JK Tyres eyeing funds for Rs 1,100 crore investment plan
The company had raised Rs 240 crore in March from IFC, a part of the World Bank Group, with a focus on investments in the private sector in emerging markets such as India. The focus is now to get more such investments in the coming months.
JK Tyre & Industries, the flagship company of JK Group, has revived its Rs 1,100 crore investment plan, which was postponed in 2018 due to a slowdown in macroeconomic indicators. The company is now going all out to tap into the growing demand for tyres in India.
Dr. Raghupati Singhania, the Chairman and Managing Director of JK Tyres, during a post-result conference call, stated that the capex will be raised with a combination of debt and equity. The company recently raised Rs 240 crore from IFC, a part of the World Bank Group, with a focus on investments in the private sector in emerging markets such as India. The focus is now to get more such investments in the coming months, he added before continuing that he remains bullish on the performance of his businesses. "A good monsoon, a positive economic growth forecast, and a push for infrastructure development will be the impetus for growth going forward," Singhania added.
The investment by JK Tyres is a sign of growing confidence in the Indian automotive industry. The industry is expected to grow at a CAGR of 8-10% over the next few years, driven by factors such as increasing demand for passenger vehicles, commercial vehicles, and two-wheelers.
As per an update in June from ICICI Securities, a research analyst firm, the Chennai plant of JK Tyres has a current capacity of 330 tpd (tonnes per day), and it can produce 4.85 million/1.2 million PCR(Passenger Car Radial tyres)/TBR (Truck, Bus and Radial tyres) per year. The cumulative capex spent on the plant is Rs 25 billion. The plant generated revenue of Rs 28 billion in FY22–23, with about 40% of it coming from TBR. JK Tyres is the number two domestic TBR maker, with a market share of 28%.
The company is also planning to invest Rs 8 billion in Capex to add 100 tpd capacity in Banmore and Haridwar facilities in FY24–FY25. This would result in JK Tyres doing Rs 5 billion in capex each year in FY24–Y25 including maintenance capex.
JK Tyres, which gets counted among the country's leading tyre manufacturers, currently boasts a dozen manufacturing facilities with a total capacity of 33 million tyres. The capacity utilisation during Q1 FY24 stood at 85%. On the basis of segment wise categorisation, JK Tyre's capacity in trucks and buses stood at 3.7 million in radial and 2.3 million in bias. In the passenger line radial, the capacity stood at 14.5 million, and in 2W and 3W, it stood at 7.9 million.
The tyre major's decision to fund its capex with debt and equity is a sign of its confidence in the future of the tyre industry in India. The overall investment plan of JK Tyres is ambitious, but it is well-timed. The Indian tyre industry is on course to more than double its revenue to US$22 billion by fiscal 2032 from US$9 billion in FY 2022, according to a report by the Automotive Tyre Manufacturers' Association (ATMA), based on a comprehensive study by CRISIL Market Intelligence and Analytics (MI&A) Consulting.
The Indian government, on its part, has taken steps to facilitate the growth of the domestic tyre industry. Anti-dumping and countervailing duties and the Atmanirbhar Bharat initiative have helped to reduce tyre imports from Southeast Asia and China.
JK Tyres' push for expansion comes on the heels of the company's latest financial results, whereby its net profit more than quadrupled to Rs 159 crore in the first quarter of fiscal 2024 (Q1 FY24), from Rs 34 crore in the same period last year. Total revenues increased by 13% to Rs 3,726 crore in Q1 FY24, from Rs 3,643.03 crore in Q1 FY23. The company attributed the jump in profits to improving overall efficiency levels, increased premiumisation of the product mix, and stable commodity costs. Commodity costs usually constitute around 60–65% of the total input cost structure.
JK Tyres leadership added that its subsidiaries, Cavendish Industries and JK TomeI, Mexico, continued to perform well, contributing to the company's overall revenues and profitability. Singhania further added, "We are confident that India's growth story will provide us tremendous opportunities, and we are aligning our strategies to pave the way for accelerated growth in the years ahead."
While the capex plans are still in place, analysts pointed out that in the past, whenever JK Tyres had a chance to pare debt because of a good operating environment, it increased capex spending instead, which didn't help pay down debt. In the end, how well JK Tyres handles its debt will determine how well its capex plans work. If the company can pay down its debt and invest in growth at the same time, it will be set up well for the future.
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