JCB is the largest manufacturer construction equipment in the country. The company clocked sales of Rs 6000 crore in 2011 which is about a third of the total sales of its parent JCB in the UK. Clearly, JCB India is an integral part of JCB worldwide. Vipin Sondhi, managing director and CEO, JCB India, talks about the company's and the future ahead in the current business scenario.
Below is the edited transcript of his interview to CNBC-TV18.
Q: Every second construction machine in the country bears JCB's stamp?
A: Yes.
Q: Ballabgarh plant was built in 2007-2008, with a cost of Rs 300 crore and then you were hit by a great recession. What gave you the guts to carry on?
A: First, our chairman had tremendous faith in the long-term future of India, Second, we had already embarked on this journey. The question was, should we hold back or move forward? We had confidence that infrastructure in the country cutting across citizenry and party lines will get impetus. The question really was then, is this the right time or is it one year later or one and a half or two years later. But, would it happen the answer was yes. So, we went ahead and completed the plant and fortunately the markets came back.
Q: The market came back and you have had some of your best years after that?
A: Last month we invested in land in Jaipur. So, we are again investing for the future.
Q: How much will that investment be?
A: Around Rs 500 crore.
Q: How was 2012, was it as good as 2011?
A: We expected a flat year by the middle of the year but it hasn't ended up and there could be de-growth for both the industry and JCB to the extent of 10-15 percent.
Q: What according to you has caused this de-growth?
A: Policy determines the future but the immediate is always execution on the ground. Two factors which had affected execution are land acquisition and timely environmental clearances. So, it is execution on the ground and inter-ministerial both at the central and at the state levels. But, I am happy that now it is being addressed.
Q: Are you prepared and ready for a big spurt in infrastructure because some say that the backhoe loader is a medium sized construction machinery but as Indian infrastructure grows in scale as mining opens up, do you have the product line to get into that or will you then be under serious competition from your competitors like Hitachi?
A: We are already amongst the worlds best known companies manufacturing in India. Competition exists in India and that ensures that all of us are doing our best for the customer as well as for infrastructure in general. We have built world class plants in Pune where we manufacture heavy line equipment like tracked excavators, wheel loaders and compacters.
Q: That is for mining?
A: It is for lifting, loading, etc where you want to for example if you mine coal you got to load it onto rake so you use wheel loading shovels. Compacters will give you much better gradability for building roads than ever before. So, we have that product range and these are world class plants in Pune. So, we are ready for that as well.
Q: What retail model have you adopted? A construction equipment manufacturer that decided to go for like a automobile or passenger car model business. You have about 55 dealers across the country and you sell like how a Maruti would sell a car. Will other construction equipment manufacturers do the same; does JCB do it worldwide, how does it succeed?
A: JCB follows this model worldwide. We have the first mover advantage and the vision to take it down this route. We started appointing dealers in the last 80's and many of them have grown into large dealerships and employing themselves 300-400 people and selling over a number of machines.
Q: What do your competitors do? Hitachi has got an excavator which can be compared to your Backhoe Loader, Caterpillar has Wheel Loader which is also comparable, so have they gone down that route and yet you command almost a 50-60 percent market share in India?
A: The distribution models are different. In India, the retail model has worked for us. India is a diverse country. The customers not only want quality products but good also good service in extreme parts of the country. We have around 5,500 trained people with our dealership to ensure that they are up to speed with the technology and are able to reach our customers because downtime of these machines means immediate loss in livelihood.
Q: Will the same model work for bigger machines or do you have an alternate model?
A: Let me explain the model as far as the larger machines are concerned, it means project buying. So, project buying, JCB becomes the face but it is extremely important to have a wide dealership network to ensure that these machines which operate in remote areas where projects are being built are serviced and parts are available. So, the dealer is a very close partner post the sale and we are at backing him all the time. For projects JCB makes the sale directly.
Q: As large projects pick up in India, will JCB have the same advantage it has today over its rivals?
A: Yes, because both models in India will operate simultaneously because lot of investments will take place in rural India, will take place in villages, there will be localized contracts, digging ponds, making local road, all of that will require a local machine at the local level. I think both models will exists simultaneously.
Q: You sell to individual and villagers. So, you get a pulse of what is happening in the economy like a tractor seller would. So, what are they telling you because unlike the tractor buyer your buyer is not funded by cheap finance. Where did the 10 percent slowdown come in? Did it come at the retail or project level, where did it come?
A: Unfortunately, at both places. A lot of projects are stuck at the execution phase. Now, with the formation of Cabinet Committee on Investments (CCI), it will ensure that projects above Rs 1000 crore will be monitored at higher level to ensure coordination is not the reason for holding up projects. We will see traction coming through. Once that happens, the economy starts moving, steel starts moving, cement starts moving, but we have got to get these projects off the ground.
