“I see Telco moving northwards…” - Views on News from Equitymaster

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“I see Telco moving northwards…”

Aug 17, 2001

After having held key positions in the sales and marketing functions in leading multinational companies, Mr. Ravi Kant joined Telco as Senior Vice President (Commercial Vehicles) in early 1999. He is currently the Executive Director, Commercial Vehicles division. He is also a Director of Tata Cummins, Tata Holset, Telco Automation and Voltas.

In an interview with equitymaster.com, Mr. Ravi Kant spoke about Telco’s commercial vehicles division and structural changes in the Indian CV segment. He also spoke about the company’s venture into other businesses like spare parts and value-add towards making vehicle sales ‘a package’.

EQTM : Where do you see Telco 3 years from now in terms of business and operating performance?

Mr. Kant: I see Telco moving northwards. The last three years we have had a bad period. We are in a cyclical business and we feel that we have bottomed out and in the next three years or so, we should be moving up.

EQTM : In your view is there any structural change that is taking place in the automobile industry? How is Telco positioning itself to gain the most out of this shift/change?

Mr. Kant: I will confine my comments to the commercial vehicle industry. Yes, there is a structural change, which is taking place. As you know, in times of stress and difficulty, new ways are found and a similar kind of change is happening in the commercial vehicle industry. Having got battered a lot in the last few years, we find ways and mean to become more competitive and we are seeing, especially in the last 9 to 12 months, a clear consolidation in the transportation industry, where the bigger operators and fixed providers are coming into their own and trying to drive down the cost of road transportation. In order to take market share away from smaller operators and from competing modes of transportation, there is a very clear awareness emerging. It is for that reason that market is moving to higher tonnage of vehicles, which cost lower in terms of per kilometer as compared to the normal 16 tonne vehicle. So there is a major structural change happening in the industry.

EQTM : Sluggish investment activity has contributed to the economic slowdown. How do you see the initiative taken by the Prime Minister to step up road construction activity impacting growth? What are the implications for Telco?

Mr. Kant: I think the only thing in this otherwise gloomy scenario that seems to be working is the ‘Golden Quadrilateral’. By our information, barring a stretch of portion in the Eastern side, contracts have been awarded and are on schedule. We think by 2003, it should be completed. On top of that, the recent announcement by the government to put in over Rs 500 bn in rural road development works, out of which Rs 240 bn is for making the current rural roads connected and the balance to increase further connectivity to towns and villages having a population of 1,000. I think this really should be music to everybody’s ears and if this really happens by 2005, as in the case of the golden quadrilateral, I think a very major change will come about in India and that really is the job of the government to create the infrastructure. Once it has been done, it is the private enterprise that will take it over and I think this will surely spur economic growth. I have no doubt in my mind. A lot of inefficiency in the system is going to be removed, most of which comes on account of blockages. Once these blockages get removed, there will be a clearer flow, costs will come down, things will become cheaper, things will become more available and I think rural prosperity will grow.

More than 75% of population still lives in rural areas. I think it will be a big boost to the industry. This is perhaps the most important thing and surely road transport industry will benefit a lot. Though the structure of road transportation itself will undergo a change, we feel that a four-tier system of transportation will emerge. 1) Long Haul trucks (multi-axles and tractor trailers) which will go on the highways (2) Regional distribution trucks (3) Light commercial vehicles and (4) Smaller commercial vehicles which will go those villages of 1,000 population. I think that it will be a big boost to everybody.

In terms of benefit to Telco, whatever is good for road transportation industry is good for Telco. We are a full line supplier and we are there right from the smallest to the biggest and therefore we will be covering the entire range of distribution. That’s our strength.

EQTM : Is the shift to CNG an opportunity or threat to Telco, which is considered to be the leader in diesel technology?

Mr. Kant: Telco has been known to be a diesel technology leader because CNG was not available till now. But now that CNG has become available, we are technology leaders in CNG also. I think the engines we are installing in the buses are one of the finest. It is the Cummins CNG engines, which are internationally renowned and working very well. Already a large number, approximately 1,400-1,500 buses, are plying in Delhi and we are very confident that wherever change is required to be done, we will be at the forefront leading the change.

