Interview: Sanjeev Aggarwal, CFO, JK Tyre & Industries: ‘We intend to reduce our long-term debt by about 40% by FY24’

Our strategy is to keep the capex lower and lower debt over the next one-two years.

Our core exports markets like North America, South America and countries in the Middle East are all doing well with a robust demand.

By Rajesh Kurup

To mitigate the recent raw material price hike, JK Tyre & Industries intends to hike product prices by 2-3% every two-three months this year. To reduce debt, the company intends to maintain a lower capex for the next one-two years. Sanjeev Aggarwal, the company’s chief financial officer, told Rajesh Kurup that the firm is expecting exports to contribute to 50% of overall growth. Edited excerpts:

In Q2, JK Tyre posted a lower net profit, while margins were also under pressure. Was this impacted due to the rise in raw material prices?

The recent increase in raw material prices was not as steep as it was a few quarters earlier, since the bulk of the spike had already taken place. In fact, we are seeing a stabilisation in raw metal prices now. But it has not flattened out now completely.Margins remained under pressure even though we tried to pass it on through planned price hikes. Till Q2, there had been an increase in domestic tyre prices up of about 30%, while our effective price hike was about 20%. We have passed almost 60% of the spurt in input prices to our customers, and will pass on the balance in Q3 and Q4.

So, are further price hikes in the offing?

In percentage terms, we intend to hike prices by 2-3% every two-three months so that volumes are not adversely impacted. We want to continue with volume growth, because now there is an opportunity to sell more.

On your plans to reduce consolidated net debt of Rs 4,760 crore?

Our strategy is to keep the capex lower and lower debt over the next one-two years. We had significantly reduced our debt and our interest cost over the last several quarters on better performance, capacity expansion of 10-15% and de-bottlenecking. Overall, the interest cost of tyre companies has come down by 10%, while we have managed to cut by a higher 15%.

The long-term loan was reduced by Rs 180 crore till September. We intend to reduce our long-term debt by about 40% by FY24.The original equipment market (OEM) market, where you have a strong presence, is sluggish and the replacement market is struggling? The OEM market remains sluggish due to reasons such as semiconductor shortage.

But on the other hand, TBR (truck and bus radial) is picking up in the OEM segment, and in the replacement market, the demand scenario is quite strong and this is likely to grow due to the government’s push for infrastructure expansion and other developments. We anticipate the demand to sustain or grow further for the next five-six years.

The auto sector has been affected by myriad issues ranging from fuel prices to chip shortage. Is there a respite?

We are witnessing a clear improvement and growth in the industry. In revenue terms, JK Tyres has grown by about 56% in the past six months, much higher than the industry average of 43%. In terms of outlook, the growth is significantly visible in the TBR segment, where 60% of our revenue comes from.

How are you faring in the export market?

It’s quite good. For the first six months of the financial year, we had an export turnover of Rs 930 crore, a 96% rise on a y-o-y basis, which helped in offsetting loss of sales from OEMs. In FY21, we recorded an export of about Rs 1,200 crore. For FY22, we are targeting an overall growth of more than 50%. Our core exports markets like North America, South America and countries in the Middle East are all doing well with a robust demand.

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