Rajiv Prasad, President, JK Tyre India in conversation with Pritish Raj.
While sales of both commercial and passenger vehicles remain sluggish, tyre manufactuers are seeing a demand slowdown. Rajiv Prasad, President, JK Tyre India, tells Pritish Raj that the volume loss from the automakers will be compensated by higher exports and in the replacement market. Edited Excerpts:
Demand for automobiles has been muted since the second half of FY19. To what extent has this impacted the tyre industry?
What gets reflected is the demand scenario for original equipment manufacturers but a large part of the demand comes from the replacement market and this does not change. So, even if the demand from OEMs drops 20%, the consumption of tyres does not decline to that extent. JK Tyre has grown sales in the replacement market.
Is it fair to say that there has been no impact on JK Tyre volumes due to slowdown in vehicle sales?
No, because we would have grown more than what we did. Our growth would have been 28% or 30% last fiscal but we grew by about 24% in terms of revenue and volumes.
Even then the profits declined 79% y-o-y in Q4FY19…
It has to be seen differently. The profit in Q4 actually grew but it was due to some extraordinary items that the profitability showed a decline.
The demand for commercial and passenger vehicles is expected to remain subdued in the near term. How do you plan to make up for this?
In Q4, the truck demand was lower compared to Q3 but Q2 and Q1 were strong. Going forward, we are trying to make up through the replacement market and exports.
There are anti-dumping duties imposed by many countries on Chinese products and that is where we see an opportunity to grow.
We are ramping up our exports to balance the de-growth from the OEM segment.
But there wasn’t much growth in exports for JK Tyre in FY19 either…
Exports in FY19 were slow because they scaled up only post October.
We had curtailed exports to some extent as after the acquisition of Cavendish in 2016, we had additional capacity for two and three-wheelers and truck and bus radial tyres (TBR).
Some of the equipment needed to be commissioned which took time.
Once that happened, we started diverting some capacity of TBR to the export markets.
Raw material prices were very high in FY19 which impacted the entire tyre industry. What is the situation currently and how do you plan to deal with higher costs?
There are two essential raw materials for tyres, a petro based material and the natural rubber.
In the case of natural rubber, while international prices were going down, it was getting offset by the high duties on the imports.
For petro-based raw material, there was a huge upswing in dollar and oil prices in FY19.
We were expecting the oil prices to come down in Q1 which didn’t happen.
But the duties on natural rubber will continue to remain high so is that not likely to hit profitability?
Last year, we improved our product mix and volumes and also took price hikes.
With the price increase, the raw material prices were passed on to customers and going forward we will continue to do the same as the trend does not show softening of prices.
Post BS-VI norms implementation, it is expected that diesel car volumes will diminish slowly owing to high price. How will this impact tyre makers?
The gap created by fewer diesel cars will be filled by petrol variants.
Even if the industry is flat in FY20, it is still large in terms of volumes.
For instance, passenger vehicle sales would still be over three million units, which is huge. Plus there will be pre-buying of BS-IV variants which is likely to offset some of the slowdown.