Rajratan’s Chennai plant to go on stream by end FY23

Rajratan Global Wire, one of the world’s largest bead wire manufacturers expects its volumes to increase by at least 20-25 percent in the current fiscal buoyed by a rebound in economic activities and ongoing production debottlenecking exercises at its plants in India and Thailand.

The company management's optimism for increased volumes stems from various industry projections which pegs India's tyre industry to grow over 13-15 percent in terms of volumes in the current fiscal. Even on the basis of a medium-term estimate for FY22-25, the growth rate will still hover somewhere around 7-9 percent.

The company was recently selected for concessions under the government’s production-linked incentive or PLI scheme with a capex investment of around Rs 300 crore over three years. This is where the company’s Chennai plant will play a key role. The facility, for which a ground-breaking ceremony was held last month, is slated to roll out its first coil by end of the current fiscal. The management expects it will take at least three years' time for the Chennai plant to reach its full capacity utilisation of 60000 TPA. Concurrently, the company intends to also increase wire availability from its Pithampur plant in addition to debottlenecking exercises being carried out at its Thailand plant to meet its targeted volume.

Export markets
The Chennai plant, once completed, will not help in catering to the local demand but also serve the export markets such as South Asian countries, Europe and the US. In the current scenario, Rajratan’s management says, despite ever increasing demand, the company has not been able to fulfil it due to shortage of capacities at present. The game plan is to target around 40-50 percent volume from the Chennai plant for exports.

For Rajratan which currently has a 48 percent market share in India, the development means a greater pie of the overall market, the management adds. For Rajratan Global, almost 90 percent of its capacity already stands booked at present. Even if the country's automotive sector growth falters, still Rajratan expects it to remain in a formidable position considering that nearly 70 percent of its volume sales in the aftermarket segment. Further, Rajratan Global has been a beneficiary of anti-dumping duties levied upon Chinese tyres resulting in 20 percent additional capacities for Indian companies. Yashovardhan Chordia, Director, Rajratan Thailand said, "The volume is all set to increase".

Customer base
Rajratan specialises in tensile grades bead wires which it currently supplies to almost all tyre manufacturers in the country. Bead wire, which is used in all kinds of tyres for automobile, earth moving equipment, aircraft, cycles, passenger vehicles, two-wheelers, three-wheelers and truck bus radials functions to hold the tyre to the rim and resist the action of inflated pressure, which constantly tries to force it off. It is the crucial link through which the vehicle load is transferred from rim to tyre, preventing vibration during driving thereby enhancing its safety, strength and durability. The company is tied up primarily with JSW for its raw material sourcing needs in addition to a couple of other players for backups.

At aggregate levels, the company's current manufacturing capacity stands at nearly 112000 tons per annum (TPA) out of which close to 72000 TPA gets contributed from India while the rest comes from its second base in Thailand.

When asked if Rajratan Global intends to start production facilities in the US or Europe in near future, Chordia says that a decision on that has yet to be taken. As he explains, "Making in Europe will always be very expensive. We have to ensure that it is feasible because a lot of suppliers of bead wires in Europe are closing down. Our earlier joint venture partner had shut down the bead wire business last year. We will do all the analysis and evaluations at a later stage and depending on the level of business." He added that the cost competitiveness from Asian and other regions has made things tough for the US and European manufacturers.

Rajratan Global has benefitted from the diversification of the supply chain by global tyre manufacturers in terms of the market share it has gained in the past two years. In addition, China's decision to pull out of polluting downstream steel production by doing away with duties also seems to be helping its cause. Earlier, China offered a tax rebate of nearly 13-17 percent for export of bead wires from China. The development had made Chinese bead wires expensive in comparison.

Thailand market promises plenty
The management at Rajratan is now convinced that a structural shift – relocation of large tyre manufacturing capacities from China to Thailand – would only accelerate, strengthening the demand for bead wire. The company aims to increase its market share to nearly 40 percent from 25 percent

currently by tapping into the new and existing customers. Moreover, exports from Thailand which at present accounts for around 43 percent of revenues from that company may be reduced a bit in coming years to meet the local demands first.

Thailand which recently turned profitable for Rajratan Global when it recently completed the construction of the new warehouse that has a storage capacity 5,000 MT. The executives expect the capacity expansion will be completed by the first quarter of fiscal 2023. The company

has also already received approvals from Yokohama, Prinx Tyre, GRI Tyre and Finland-based Nokian for its plant in Thailand. As a result, the capacity at the company’s Thailand plants has been utilised to the extent of 95 percent in the second half of the year and is now looking to increase its capacity to 60,000 tonnes this year.

Chordia said the plan is to use this enhanced capacity to meet the domestic demand. Historically, the company has been present in only 20 percent of the Thailand market. However, with the added capacity, the plan is to target close to 35- 40 percent of market share. Rajratan Global’s top leadership is of the opinion that the company remains the only domestic producer of bead wire in Thailand and with the logistics issues and a lot of uncertainty in supply chain for importing bead wire, the customers are requesting more volumes. The management has now set itself a target of 45,000 tonnes in the next financial year by sometime around July. Exports from Thailand currently account for around 43 percent of revenues.

Rajratan Global’s presence in Thailand has also helped moderate logistics costs as compared with imports. The company’s capital cost per tonne, is considerably lower than the cost of setting up greenfield capacity, and this represents an effective entry barrier against emerging competition.

Besides, the growing sophistication of tyre manufacturing facilities and requirements in Thailand have helped Rajratan Global raise its quality benchmarks, strengthening its global reputation and positioning. And while all is on track and pretty hunky dory in South east Asia, the company’s Sri Lankan business is facing heat thanks to the recent developments there. The company has a strong base there, and for now, its management is hopeful that the prevailing financial and political crisis will get resolved and the situation stabilise.

The feature was published in Autocar Professional's  May 15, 2022 issue.