Better export sales, cost cuts aided margins: JK Tyre

JK Tyre posted a considerable improvement in its margins to 11.6 percent against around eight percent previously. Its management attributes this to the savings exercise undertaken in the past two quarters. AK Bajoria, president and director of JK Tyre says that power, fuel costs and unit consumption of consumables saved the firm Rs 11.5-12 crore in the past two quarters. Also improvement in export sales pushed margins up, he tells CNBC-TV18.

The company’s profit before interest, depreciation, and taxes (PBIDT) in exports was helped by the rupee fall. Realisation from exports grew almost 16 percent due to weak rupee, Bajoria adds. Going forward, the management hopes for doubling its production as the expansion plan worth Rs 1,400 crore for its Chennai plant has been sanctioned. A complete capacity utilisation can happen by the second half (H2FY14), he adds. Below is the edited transcript of his interview to CNBC-TV18. Q: Could you take us through the margin performance? It seems to have improved quite considerably. What were the cost efficiency measures in the quarter? What is the guidance on the same? A: Essentially, in the JK Tyre plants all over India, we have been able to do very good cost cutting in terms of power, fuel, and the unit consumption per KG of certain consumables. It saved us Rs 8.5 crore in July-September quarter. If you take April to September 2013, we have been able to save almost Rs 11.5-12 crore. It has obviously gone and added into the bottom-line. Q: Can you breakup the growth of EBITDA between domestic sales and exports as exports have done well for you this time? A: Yes and we have had the highest ever exports from the JK Tyre plants in India. The standalone exports are about Rs 287 crore and if you take the consolidated exports including our exports from Mexico, it is about Rs 400 crore. Certainly the profit before interest, depreciation and taxes (PBIDT) margin in exports has been higher essentially because of the rupee which has been depreciated. We have been able to get almost about 15-16 percent more in terms of the rupee to a dollar. The margin in export is almost about 3 percent higher than the domestic sales. _PAGEBREAK_ Q: What is your outlook on rubber prices? A: If you take the prices in this quarter, average was about Rs 188/kg as against around Rs 184/kg in the corresponding quarter July-September 2012; an increase of about 1.2 percent. Future Q3 and Q4 the rubber prices will not be lower than this. In fact they will be gradually inching up that is what we feel. Q: Take us through the preferential equity plan. Why are promoters pumping more money? What is the timeline for this? A: We have just completed our board meeting yesterday. I wouldn’t be able to tell you exactly the timeline. The board has approved the plan for Rs 1,430 crore of further expansion at Chennai Tyre plant. It is our latest state-of-the-art plant and the capacity will increase from four lakh truck-bus radials to 12 lakh truck-bus radials. We are really tripling the capacity of our truck-bus radials and the passenger car radial capacity which is at 25 lakh tyres per annum at Chennai, will go up by another 16.4 lakh tyres. It has to be financed by internal generation and some borrowings and some preferential thing. We have to firm up our plans and only then I would be able to share with you.