What's In Store For JK Tyre In Rest Of FY25? | NDTV Profit
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00:00Good morning and welcome to Earnings Edge right here at ATV Profit.
00:10We are now in conversation with Mr. Katoria, President of JK Tyres on the back of the strong
00:15Quarter 1 earnings.
00:16Good morning, sir, and thank you so much for joining us today.
00:19I just wanted to start off with this particular quarter.
00:22Now we've seen revenue degrow by roughly around a couple of percentage points, but the story
00:28has continued from Quarter 4, which is a strong EBITDA, as well as a strong profitability
00:32in this particular quarter.
00:35Talk us through what has been, you know, the trends in this particular quarter.
00:38We've seen some price hike also, if you could quantify in this particular quarter as well.
00:43How have you seen the quarter gone by and especially trends at the end of the quarter
00:47and leading into Quarter 2 as well?
00:50Good morning and thank you for having me on the show.
00:54So regarding the quarter, we saw that our profitability was quite good.
00:59In fact, the pad jumped by 33% and it was a strong quarter for us in terms of EBITDA
01:05margins as well.
01:06We were able to sustain the same.
01:09The demand side, yes, the replacement demand was more or less flat for us.
01:14The OEM demand, especially when we talk about the commercial vehicle, the medium and heavy
01:19commercial vehicles, there we saw some amount of sluggishness.
01:25But in my understanding, this is more of a temporary phenomenon and it would come back
01:30maybe in the latter part of this quarter itself.
01:33And the next half of the year, the FY25 second half, is expected to be quite robust in terms
01:41of demand in the CV industry also.
01:44However, our exports were very good.
01:48In fact, in Quarter 1, we saw the exports were up by almost 17%.
01:54And this definitely helped us to sustain our top line.
01:58Just if you could quantify, what was the price hike that you've taken in this particular
02:04quarter?
02:05Because we've seen some commodity cost has risen steadily since the start of the year,
02:10but we've seen a sharp rise in natural rubber prices as well in this particular quarter.
02:14If you could just quantify, what is the price hike that you've taken in Q1 specifically?
02:19And until now, in July, have you taken any other as well apart from that?
02:24Yeah, so if you remember that, you know, in the quarter 4 of last year, the raw metal
02:30prices have started to harden.
02:32And there was further hardening in Quarter 1.
02:36In fact, in Quarter 1, if you take, there was a further increase of almost 3 to 4% in
02:41the raw metal basket.
02:43We have been making our efforts.
02:46We have spoken about our efforts on premiumization.
02:50We have further continued to work on that.
02:52We continuously also improve our operating efficiencies.
02:56So some part of the raw material cost is definitely being set off with that.
03:01But definitely, that's not good enough.
03:03So we have been able to take a price increase in the month of April and May.
03:10The cumulative price increase for the quarter was around anywhere between 1.5% to 2%, depending
03:17on which category we're talking about.
03:19And this, along with the efforts on premiumization, as well as the improvement in operating efficiencies,
03:26were, in a way, we were able to negate the overall impact and thereby maintaining our
03:32EBITDA margins.
03:34However, going forward in Q2, we expect that there will be further prices, raw metal costs
03:41will further go up.
03:43The expectation is that it will be in the range of 5 to 6%.
03:48So definitely, we will be working on all the three levers, but there will be a need
03:54to pass on this increase in raw metal costs to our customers.
03:59We will be watching this very carefully.
04:01We have taken a small percentage increase, even in the month of July, and we will be
04:07watching this very carefully.
04:09And definitely, our efforts will be to see to what extent this can be passed on to our
04:15customers, both in the replacement market, as well as in the OEMs.
04:19Well, thanks so much, sir, for quantifying the price hikes.
04:23Now, just one question.
04:24You did touch upon your recovery in the second half of the financial year, especially for
04:29the trucking industry.
04:31We have seen, in this particular quarter, the share of OEMs by revenue has slightly
04:36gone down by a couple of percentage points.
04:38But in the second half, most OEM makers in the truck as well as the passenger vehicle
04:43industry have guided for a lot of launches in this particular year.
