Q1 Review: JK Tyre & Industries' Net Profit Jumps Multi-Fold

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00:00 a JK Tire on the back of a spectacular set of numbers that have been reported this time around.

00:04 Sanjeev Agarwal, Chief Financial Officer at JK Tire joins in. Sanjeev, good morning and welcome

00:10 to the show. Good morning, Earl, and thanks for having me on your show. It's my pleasure.

00:16 Always a pleasure to speak to you as well. Sanjeev, my first question coming to you is a good

00:22 growth that we've seen at an operational level, as well as if you see from a profitability front as

00:27 well. What has led to this kind of numbers and is this something which is sustainable?

00:32 Yes, definitely. So well, the financial year 24 has started on a very positive note,

00:40 and with various macroeconomic factors supporting the growth all the way. And this growth, I believe,

00:48 is likely to continue because there is a robust demand in the domestic market, as well as in the

00:55 export market, which has started to revive recently after having seen subdued kind of a market in the

01:02 last couple of quarters. So now the things are improving on export market front as well,

01:08 and the domestic market has been continuing to be very robust. So we are expecting the growth to be

01:15 continuing in next quarters as well. Right. So overall, one of the aspects that I see is

01:24 that the raw material costs have reduced substantially, and that's something which

01:27 has aided margins as well. What's the trend looking like from here on?

01:32 So the raw material cost after having seen an unprecedented increase in the last two years

01:38 started to come down from October 22 onwards. Right. And that has actually given a stable

01:48 kind of a raw material scenario now. And we are seeing that because the commodity prices,

01:53 the crude oil prices more or less are stable, and the raw material which we buy, the inputs

01:58 for us, that is also in a stable scenario situation today, and which is likely to continue

02:06 like this. And we see that this will continue to give us good growth as well as good profitability

02:14 going forward. Right. So if you have to look at the various segments from truck and bus

02:22 to passenger line radial to two to three wheelers, where is the growth coming on? I do understand

02:28 that passenger line radial is where we have, where the company has the maximum capacity.

02:32 But where are you seeing growth in terms of volumes? So we are seeing growth all across

02:39 our product segments, including the PCR segment, two wheeler and three wheeler, as well as in TBR,

02:46 definitely. So this is coming all across our product segments. And the best thing is that

02:52 we have also been improvising and premiumizing our product range. And that is actually adding

02:59 to our profitability. And we have seen a big jump of 450 basis points increase in the operating

03:05 margins on a y-y basis. So that is because of the product mix improvement and also because

03:13 of this table long term plan system. Right. And when you talk about premiumization as well, how

03:19 you know, how is that panning out? And from here on, how much of your revenues do you think can

03:25 come from the premium segment? Because, you know, this was something which I have been personally

03:29 tracking specifically for the two wheeler space that since Hero, Bajaj and Royal Enfield, you know,

03:36 I mean, Hero, Bajaj, we did see the premium segment launches recently. And you know, Royal Enfield is

03:41 already present and all the three are OEM partners to a JK Tire. Do you see their contribution to the

03:49 revenues increasing? Yes, of course. Because we have also been, as I said earlier, we have been

03:56 launching innovative products and very high premium quality products as well. And the same

04:02 is the case not only in the two wheeler and three wheeler segment, which you mentioned, but also in

04:07 the case of PCR segment as well. And we have like launched this smart tire and also some other tires,

04:15 puncture guard tires. And the main thing is that we have been now improving. This is in the 16 inch

04:24 plus tire category, which is a premium category. And this is contributing a larger revenue in the

04:31 company. So the percentage is different for various products, but this is improving quite a bit.

04:37 And how is the business on the replacement front working? Because a trend that again comes up is

04:44 that the shelf life of a new tire is much less as compared to what it was earlier, taking into

04:50 consideration the way the weather conditions are changing, the way the infrastructure in the

04:56 country is as well. So say, for example, if a tire would function for four years, the shelf life

05:02 probably has now come down to three years. So taking that into consideration, how are you seeing

05:08 the role of replacement demand in the overall business? So the replacement demand has been

05:14 continuously increasing. Just to give you an example, like in the case of road infrastructure

05:20 improvement and the new roads that are being constructed. So we have become the world's

05:26 second largest road country in the world. And that is helping us to increase our sales also.

