JK Tyre to pump in Rs 800 crore to expand output to 34 million units per annum

In its bid to leverage on the burgeoning demand for its products from automakers, JK Tyre and Industries will be ramping up its current capacity by 2 million units per annum by the end of financial year 2023-24. The homegrown tyremaker will be spending Rs 800 crore on this scaling-up exercise, a senior company official told Moneycontrol.

“We had earmarked Rs 1,100 crore last year for capacity expansion, out of which we had already spent Rs 300 crore for the debottlenecking programme. We will now be spending the remaining Rs 800 crore that will enhance our overall capacity to 34 million units by the end of this fiscal,” Anshuman Singhania, managing director, JK Tyre and Industries, told Moneycontrol in an exclusive interaction.

Reacting to this development, shares of the company gained four percent intraday, hitting a high at Rs 173.25 on April 19.

The company churns out a wide range of tyres, including truck/bus bias and radial, passenger car radial, two-three-wheeler tyre, light and small commercial vehicle (CV) bias and radial, off-highway tyres (OTR and farm) from its nine plants in India and three plants Mexico. At present, it counts Maruti Suzuki, Tata Motors, Ashok Leyland, Mahindra & Mahindra, VE Commercial Vehicles, Volkswagen, Fiat Chrysler, Nissan and TAFE as its customers in India.

Singhania, who belongs to the fourth generation of the promoter family, stated that while the bulk of the capex—Rs 530 crore—will be deployed towards ramping up the output of passenger car radials (PCR), the remainder—Rs 270 crore will be spent towards capacity expansion of truck and bus radials (TBRs). However, he clarified that the company has no plans to set up a greenfield facility in the medium term, “Right now, we are going to sweat our assets. We want to fructify our investments with the additional capacities, and then we may look at greenfield facilities,” added Singhania.

In order to fund its capex, the Rs 12,000-crore firm (in FY’22) will be following a debt-to-equity ratio of 1.5:1. While it will be raising Rs 500 crore as debt, another Rs 300 crore will be funded from internal accruals . It recently sold a 5.6 percent stake to IFC by issuing compulsorily convertible debentures (CCDs) on a preferential basis for $30 million (about Rs 240 crore). The amount raised will be used to part-finance the tyremaker’s expansion of manufacturing capacities apart from product development, as announced by JK Tyre recently.

Latching on to EVs and SUVs

For Singhania, e-mobility is the “way forward” and the company is spending a huge sum on its R&D operations to develop tyres for electric cars, bikes and CVs. The Delhi-based tyremaker stated that while it has started supplying tyres to electric bus manufacturers JBM Auto, Olectra and Tata Motors, is in active discussions with other OEMs or original equipment manufacturers too.

“We are future-ready with our products and are also constantly learning as things are panning out in the future through OEMs. We are also imbibing technologies necessary for the EV (electric vehicle) revolution,” revealed Singhania.  However, he clarified that the company has no immediate plans to build dedicated production lines or facilities for EVs as the existing capacities for internal combustion engine vehicles are ‘modular’ in nature and can be revamped to churn our EV-specific tyres.

Singhania also believes that sports utility vehicles (SUV) across various segments are “gaining a lot of traction” and the company foresees enhanced business opportunities from OEMs as well as from the replacement market. While it is already supplying to Hyundai and Kia for the Creta and Seltos SUVs, respectively, it is in advanced discussions with other carmakers which are planning to introduce SUVs.

Business outlook

Singhania expects the current demand for automobiles in the domestic market to hold up and this would lead to 10-12 percent growth for the tyre industry. In his view, the CV segment, which saw a muted growth over the last eight to nine quarters, has seen a resurgence.  He also believes that the passenger vehicle segment, which was impacted by the semiconductor crisis, will see sustained growth

“We are seeing strong demand coming in from various applications and sectors in the tyre industry. We are seeing great traction in the CV space fuelled by infrastructure spends by the government in India. The passenger vehicle segment is also coming back to pre-Covid levels. With multiple car launches lined up by OEMs, we see a robust demand for our tyres,” Singhania added.

Sustained growth in financials

The BSE-listed tyre major, which registered a 24 percent growth in profit and saw a 17 percent jump in its net income during the third quarter of FY23, recorded a turnover of Rs 11,000 crore during the first nine months of this FY23. While its fourth-quarter results have not yet been announced, the company hopes for a sustained growth of 20-25 percent in its bottom line.

“During the last financial year, the volumes had played out and there had also been price increases. So we foresee this momentum to be on the same lines for the fourth quarter,” maintained Singhania. When asked to give some guidance for the next fiscal, he said, “Last two financial years, I would say the raw material prices had escalated to almost all-time highs as it went 50 percent higher. But as we raw material prices are softening and the supply chain is getting stable, the outlook looks very positive.”