LCVs.

One more trend likely is that the industry will not get segmented into watertight compartments as the customer has more choices.

What kind of competition do you foresee from Volvo or other players in the commercial vehicle scene?

Volvo has entered the high-tonnage segment, which has low volumes, say, about 150-200 vehicles per annum. We do not expect any new entrant in the lower-tonnage segments because lower prices in India act as entry barriers. There are already five players in the segment. Even if there is a small component of import, it makes the product unviable on the price front. There is also a limitation that the LCV segment is very cost-sensitive.

Many family-run business houses seem to be now getting professionals to run their business. Ranbaxy is a case in point. What, according to you, is the reason for this trend?

The reason is simple -- professionals run the place better. With growing competition from multinationals, the family businesses are left with no other option but to turn to professionals. It is a good trend as far as I see and it will streamline India Inc in a positive direction.

What is your expectation from the Eicher Group this year?

Eicher Motors may have a growth of 35 per cent over last year and in terms of sales volumes 6,800 to 7,000 vehicles in the current fiscal year. In the tractor segment, we expect marginal growth. In the gear segment, we are shifting towards supplying to original equipment manufacturers. We expect the exports of gears to grow. Hence, this division should also give us good results.

In the motorcycle segment, there will be growth. The 350cc Bullet, which is a classic bike, serves for a major part the utility segment in the rural market and has a macho image in the urban market. We have also developed 500cc and 625cc bikes for the upmarket segment in the so-called 'Indian Harley Davidson' mould. With production no longer a constraint and a good range in our basket, the motorcycle segment has a potential for growth in the next 2-3 years.

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