Why did robust Q4 volume growth not drive sales for JK Tyre?

Deepanshu Bhandari Hiral Desai | Updated on January 20, 2018 Published on May 17, 2016


Lower rubber prices, Chinese dumping brought down selling values, says CMD Raghupati Singhania

JK Tyre & Industries posted mixed Q4 results with tepid sales value and a robust volume growth. Speaking to Bloomberg TV India, JK Tyre CMD Raghupati Singhania said subdued domestic prices due to Chinese dumping have crimped margins even though volume growth was robust.

Can you tell us the reasons for the divergent trend in sales value and volume growth?

Numerically and weight-wise, we have sold more tyres in Q4.

But selling prices of the tyres did come down almost 9 per cent over the year. Therefore, the selling values have come down. And this has been of course due to a number of factors.

One was the passed-on benefit of the lower commodity price which is natural rubber in this case.

Second was the competition of Chinese dumped products, which caused a flutter in the domestic market to quite an extent.

As a result, there was a lower value realisation per unit over the year.

In the fourth quarter, we have seen a major margin expansion mainly on the back of lower raw material prices. So what will be the impact you are envisioning in margins in the coming quarters?

Last month itself rubber prices went up nearly 30 per cent. But then there is a bit of off-season factor. Therefore, I’m sure going forward, they’ll be evened out to a great extent. And therefore I do not see too much of an upheaval on account of that. Looking at the production of tyres and consumption of rubber, prices will not be going up substantially. So I think it should even out with a little marginal increase here and there.

Over the counter product sales through experimental truck wheels and steel wheel outlets form about 30 per cent of your revenue. What’s your outlook on this segment going forward?

That is a very important segment for us and we are banking on it. As a matter of fact, we are building on these retail outlets both in terms of passenger vehicles and trucks. In the passengers segment, we have mainly 150 JK Tyres Steel Wheels, which are retail points that are more or less exclusive and where we do wheel balancing and realignment of tyres. We propose to increase the number from 152 outlets to 200 this year. Likewise, in the truck space as well, we have created mainly 27 what we call JK Tyres Truck Wheels. These are in similar locations where you have alignment, service of the product and repair as well. So those outlets are likely to go up by 50 by the end of this year. We feel that this sector is reaching out to the customers. And in a competitive market like India, it is ultimately the service that is going to be the differentiator when products are similar.

JK Tyre completed the ₹2,195 crore Cavendish Industries acquisition. How have you funded the deal?

We completed the acquisition of the Laksar unit of the erstwhile Birla Tyre on April 13-14 and we took physical position of the plant on April 15. So that is all behind us. The total cost of the acquisition was ₹2,170 crore, of which ₹450 crore and ₹700 crore is the equity part of it and the balance is debt. Incidentally, JK Tyre has 64 per cent of equity and the rest is with another group company. And as far as debt is concerned, it has been raised by different entities including Cavendish. No debt has been raised by JK Tyre from that point of view.

Published on May 17, 2016
This article is closed for comments.
Please Email the Editor