Yuan weakness adding to dumping woes; have cut output : JK Tyre

A further devaluation of the yuan will add to the woes of the tyre industry already reeling under the impact of dumping, AK Bajoria, President and Director, JK Tyre tells CNBC-TV18. Bajoria says tyre imports into India accounts for 25-30 percent in the truck/bus radial segment and upto 45 percent in the passenger car space. Not just this, China had doubled its exports to India in 2015. "All the Indian tyre companies are now running below their capacities on the back of contracted Chinese economy, finding ways and means to increase exports," he adds. In addition, Bajoria believes with demand slowdown, depreciation of currency and lagging mining and infrastructure activities, the pressure will remain.On the company's performance, he says JK Tyres' export business is not doing well, particularly in Latin America and Brazil, which was its major consumer. "Brazil market has been impacted by 49 percent of currency devaluation and the 50 percent of surplus capacity that China has," Bajoria says.Below is the transcript of AK Bajoria’s interview with Anuj Singhal and Ekta Batra on CNBC-TV18.Anuj: Since you operate in the category in which we have significant amount of Chinese input. How would you look at the recent move in yuan? And do you think that makes the situation even tougher for companies like your?A: Yes, I think you are very right and the Chinese yuan devaluation by about 4 percent from the US dollar and even if you take yuan to rupee, it is about 3.2. That definitely makes the situation worse because already, if you see today, the imports into India amount to almost about 35-40 percent in terms of truck bus radial tyres and it is almost 45 percent in the case of passenger car radials. So, already, we are suffering from slow down in India and our capacities, all the tyre companies in India, they are all running below their capacities, in the nylon as well as the radial sector. And there is no improvement in the mining and the infrastructure demand, so obviously. And, to top it all, the Chinese economy, as you have seen in the last 18 months, there is no growth over there. So, they have been finding ways and means to increase their exports and this move of yuan devaluation is primarily aimed at helping the domestic industry of China which is a clear proof that in this year of 2015, which has just ended, China has doubled their exports into India in terms of tyres, both commercial tyres, truck radials and passenger car radials.Ekta: Is the situation worse this quarter as opposed to the previous quarter? Is the situation worse than the second half of the fiscal as compared to the first half?A: Yes, absolutely. It has been increasing quarter-on-quarter (Q-o-Q) and because of the pressure on the worldwide industry, in all industry, I am sure, but I am talking mainly for tyres, it is increasing by the day. Anuj: Just to deviate from the topic a bit, the update on tyre unit that you bought from Kesoram, is that integration complete and have you paid that Rs 2,200 crore?A: I thought that we were discussing China and the yuan. The process is on, that is all that I can say and I would not like to make any comment because we are in the process of getting the regulatory approvals from the Government of India. So, I would say that it is absolutely on track and the process is on. Ekta: So, when do you think it could be completed by? I do not want to dwell too much on it, but if you could answer that?A: Well, that answer is better given by the government authorities is all that I can say. But, as I said, normally these things take time and let us hope that it is completed soonest.Anuj: What kind of volume hit do you see going forward if there is no move from the government’s side on curbing Chinese imports? Do you see a volume hit and a topline hit as well going forward?A: We are seeing some improvement, I am talking of JK Tyre in particular, but yes, generally, afterall, where is the volume going to come from? It has to come from domestic as well as exports and let us not forget that 20 percent of the turnover is from exports, not only our company, but also generally, all the tyre companies. And the exports are also not doing all that well particularly because we have exporting to Latin American countries and mainly Brazil. One of the main consuming nations and Brazil has had a 49 percent devaluation in 2015. So, the real versus dollar, that is also totally, impacted all the imports into Brazil.But, in any case, first two quarters, we have done reasonably well and in the third quarter also, the saviour is the softening of the raw material prices and the natural rubber prices.Anuj: That is my counter question then, if I have to play the devil’s advocate. Indian tyre companies’ margins have been going up, your included. Everything is free economy right now. In an environment like this, why do companies not take a bit of a hit on the margins to compete with the cheaper Chinese tyres? I am not saying that you can do a whole lot, but at least you can do a bit.A: We could take this up as a separate subject, as a strategy for the tyre companies.Anuj: My simple argument is that in an environment where crude prices go up or rubber prices go up, the consumers have to pay higher prices, why should that not work on the way down as well?A: No, but I would not agree with you most respectfully, that the consumers are paying any higher price for the tyres, not at all. In fact, pro-rata, if I may use the word, we have been definitely, lowering the prices as the prices are getting adjusted whether it is to the original equipment manufacturers (OEM) where the formula based pricing is there and also in the replacement market. I mean this is a very well know fact that in the last 12 months, in fact, I would say last 18 months, the prices of tyres to the consumers whether they are commercial tyres or passenger car radial tyres, have been gradually, certainly going down.Ekta: Your domestic operations that were impacted primarily because of the yuan depreciation were down around 1.6 percent in the previous quarter, so do you think that without dwelling to much on your Q3 numbers and performance, your second half is going to see a further decline beyond that 1.6 percent? Is it going to be equal to that or is it going to be better?A: I would imagine that it will be similar because simple thing is that today, in China, there are 558 million tyres that they can produce. That is the capacity whereas they are not even able to make 250 million. So, you see there is more than 50 percent surplus capacity in China. And what are they going to do? And more of the surplus capacity in trucks. There they have a surplus after their domestic consumption by more than 60 percent, whereas in the cars also, the surplus capacity in China is almost 50 percent. So, obviously, and then, please imagine, give me a few seconds, even USA which is supposed to be absolutely the hub of free economy, etc. even they have imposed anti-dumping duty for Chinese tyres into USA whereas we have been making representations to the government of India that look, please give us a level playing field, but we are not getting this support.So, afterall, on one hand there is a demand slowdown. On the other hand, the depreciation on the rupee, on the third hand, the mining infrastructure and then we do not get support, for facing Chinese onslaught. Dumping, total dumping of tyres into India, left, right and centre.So, under such circumstances, I do not know what to predict, but I would say that certainly, similar pressure will continue even upto March, 2016 and then let us see.