The new heavyweight

Anirudh Bhuwalka would have gone into the realty, software or entertainment business but for an uncle with a serendipitous idea: trucks. In 2004, ‘uncle’ Shashi Ruia, head of the $17-billion Essar Group, had just forayed into highway construction and ordered expensive Volvo trucks. “Why not make such trucks in India?” he wondered. “After all, what does it take to make a truck? An engine, a gear box, an axle — just put them together and you have a truck!” 

Bhuwalka did just that. He launched Asia MotorWorks (AMW) to manufacture commercial vehicles (CVs): the first prototypes rolled out in 2005. When commercial rollout happened three years later, the trucks did match Ruia’s definition, but with a little extra thrown in. The result: the newbie AMW has a 5% share of the HCV market (see: The highway stars) and Bhuwalka is heading what seems set to become a billion-dollar company.

 In the commercial vehicle (CV) market dominated by heavyweights like Tata Motors and Ashok Leyland, followed by worthies like Eicher, Volvo and M&M, AMW’s rapid growth has generated intense curiosity about the young gun who dared. How come he was selling jazzed-up new trucks in bright colours almost overnight? Were they Chinese? Since they were not, it was assumed Ruia was hand-holding his nephew. Not surprisingly, perhaps, the 36-year-old Bhuwalka denies it. “The Essar Group has no role to play in AMW,” he says peaceably. “But I look upon my uncle as my mentor and credit him with giving me the idea of getting into this business.” 

He clarifies that Ruia put some money into his company during the initial years, provided space in Hazira to develop AMW’s first few prototypes before the official launch in 2008, and bought some of the first trucks. 

It is not easy manufacturing trucks, after all even a small car like the Tata Nano has 40 patented components. Essentially, every roadworthy vehicle requires engines that take years to test and develop, efficient gear boxes, axles that can take Indian roads, and hundreds of other crucial components, all of which have to be put together, tested and re-tested before they can be sold commercially. 

Bhuwalka’s answer to all these dilemmas was to actually implement Ruia’s simplified approach to truck-making. He outsourced and integrated components from around 190 suppliers to make his trucks: Cummins engines, ZF/ Eaton gear boxes and Meritor axles. He relied on localised components rather than imports. AMW is Eaton’s anchor customer and the reason why the fully-synchronised gearbox maker has set up shop in India. “We wouldn’t have stood a fighting chance if we had relied on an imported components-driven strategy, or by spending millions to make some of the components,” Bhuwalka says. 

If Nano’s uniqueness lies in the way it broke the price barrier, AMW proved that price is not everything. “The idea was to give a value proposition to the customer by transforming the product and the service delivery,” Bhuwalka says. In the process, he has filled a niche that had been vacant for decades and delivered a product that suited fleet owners very well.  

Green signalled

An Icra report on the Indian CV (small, light, medium, heavy) industry notes its fairly duopolistic character — for many years, Tata Motors alone has led with 50-60% market share; Ashok Leyland is the other consistent market leader. This market structure presents two scenarios: firstly, incumbents are under no pressure to differentiate products or change them to suit different needs (if A doesn’t change, B won’t either, or B will change if A changes) and, secondly, it allows new entrants opportunities to offer distinct products with more value on the table, albeit at a slightly higher price. 

“Not so long ago, the Indian CV industry had only two or three players while most of the other countries have many more,” says Vinod Dasari, MD, Ashok Leyland. “India is a big market with opportunities for other players to come in. Therefore, in the last few years, the number of serious players has gone up to seven. Each company has developed its own strategy to tap the domestic CV market.” 

Shashi Ruia was right. The trick for AMW was to have a specialised product line that offered Volvo’s features for the price of a Tata or Leyland truck. AMW at present makes HCVs (16 to 49 tonnes), a $7 billion market, catering to high-growth sectors like construction and mining. “In these specialised areas of work, you can’t really use the same truck that ferries chicken,” says Nipun Kaushal, vice-president, branding, AMW. 

Four more things about AMW trucks caught customer attention: the increased engine capacity of up to a maximum of 270 hp (as against 180 hp); a 9-speed gear box (instead of the usual 6-speed); a totally built body instead of a bare chassis; and, very importantly, totally revamped cabin space with air-conditioning and proper sleeping bunks for drivers to rest. An AMW truck with all these features costs only about 5% more ($40,000 instead of $35,000 for traditional trucks with bodies built up).