04:47How are you seeing this particular share going forward for the full fiscal year in this particular
04:52year?
04:53Are you seeing the share of OEMs will slightly rise?
04:56Because over the last 12 to 18 months, we've seen that the share has largely been stagnant
05:00for all tire makers because of lack of launches by most OEMs.
05:04How are you seeing this particular number going forward?
05:08So first, let's look at the demand, the absolute demand.
05:12We expect that in terms of the numbers, it is expected to get better.
05:19From actually the market starts picking up generally from the month of September.
05:25And therefore, production of the commercial vehicle should start getting better in the
05:30latter part of this month itself.
05:32We expect that from the second half, which is quarter three and quarter four, these two
05:37quarters are generally very strong in terms of OEM demand for us.
05:42And we expect that this year also, we should see the similar trend.
05:48The other question was regarding the mix between replacement versus OEM.
05:54The replacement market also is expected to be quite strong, definitely with the road
06:00infrastructure getting better, the freight availability, which we talk in terms of a
06:05billion ton kilometers, that is also expected to be growing.
06:09And this is very closely correlated with our GDP growth.
06:13So if the GDP growth rates are expected to be in that six and a half to seven percent
06:17range, we expect that even the freight availability, when it is measured in terms of
06:23billion ton kilometers, should see a cagger of eight to nine percent.
06:28And this would definitely augur well for both in the creating the demand for vehicles and
06:35the OEMs would be able to meet those demands.
06:40And also when the freight availability is better, the replacement market also gets to
06:46become a little strong.
06:48So we expect that the second half of this year should see us getting back to the numbers
06:54that we generally see.
06:56Now, one question you did highlight, you know, that export growth in this particular
07:01quarter has been really strong.
07:02I just wanted to get a sense of what are you seeing in terms of competitions from the
07:07MNCs that are in India as well as in Europe, because we've seen that Europe has been
07:11lackluster over the last couple of years.
07:14But this year, we have seen that finally there could be some growth as well as, you
07:18know, premiumization trend has already been playing out for a long time because
07:22including SLF.
07:23So just how are you seeing the competition specifically with MNCs in terms of
07:27premiumization in India as well as in Europe?
07:32So first, let's talk about the export market.
07:36For us, we have seen a growth of around 17 percent in our export revenues.
07:42This growth has come, we are broadly quite widespread in the markets that we cater.
07:48While around 50 percent of our revenue comes from the Americas, both the North and
07:53South continents put together, and the remaining 50 percent comes from other
07:58markets. So we are quite well spread into these markets.
08:02There are a couple of challenges that we need to take cognizance of because we are
08:06seeing that both the freight rates, the international freight rates are on the
08:11increase. And also there was a little bit of a challenge in terms of availability of
08:16vessels and containers.
08:18But we expect that by the end of this quarter, things should normalize, both in
08:23terms of availability and also the freight rate should start coming down from quarter
08:27three. So overall outlook for exports, whether it is in the Americas or other
08:33markets, including Europe, the Middle East, GCC countries, and even in some of the
08:40Southeast Asian markets, we should see that the demand is there and we should be
08:45able to meet that demand.
08:48Our capacities that we had planned a couple of years back have got commissioned,
08:54especially let's talk about the passenger car radial.
08:57Here we have not only the capacity, but also the capability to produce the high rim
09:05size tires. We have the capability to go up to 24 inches.
09:09So both for the domestic market as well as the international market, we are developing
09:14a lot of new products in the higher rim sizes.
09:18We are working with many of the OEMs, passenger vehicle OEMs, and we are one of the
09:23leading suppliers to big OEMs when it comes to the higher rim sizes, 17 inch, 18 inch.
09:31And we are working along with them, both in terms of development of tires, which are
09:37low RRC or energy efficient tires.
09:40And also we are working with them for both the ICE engines as well as the EV vehicles,
09:47which will be launched in the latter part of this year or even coming into FI26.
09:54Just a follow up question on what you mentioned, Mr.
09:55Katturiya, now, specifically the passenger car segment is something that you are
10:00expecting and very bullish on.
10:02Do you see the share in revenue for passenger cars going up?
