JK Tyre & Industries, a leading homegrown tyremaker, is deploying Rs 1,100 crore to expand its capacities across all manufacturing facilities, and produce 35 million units per annum. Talking to Moneycontrol, Anshuman Singhania, the company’s managing director as well as Chairman of Automotive Tyre Manufacturers’ Association (ATMA), said the ongoing Israel-Hamas war will lead to a hike in crude oil prices, which will impact the tyre industry. Edited excerpts below:
What’s your take on the latest financial results?
It’s been very good. We’ve recorded strong performance with sustained increase in the topline, driven by volumes and the highest-ever increase in profitability. The key highlights of Q2 are the 15 percent year-on-year improvement in the operating margin led by higher operational efficiencies, and a thrust on premiumisation.
Our topline is growing consistently, and we recorded a consolidated net sale of Rs 3,905 crore for the second quarter of FY23-24. Our EBITDA (earnings before interest, taxes, depreciation, and amortisation) was Rs 597 crore, a 280-basis point expansion on a quarter-on-quarter (QoQ) basis. The net profit for the quarter stood at Rs 249 crore, a 5X growth on a year-on-year (YoY) basis.
What kind of investments are you making this financial year to enhance your manufacturing capacity?
We have earlier announced our plans to spend Rs 1,100 crore on our ongoing projects. We have been de-bottlenecking the PCR (passenger car radials) plant for Rs 301 crore, which has just been completed and is getting into production. We have earmarked Rs 530 crore for expansion of our PCR plant at Banmore (Madhya Pradesh), which was completed in Q2. We are looking at completing the expansion of our TBR (truck and bus radials) facility, for which we have invested Rs 260 crore. At present, our capacity is 34 million tyres per annum, which will go up to 35 million after the expansion. These investments are planned for this financial year and the first half of the next financial year.
As the automotive industry is moving towards electric mobility, how are you geared towards catering to their changing requirements?
We have already developed a complete range of electric vehicle (EV) tyres for commercial vehicles (CVs), light commercial vehicles (LCVs), electric two and three-wheelers, and we are also continuously investing in this technology. We were among the first tyre companies to produce tyres for electric buses. We have been supplying to the leaders in the e-bus market, such as JBM Auto, Tata Motors, etc., and are also closely working with OEMs like Ashok Leyland, VECV, and others.
Are you planning to establish a new manufacturing facility for EV tyres?
No, we are not. We can comfortably make products for any new segment in our existing facilities.
Is there any inorganic growth that you are looking at, especially in the overseas markets?
We keep on getting opportunities and continuously evaluate them. But there's nothing in the near-term horizon.
Do you expect commodity prices, especially rubber, to increase, or will they come down in the coming quarters?
Raw material prices have decreased on a quarter on quarter (QoQ) basis by nearly 5-5.5 percent. But going forward, we expect raw material prices to increase by 3-4 percent in Q3FY23-24, due to the ongoing Israel-Hamas war. The situation will also impact crude oil prices, which are almost 55 percent of the cost of a tyre.
So will your focus remain on existing markets, or will you go ahead with your expansion plans?
The focus will remain on the existing markets and on America, Latin America, Africa, as well as UAE and parts of southeast Asia.
Can you share your growth projections for this fiscal?
We don't give any projections for our sales or profitability, but I can tell you that the industry outlook is very solid and our demand is looking very good, for both commercial and passenger vehicle tyres. We are looking at very healthy growth, supported by government investment in infra.
We are focussing on premiumisation across our product lines, whether for CVs or PVs. Our growth momentum is also indicated by the increase in our selling prices across various product categories. Further, our improved efficiencies, and increased volumes and capacity utilisation are also helping drive growth. Our volumes grew 7 percent in quarter two in the replacement market, and by 18 percent in the OEM business.
What do the next two quarters look like?
With the festive season in quarter three, and quarter four being the fiscal year-closing quarter, when the aftermarket is very good, we’re expecting a robust second half.
What kind of percentage growth in your topline and bottomline do you expect this fiscal?
We earned Rs 14,600 crore last year, and are looking at a double digit growth as we close this financial year.
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