Auto companies Tata Motors, Ashok Leyland board the fully built bus boom

Financing, better after-sales services and stricter regulations fuel rising demand for FBUs

The demand for fully built buses from automotive original equipment manufacturers (OEMs) is rapidly wheeling in, driven by the revival of passenger mobility after Covid-19. Automotive giants Tata Motors and Ashok Leyland are capitalising on this shift, observing a marked increase in orders for fully built units (FBUs).

Anand S, vice-president (V-P) and head of commercial passenger vehicle business at Tata Motors, told Business Standard that the company has seen considerable growth in FBUs over the past five to six years.

“In 2018-19, the salience for FBUs stood at around 55 per cent. In the first quarter (Q1) of 2024-25 (FY25), this share has risen to about 75 per cent, reflecting a growing preference among customers for factory-built buses,” he said.

Anand attributed the shift towards FBUs largely to evolving customer needs and market dynamics.

“Customers are increasingly opting for FBUs due to their superior quality, including enhanced ride comfort, aesthetics, and better interior packaging. Additionally, improved after-sales and warranty support, OEM authenticity, and shorter lead times make FBUs a more convenient and hassle-free option for customers,” he said.

From a financing perspective, institutions offer a higher loan-to-value ratio for FBUs, making them a more attractive option compared to split body and chassis purchases. The growing aggregator business is also fuelling demand for FBUs.

“Stricter regulations, such as the bus body code and fire alarm and protection system, further enhance the practicality of FBUs, as local fabrication options often fail to meet these standards,” Anand added.

Among user industries, the school and staff transportation segments have the highest demand for FBU buses, followed by intracity buses.

“We expect this trend to continue, with FBU buses becoming the preferred choice for transportation needs in these segments,” Tata Motors said.

Ashok Leyland has also seen a similar increase in demand for FBUs.

Sanjeev Kumar, president of medium and heavy commercial vehicles (M&HCVs) at Ashok Leyland, told Business Standard that the demand for such buses has risen considerably — both from state transport corporations and private players — since Covid-19.

“Bus body makers were unable to meet this huge demand. State transport authorities also felt that OEMs should supply them with FBU buses,” Kumar said, adding that around 60 per cent of their overall bus deliveries are FBUs.

Last year, Ashok Leyland supplied 1,600 FBUs to Gujarat State Road Transport Corporation, followed by another order from Maharashtra State Road Transport Corporation (MSRTC).

Last month, MSRTC placed orders for 2,104 units of Viking passenger buses with Ashok Leyland. Tamil Nadu has also placed orders for ultra-low-floor FBUs with Ashok Leyland, he said.

State transport authorities prefer the one-stop solution of FBUs over sourcing the chassis from one vendor and the body from another, reducing lead times. 

In the private sector, 60 per cent of orders are for smaller buses (staff and school buses), which have traditionally favoured FBUs, Kumar said.

Ashok Leyland is commissioning a bus-making plant in Lucknow that will produce both electric and internal combustion engine buses.

A bus body maker based in Taloja in the Raigad district of Navi Mumbai, which produces school buses, intercity buses, and luxury buses, said they continue to receive orders for luxury and intercity buses.

“OEMs are seeing increased demand for FBUs, but we still get orders for intercity and luxury or customised buses from the private sector. It’s mainly the public sector orders that are going to OEMs,” said an executive at the bus body-making unit.

The M&HCV industry has grown by 8-10 per cent in Q1FY25, driven by bus sales.

“In the M&HCV segment, it’s true that while the overall industry has grown by 10 per cent, buses have contributed the most, with growth around 50 per cent,” Shenu Agarwal, managing director and chief executive officer of Ashok Leyland, said in an after-results investor call.

Kinjal Shah, senior V-P and co-group head of ICRA Ratings, mentioned in a recent report that the scrappage of older government vehicles is expected to drive replacement demand in the bus segment from state road transport undertakings in FY25, supporting the overall growth of 2-5 per cent.

The commercial passenger vehicle segment faced unprecedented challenges during the pandemic, shrinking by 85 per cent in volume as intercity travel, school transportation, and employee transit came to a halt.

“As the industry recovers, we are seeing a strong resurgence driven by the return of passenger mobility and renewed demand from government and private sectors, particularly corporates, state transport undertakings, and schools. This recovery is highlighted by a strong 39 per cent year-on-year growth in Q1FY25 over Q1 of 2023-24, and we anticipate this trend will continue,” Anand said.

A ticket to ride

> 75% of Tata Motors’ bus sales are fully built models

> Ashok Leyland sees a major surge in fully built bus demand

> Bus body makers struggled to catch up with production after Covid-19

> State transport authorities opt for one-stop fully built bus solutions over multiple vendors

> Financing, shorter lead times, and tougher regulations boost FBU demand