05:33 So the shelf life, as you said, might have come down, but actually the improvement in the quality

05:42 that is helping. So I don't think that is going to impact much, but we are seeing a very good growth

05:49 in terms of the quantity and in terms of the quality of the products, low noise tires, then of

05:55 course the rolling efficient tires, low rolling efficient tires, those are being launched. And

06:03 that is helping us to increase the sales in numbers. Right. And from a margin front as well,

06:11 will the company be able to maintain this double digit or there's a possibility that we could move

06:19 to higher double digit as well? Definitely there is a possibility as we have been working all along.

06:24 This is improvement in efficiencies and improvement in the capacity utilization,

06:31 increasing volumes. So larger scale of volumes definitely will improve over margins. And if I

06:38 see that the stable raw material prices continues, then there's no way that the

06:46 margin will not improve. So that definitely will improve. And I see a very good margin

06:51 improvement possibility going forward. Right. And from a top line front, if you have to look at FY24,

06:57 would it be right to say that around a 14 and a half to 15,000 or a little over 15,000 odd

07:05 crores is what we would look at in terms of the turnover? In terms of the turnover, definitely we

07:11 have been increasing because of the increase in the quantity sold. We have been increasing and

07:18 are getting a very good push upwards. So it would be difficult to give a particular number as of

07:25 now, because this is just the beginning of the financial year 24 and we have again good numbers

07:32 in first quarter. So this should be crossing the last year's number definitely by a big margin.

07:40 Okay. And from a capacity perspective, I think 84% capacity utilization is where the first quarter

07:49 was at. Any expansion plans? So we have been working, as you would recall, we had earlier

07:56 announced about 1100 crore piece of expansions in capacities, including through de-bottlenecking.

08:02 And out of that, de-bottlenecking has already been completed in PCR. And we are now working

08:10 on two projects for expansion of capacities. One is in PCR at Barnmore tyre plant. And the other

08:16 one is for the TBR tyres. And this is at Luxor tyre plant, which is in a subsidiary company.

08:24 So these two capacity enhancement projects will get commissioned by the end of this financial

08:29 year. So this will give a good headroom for us to increase our numbers further.

08:34 Right. And what's the update looking like with Cavendish and Tornell?

08:38 Both are doing very well. In fact, they are both doing excellently well and they will contribute,

08:45 they are contributing and will continue to contribute better.

08:48 And overall, if you've seen the net debt to net debt position, is the company comfortable with

08:56 the current level? So we have been working for the last couple of years on de-leveraging strategies.

09:04 And we have reduced our debt, for example, in the June, we have reduced our debt by 250 crores,

09:13 and which is primarily on account of efficient working capital management and also term loan

09:19 repayment, scheduled term loan repayment. So we are continuing to work on that. And

09:24 the debt to beta levels have come down significantly. So the numbers are quite

09:30 reasonable now, but we are still continuing with that strategy. And going forward, you will see a

09:35 big improvement in that number. And we are committed to reduce our long term debt by about

09:40 25% in next three years period, by 2026. Right. And my last question coming to you is,

09:47 you know, recently we had the Commerce Ministry ease import restrictions on pneumatic tyres.

09:54 What would this actually mean for the industry, as well as a company like yours?

09:59 So far, we have not seen a major impact of that because in any case, the import

10:06 imports were through the license route. So restrictions in terms of even if the

10:12 restrictions are there, this is not impacting because there is a good growth and the potential

10:18 in the country. Right. But what's the overall impact? Is it positive from a business perspective?

10:24 Yes. Yes. Right. All right, Sanjeev. Thank you so much for speaking to us at BQ Prime. Once again,

10:31 congratulations for the fantastic set of numbers that the company has reported and good luck for

10:36 the coming quarters. Thank you so much.

10:39 Bye.

10:47 [BLANK_AUDIO]

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