Industry veterans believe that that may well be the way forward. The higher torque, horse power and greater comfort in the cabin add up to greater earning potential for the truck operator, which, in turn, can reduce the payback period for the vehicle. “A higher horse power and more carrying space allow us to carry more load on the same trip,” says Girish Bharadwaj, who owns a fleet of a dozen trucks in Faridabad. “Air-conditioning reduces driver fatigue and enables more trips in the long run. A built-up body means the truck can be put to business from day one.” 

Of course, AMW is no longer the only player in offering bells-and-whistles variants of utilitarian trucks — other players in the commercial vehicles sector, such as Volvo-Eicher, Force-MAN, Scania and Hino, are eyeing this market hungrily. Bharat Benz will be here soon and Mahindra has launched even more powerful, GPS-enabled trucks in collaboration with Navistar. At first glance, Mahindra Navistar’s strategy seems to mirror that of AMW. But Nalin Mehta, managing director, Mahindra Navistar, says, “We are not catering to a niche segment but cater to the mass market with highly upgraded features that allow fleet owners to use their vehicles even more efficiently. 

Four years young

Bhuwalka says he relies more on the business instincts that run in his genes. “In the beginning, we didn’t have any grand plans,” he says. “Before we experimented in Essar’s Hazira complex, AMW was a garage enterprise operating out of Nashik. We took up the challenge one day at a time and never looked too far ahead, making 20 prototypes before the launch.” 

Today, AMW’s manufacturing base in Bhuj can roll out 50,000 trucks annually. And from 2,300 trucks in 2008, AMW will roll out over 12,000 trucks in 2011-12 (see: Zipping ahead). The focus now is on first sweating the assets and striving towards the “magic number” of the potential 50,000. While the company will continue to service the medium and HCV segments of the market in the short to medium term, the aim is to establish AMW’s presence across all segments of the CV market. It has already launched a related line of customised trailers and truck bodies under the Tranztar brand name. There are no current plans to go public. 

 Bhuwalka does not talk numbers, only saying ₹700 crore has been pumped into AMW both as debt and equity. AMW recorded operating revenues (stand alone) of ₹1,185 crore for the nine-month period ending March 2011. But it made a net loss (from continuing operations) of ₹37 crore. In the previous 15-month period, it recorded a loss of ₹58 crore on a total ₹1,078 crore.

The brightly coloured trucks and air-conditioned cabins may be a hit with long-haul drivers, but it’s not been a bump-free ride for AMW. Its launch coincided with the global slowdown, which impacted CV sales in India as well (there was a 38% drop in HCV sales between 2007 and 2008). While sales have picked up again, customers do have a reservation or two about AMW, mainly on the resale value and the cost and availability of spares. The company’s response? It already has 85 service centres across the country besides fully- loaded service centres that operate out of freight containers in remote locations such as work sites in, say, Sikkim. (In comparison, Ashok Leyland has 375 touch points for service and parts support, apart from 5,000 authorised outlets for parts.)

Meanwhile, CV manufacturers are upbeat about the prospects for the industry, the current dip in GDP numbers notwithstanding. “There is going to be a lot of growth in the CV segment, which will spread across all segments of the industry,” says Ashok Leyland’s Dasari. Mahindra Navistar’s Mehta says, “I expect 8-9% growth in the CV industry, driven by construction activities, growth in the agriculture sector and consumption in non-urban centres. Interest rates heading south will only make it easier to buy CVs.” The question is, are interest rates really turning and can the economy deliver sufficient growth to spur demand for new CVs? After the drop in 2008, sales in the next two years took off. Now, though, offtake has settled at a more subdued 12%-odd. 

Revving up sales clearly looks to be a challenge for truck manufacturers in the coming year or two. But on the positive side, Mehta feels the wide range of new vehicles that are being launched gives fleet owners more options when he sets out to buy replacements, which will, in turn, ensure growth in the CVs industry. “There will be players who will be meeting very specific requirements of the user industry,” he says. “What happened in the car industry 10 years back is now going to happen for the next 10 years in the commercial vehicle industry.” Bhuwalka must be congratulating himself for listening to his uncle’s advice.