EQTM : You have identified exports as one of the key growth drivers. Given the slow down in the global economy, how do you see the order book from overseas markets? Does China pose a threat or is it an opportunity?

Mr. Kant: Yes and no. If you take a vehicle, there are various components that go into it. It is quite possible that many of the smaller components could be made in China at a lower cost, but as far as vehicles are concerned, we do not see much threat from China. I think we produce good vehicles and our quality is very good compared to the Chinese. However, vehicles are not sold by themselves. But they are sold along with a package and the main component of that package is vehicle financing. I think that’s where Chinese may have somewhat of an edge because the cost of money in India is atleast three times if not more as compared to the cost of money in China. For exports, we understand that the Chinese government even lends money at zero percent. Now that is something, which has a lot of weight.

Well, we are trying to upgrade our performance and reliability characteristics of our vehicles to come very close to international standards and that would help us sell more in export markets.

EQTM : Telco has also been looking at reducing the cyclicality of its business by venturing into spare parts et cetera. Can you please elaborate on these ventures and when do you see them becoming significant contributors to the topline?

Mr. Kant: You see there are many components to it. Number one is spare parts. I think there is a big potential, which we have not addressed because we have been selling so many trucks in the past. We did not concentrate much on this. But now it is receiving our attention, and we need to increase the spare parts business. Number two is getting into the reconditioning business, which is there all across the world. We are getting into it and it is likely to open a good revenue stream. Third would be getting into after sales services. We are going to enter into annual maintenance contracts and are also tying up the maintenance with sale of the vehicle. And that is an idea for which time is ripe. We are already in it. We are going on an experimental basis. Then we are looking into management of workshops, getting into selling of engines for marine and stationary applications like generators.

We started really only last year and we are aiming to double this business going further. In addition, we will be in the body build vehicles business and thereby both increase the sale of our vehicles and have another revenue stream. Then, we have the vehicle financing business. Here, we have our own in-house thing, which we are planning to expand very substantially. We are very closely looking at it. Along with this there are many other non-vehicle revenue streams. We feel that the higher growth and higher profitability will come from this segment and if not so much in terms of top line contribution but the bottom line contribution increasingly will become higher and higher from this line of business.

EQTM : How do you see the Indian automobile industry evolving over the next few years?

Mr. Kant: I did mention that in the next two years the industry is likely to grow, all these road development works are likely to spur the whole thing. Greater amount of distribution is going to be taking place and I think it is going to be very good for the commercial vehicle business in India. I feel very, very positive about the future, notwithstanding the situation that we currently find ourselves in.

EQTM : Who are the three people that you admire the most?

Mr. Kant: One would be Jack Welch. I like him on two aspects. One, I think what he has demonstrated is pure consistency of performance.

The second person I would say, it is not in order of any priority, is Vivekanand. I think, in a way, he taught us not to be ashamed of our origins or beginnings or our country.

And third would be my own father, who inculcated the essence of values, which you abide by in your early age, you never part with them. I mean they become a part of your system and that is something, which I have dictated me. They are a matter of principle, they are a matter of values and they are non-negotiable. I mean everything else can be negotiated. And strictly in times of difficulties, they help you keep you sanity, balance and gear towards the right decisions.

EQTM : What are your favourite books?

Mr. Kant: I have learnt many things from many books and I don’t want to single out any of them. It is not that you go by what they say, but to understand how you look at things and how people have looked at things. In many times in management, these facts come and go and there are many fashionable or popular at times. But I think there is a common thread and that is there is no one solution, which fits all industries, companies and all kinds. I think everybody should find his own solution to a certain point because it is a context, which is ever changing. What may turn out to be good in one would fail in another set of circumstances. So what one has learned from these management books is that you don’t have get influenced by any single thing like core competency.

Similarly, I wouldn’t like to name any one book. On the spiritual side, there are hosts of books. I am particularly fascinated by Indian philosophy and many teachers of varied times have written books. Again it is the same think I talked about Vivekanand that there is more to life than just living life. I think that is the message one would like to look at. There are far more important things beyond work even though we are engrossed in it.

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