The sale of 5.6% stake to International Finance Corporation (IFC) for Rs 240 crore is one of the ways JK Tyre and Industries plans to raise funding to power its expansion plans. The company is expecting a double-digit growth in volumes in FY24, relying on continued growth in truck and bus radial demand. Anuj Kathuria, president, JK Tyre and Industries, spoke to Swaraj Baggonkar on the company’s plans. Excerpts.
What will be your guidance for FY24?
The growth story will be quite robust in the truck and bus radial space. The push on infrastructure is very encouraging. Core sectors like steel, coal and cement are doing well. GDP growth is expected to be around 6.5%. FY24 being a pre-election year, the government will be keen to finish projects.
What growth levels are you expecting?
There should be a double-digit growth in tyre volumes to the commercial vehicle industry. There is equal demand for replacement and OEM (original equipment manufacturer) segments.
What is the segmental revenue split for JK Tyres?
Commercial vehicles are around 60%, passenger car 20-22% and the remaining is two-wheeler, off-highway tyres and farm tyres. The aftermarket is two-thirds of the business for us while one-third is OEM market.
Have you made any changes to your investment plans?
Capital expenditure plans cannot be determined by short-term blips. We have progressed on our expansion plans. On the passenger car side, our utilisation is upwards of 95%. We are looking forward to the expansion programme to deliver more capacity. Although seasonality will be there, demand is expected to be stable.
You are raising capacity to 35 million tyres a year from 32. How will you fund it?
Some part of the Rs 240 crore coming in from IFC’s stake buy in JK Tyre will be used for capacity expansion. A combination of debt and internal accruals will be needed to fund growth plans. We were in talks with IFC for the past one year.
Are there further funding plans?
Nothing has been announced. But we will examine.
Are your debt reduction plans on track?
They are on track. The long-term funding is used for capex programmes, while the other form of debt is used for working capital. So working capital, as a percentage of my topline, is reducing. But long-term debt of Rs 3000 crore, we intend to bring it down 35% in two years.
What is the absolute debt right now?
It is a shade lower than Rs 5000 crore, including working capital. Long term is 60% of that at Rs 3000 crore and the balance is working capital.
Where would the absolute debt figure be by FY24-end?
It will be 20% lower, which will be around Rs 4000 crore. There will fund requirements for further expansion programmes. We generally do not rely on debt only for expansion.
What is JK Tyre’s exposure for the defence sector?
We are present through OEMs. We also directly supply to defence forces through tenders. We are the largest supplier of tyres to land-based vehicles.
Is there pricing pressure on the raw material side?
Input costs are stable. Crude, natural rubber, carbon black, steel and chemicals are raw material for tyres. We have been through a very volatile period. We have not taken price hikes this quarter yet.