Volvo Financial, the captive finance arm of Volvo and the third largest truck firm in India, has been in the country for around six months. The company has witnessed the truck sector staging a demand recovery, first in mining and subsequently in other areas. Truck aggregators, modelled on taxi-hailing apps such as Ola and Uber, are disrupting even the logistics industry, tells Santosh Aiyer, managing director, Volvo Asset Finance, to Raghu Krishnan in an interview. Edited excerpts:
Is growth in the commercial vehicle business returning? Which are the sectors that you are seeing the pickup in truck demand?
In the heavy commercial vehicle sector, the demand has come back. We expect the medium and light duty vehicles to follow. In 2016, there should be good pickup in all the segments. Mining has come back, there was lot of pent-up demand. Construction is following, not exactly in the same pace. It will pick up very soon.
In manufacturing, are you seeing growth in freight movement. What are your customers seeing?
We are seeing the mining sector picking up strongly. In manufacturing, there are a lot of initiatives by the government and private players. They are saying that they will see a more positive trend in 2016.
Volvo is also present in construction equipment. Are you witnessing construction growth?
It is tied to the economy. As the economy picks up, construction also picks up. The very fact that mining has picked up is, I think, a lead indicator that construction will also grow. We have seen that in the last six months.
What is your portfolio size?
Volvo Financial Services was launched last year. So, as of now, we have financed about Rs 100 crore in the last six months. But given that we are seeing good pickup in the business, we expect to close 2016 with about Rs 400-500 crore in financing.
What are the challenges?
The last three years have been pretty tough for the heavy and medium commercial vehicles. We can see more opportunity now. With India's business infrastructure on CIBIL (Credit Information Bureau Limit), the amount of information that is available today cannot be compared to even four years ago.
With the kind of information you have today, the regulatory mechanism and the legal enforcement is so much better. There is tremendous opportunity for an NBFC (non-banking financial company) to finance trucks and construction equipment. The challenges in this industry have been always delinquencies. I think those challenges are becoming lesser as the market becomes more mature.
Are we seeing the retail segment consolidate with truck aggregators?
There are people taking private equity funds and other such start-up VC funds. They are aggregating lots of logistical requirements. Yes, retail will remain, but I think the emergence of these players, who aggregate fleets in the retail segments, will play a role.
Apart from the fleet owners, there are segments that can't be exactly classified as retail, people who are working with e-commerce companies and large retailers who want to outsource the logistics functions. It is an emerging area. E-commerce in a way is pushing demand for heavy duty and medium duty trucks.