Q: Many people find Indian market interesting. Players like Mahindra, CNX, Caterpillar and Mitsui all are looking at India. Does that keep you up at nights?
A: One must respect competition. The worry should always be positive. The question is - are we listening to our customer and are we close to our customer? Are we introducing products which are relevant in our context in India? It is extremely important. Our machines in India run double the number of hours per year than they would run anywhere else in the world.
Q: So it's not only about product range, you are also talking about within the product range, adapt those machines. Aren't the others also doing that?
A: Everybody would be doing that. But the question is - how do we always ensure that we are focusing on this and doing it as early as possible - which is extremely important. The second thing is - what matters to the customer and what matters to the customer is he buys this expensive piece of equipment very often used in conjunction with the whole series of other equipment.
If one of them in the chain breaks down - the chain stops. It's simply therefore important that our dealers who we are extremely proud of have trained service technicians and we invest a lot in training these young people in technology, give them the tools so that at the site - they get the machine up and running.
Q: Do you think dealer network like yours will be difficult to replicate?
A: We are proud of our dealer network and we are constantly building, renewing and working with our dealers.
Q: How would your dealer network compare with your rivals? Are they anywhere close?
A: We have more dealers compared to our competitors.
Q: JCB came to India before it even went to Brazil or China? India wasn't really the flavour in 1979 when JCB first came to India. Was it just luck and so that you are here when the market opened up? What was it that made the company focus in India?
A: It was our chairman Sir Anthony Bamford vision to have extreme faith in a country where the market had not yet shown any indication of developing infrastructure. Second, is to select the right equipment. The backhoe loader is an extremely versatile piece of equipment. This with its attachments can virtually do any piece of work in construction that is required.
Q: Can it also do large scale farming work?
A: It can do it. For India, we developed mini backhoe, called 2DX. We are taking it into rural India which is working on palms for example, in small forest areas and in the future into turning soil which is deeper than what tractors can do.
Q: An study by Accenture estimated that the construction equipment market will be about USD 23 billion by 2020. With what kind of number are you working at?
A: The study is an indicator they did it two years ago and there are variety of models that one can work with. That indicates the fact that at some point in time this will happen and it could be 2020, a little later or earlier. At every point in time are we investing in product, people and our dealership network to keep pace with the market or remain just a little ahead of it. So, you have to determine this year as well as look at what will happen in future.
Q: How much of this universal construction equipment do you cover? Are there areas that you are not in, are there areas that you would like to be in, and are there areas that they can't get into because your parent doesn't have that line?
A: We don't aspire to be to be in large scale mining equipment space, but we will definitely be in the mid-range construction equipment which would include almost all these segments but not may be deep mining as such.
Q: How much of a universe are you in?
A: We would cover 80 percent of that universe even now etc. Going forward, we like to ensure that we contain the leadership position and for that, the customer is at the heart of what we try and do.
Q: How much of your turnover s exported from India? You have three plants now and building a fourth in Jaipur?
A: Correct. We have a dedicated plant, what is called fabrication components, which is cutting, bending, welding steel, 50 percent of which is exported back to the parent company and those machines then go to other parts of the world. So, we have young welders who are barely out of Industrial Training Institute (ITI), like five or six years out of ITI who are now dishing out world class welded equipment. We also, in the year 2012, have grown in terms of our exports by almost 80-90 percent and we see this growing. So, we will export in 2012 about a 1000 machines to the Middle East and Asia Pacific.
Q: These are large pieces of equipment, these are not really in a sense brand play, these are largely cost plays if I can call it that so how do you compete on costs because India doesn't have too much advantage when it comes to cost in manufacturing?
A: We certainly compete on value and we have a brand that we are proud of which is a powerful brand in other parts of the world. The question is, do we have a single global quality product from "Made in India". So, it is at par in any form of specification and quality with anyone else in the world.
Q: Your parent company has a plant in China as well and yet they import a lot of parts and components from India. How do you compete with your own Chinese?
A: The Chinese plants are new and it is developing. There is a lot of interaction in terms of knowledge and sharing and I am sure that China will grow into that scale as well.
Q: When you complete Rs 500-crore investment in Jaipur which maybe in the next couple of years, how long will that take?
A: Four to five years.
Q: Is that the end? What will determine next stage of investment, will it be policy - not on hope but on projections because it will happen come what may?
A: We will watch how the capacity utilisation of each one of these plants plays itself out. This slowdown at the moment is now being countered both at the policy level and a framework seems to have been setup for execution on the ground it shouldn't be too long before these plants start filling up and we look ahead as well because we need to keep up with the infrastructure growth in this country and absolutely certain it will happen. It could be faster, but it will happen.