10:05It's been around the 28 to 29 percent range over the last two to three years.
10:09Do you see a share?
10:10Because we are seeing also recovery in the truck and bus market in the second half, but
10:14we will be seeing a lot of launches starting Q2 itself from major OEM makers in the
10:19passenger vehicle space.
10:21Do you see a share of passenger vehicle revenue in this particular year to go up from
10:26this particular range of 28 to 29 percent?
10:29So if you look at the passenger line, what we call as the PLT segment, definitely our
10:37revenues are improving year on year, and we expect that this year also with the new
10:42capacities that have been put into place and also our efforts on premiumization, the
10:47share of revenue from the PLT segment will definitely be going up.
10:52But just to amply clarify, that doesn't mean that the demand for truck and bus will
10:59go down. Only as a percentage, the PLT will definitely go up.
11:05We saw in the last particular quarter, there was a hit for all tyre makers, especially
11:12because of the EPR provision that came into place.
11:15Now, because of that, of course, a lot of time it had to purchase certificates also at
11:20that time to meet those guidelines.
11:22How are you seeing the impact for this particular year?
11:24Will it be limited to around the 100 to 110 crore range as we've seen previously or any
11:31kind of range that you want to specify in this particular year for EPR provision
11:35specifically? And also on CAPEX, what is the kind of CAPEX that JK Tyre specifically is
11:42commissioning in this particular year?
11:45So regarding the extended producer responsibility or EPR as we call it, there was an
11:51impact in the previous fiscal because we were not passing it on to the customers.
11:57But from this year, we and as well as many of the other players in the industry have
12:01decided to make it a pass-through cost.
12:04So from the month of May, we have been charging our customers the EPR liability.
12:11It is a pass-through.
12:12We are not making any profits on that.
12:15But whatever is the cost that we incur in terms of certificate purchases, we are passing
12:21it on into the replacement market.
12:23And we are also in dialogue with all our OEM customers to see how we can quickly come to
12:30an understanding as to how this cost can be passed on.
12:38So basically, since this will be passed on directly, you see no impact in this particular
12:42year, like we saw in the previous fiscal year for specifically for EPR provision?
12:46This has started in the replacement market and we are very hopeful that we will also be
12:51able to get into a similar arrangement with the OE customers.
12:56And any kind of lag that you see in this particular or do you see not much, maybe a
13:01quarter's lag and it should be fine?
13:03Yeah, at best a quarter's lag.
13:06And just on debt, sir, if you could, on CAPEX and specifically on debt as well.
13:10So CAPEX for this particular year, what kind of targets does JK Tire have?
13:15And debt, we've seen a steady, you know, pay down by the company over the last couple of
13:20years. That's also improved the net debt to EBITDA ratio.
13:23Where are you seeing this at the end of the fiscal year?
13:25So first, let's talk about CAPEX.
13:28As you remember, a couple of years back, we had announced the CAPEX program of 800
13:34crores. That CAPEX program has played out very well.
13:38The facilities have got commission and the capacity is being utilized.
13:44Whether we talk about the passenger car radians or even the truck and bus radians.
13:48So that is complete.
13:50A couple of quarters back, we had further announced another 1,400 crores, out of which
13:541,000 crores was more towards the passenger car radian and another 400 crores was out of
14:02which 112 crores was the all steel light truck radian and the balance was for the TBR.
14:08So all these projects are what we have started working on this and we expect that by the
14:14second half of the next fiscal, that is FY26, these capacities should come into being and
14:23they will get commission.
14:24And I think so timing wise, this will be appropriate because by that time, we expect that
14:30the demand for both PCR as well as TBR domestically and even in the export market should
14:37be looking robust and these capacities that will be commissioned will be very useful in
14:45meeting that increased demand.
14:48Well, Mr. Katuria, thank you so much for joining us today and speaking to us here at NET
14:52Profit. Much in detail about the quarter one results as well as the next year as well in
14:58this particular year. Thank you so much for joining us today and we look forward to our
15:01next conversation.
15:04Well, that's all the time we have on this edition of Earnings Edge.
15:07Stay tuned to NET Profit for more.