Arun Bajoria, president and director of JK Tyre says the sales of the company have been affected by the sluggishness in the auto market, which includes brief halts in production.
The tyre manufacturer posted a 60.96 percent decline in its standalone net profit at Rs 33.70 crore for the quarter ended March 31, 2013. Its net sales came in at Rs 1,377.19 crore in the fourth quarter ended March 30, 2013 from Rs 1,485.39 crore in the year-ago period.
However, going forward, Bajoria expects an improvement in the company’s performance on a whole year basis. “By September-October 2013, things should again look up because of the general improvement in the economy,” he told CNBC-TV18 in an interview.
JK Tyre will invest Rs 800 crore to double capacity of its Chennai manufacturing facility over the next two years. “Our Chennai tyre plant will give us full production during this year (April-March 2013-14). That is going to be a huge addition of more than Rs 1000 crore in our topline,” Bajoria informs.
Below is the edited transcript of his interview on CNBC-TV18
Q: Operationally, your margins have improved this time around, but on a top-line level net sales there is still some bit of degrowth that you are facing. For how long do you think you will continue to see this kind of a degrowth? Do you hope to sustain margins at these levels going forward?
A: There is sluggishness in the auto market and all auto manufacturers including the commercial truck manufacturers have been taking long cuts in their production and have been stopping production for weeks, 10 days and so on. Naturally that has affected our sales as well.
I feel we should be able to maintain these margins. We should slightly improve on the whole year basis 2013-14, because I think by September-October 2013 things should again look up because of the general improvement in the economy. That is expected.
Q: Are you expecting earnings before interest, taxes, depreciation and amortization (EBITDA) margins of about 13 to 14 percent, because as per your calculation your standalone margins for FY13 stood at about 9 percent which means that you are expecting 400 bps improvement in margins for FY14?
A: I would not guess the margin percentage, but the last quarter January to March, we have clocked 10.1-10.2 percent on the operating margin level.
We are doing everything possible and especially our Chennai tyre plant is going to give us full production during this year April-March 2013-14. That is going to be a huge addition of more than Rs 1,000 crore in our top-line. It should also give us better spread on fixed cost etc. on a larger volume of tyres.
Q: What kind of demand are you seeing in the replacement market?
A: Right now, the demand is flat in terms of commercial vehicles up to 31st March, 2013. It has been a degrowth of about 2-3 percent. In passenger cars it has been flat or just about 1 or 2 percent positive. Going forward, the pent-up demand has to ultimately surface and that is where we are all banking our hopes from September-October onwards which is the new festival season of Dussehra-Diwali onwards.
Q: Any rough indication of what you expect FY14 revenue growth? FY13 you have closed the year with about 1 percent degrowth in your standalone net sales.
A: Our sales have to be higher because we are clearly getting at least 15 percent more production from our Chennai tyre plant which is our latest world-class plant for truck radials and passenger car radial tyres. The consolidated sales are about Rs 7,560 crore. We should be close to Rs 9,000 crore if I can make a rough estimate.
Q: All the tyre manufacturers have benefited from lower rubber cost. Going forward, how do you see your raw material costs panning out?
A: One thing I want to clarify, of course we have had softer raw material prices during 12-13, but if you take the other inputs like bead wire, carbon black, nylon fabric, all the three have increased.
Of course natural rubber and synthetic rubber have softened and that has definitely given us an edge and that is also one of the main reasons why we have improved our margin of operating profit from almost 5.2-9.2 percent on the whole year basis.
I do not think there should be much of a spurt in the overall cost of raw materials in 13-14, that is what we expect. Therefore we should be able to maintain the margins that we have achieved.
Q: What are your expectations on exports? What is the kind of run rate that we could expect on exports?
A: We have improved exports by almost 44 to 45 percent over 2011-12 and we have achieved almost Rs 870 crore from India. We should further improve on export during 2013-14 substantially.
Source: moneycontrol.com
