L&T bullish on Scania deal

Larsen & Toubro has just announced a tie up with Sweden-based Scania to distribute its multi-axle trucks.

Scania is the world's largest manufacturer of multi-axle trucks. Hino, Volvo and Scania together have about 82% market share in this segment.

J P Nayak, board member of L&T, says that the Scania deal would increase offering in mining and construction. According to him, the distribution tie-up with Scania would need working capital.

Nayak expects the market to grow at 30% in the multi-axle segment.

Excerpts of CNBC-TV18's exclusive interview with JP Nayak:

How does Scania fit into your business?

Scania manufactures heavy-duty trucks. These trucks are also used in mining and construction industry. We manufacture and distribute construction equipments.

With every construction equipment there is a need for hauling the material, which has been excavated. For that haulage, purpose, these trucks are necessary.

We will use these trucks and offer it to our customers of excavators. Thus, they can make use of it as haulage trucks.

Is the purpose of this tie-up more to provide a complete package for your customers? Or are you looking at this as a separate business?

Our basic purpose is to increase our offering to our existing customers group to make the package complete. However, some of this will also have applications outside.

Will this contribute anything in terms of revenues to your construction equipment business and would you need to pump in cash in order to get this distribution

Really speaking what is required is that we are going to distribute. This means we have to import and sell, so naturally working capital requirement will be necessary. We already have our distribution network in the form of sales and service organisation, which will be adequate to take care of the requirements.

Will these trucks be leased to your customers? Will your customers need them only for the duration of the project or will they need them permanently?

Normally, the customers work on one project and when they finish, they go on to the next project. So the entire fleet gets distributed depending upon the requirements of a project. Now, we also have requirements, where the equipment is leased. Within L&T, we have companies, which finance the equipment and which also help in leasing the equipment.

At present, how many such trucks per year are used in projects that you are associated with? Do you expect that flow to continue?

This year probably, the market for heavy trucks of about 30 tonne and above, which we are talking about, will be around 1,000. Various manufacturers including Volvo, which is the leader, cater to it. We expect this market to keep growing by 30%. We hope to get a good market share out of that.

How soon do you begin distribution?

Before we introduce this, some home allocation will be required and therefore we expect that we will be in the market in the next 8-9 months.

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