JK Tyre & Industries said on Tuesday that is “seriously examining the possibility” of purchasing rubber plantations to protect itself against rising rubber prices.
“Rubber prices are up as production is not growing, while demand is on the rise from the industry. Among various solutions, we are also looking at buying own plantations. Rubber plantations normally take seven years, so we could acquire existing ones in India or abroad,” said Mr Arjun K Bajoria, President and Director, JK Tyre, while announcing the company's results.
Asked if the company has kept aside some capital for such plans, he said, “When you are examining such a possibility obviously you have kept some money aside in your pocket.” The company is also researching on chemical substitutes to reduce the dependence on natural rubber, he added.
Consolidated profit down 71%
JK Tyre posted a 71.5 per cent drop in consolidated net profit to Rs 62.55 crore (Rs 219.74 crore) for the year, even as consolidated net sales went up 30 per cent to Rs 5,945 crore (Rs 4,571 crore).
“The bottomline took a hit because of the raw material prices, which increased 43 per cent. We wanted to increase tyre prices by 27 per cent, but it could not be increased above 17 per cent,” said Mr Bajoria.
He added that the import of Chinese tyres and radials also impacted profits. “There is a price difference of 18-20 per cent between us and Chinese tyre makers. Anti-dumping duty has helped but its actual benefit will show in the coming quarters, as it came into force only in October last year,” he said.
Rubber prices were up 65 per cent at Rs 190 a kg in 2010-11 over the previous year and now rules around Rs 224. Raw materials such as rubber, petroleum products and steel wires make up for 70 per cent of the total cost of tyres. The company plans to increase tyre prices by 4-6 per cent from June 1, the third increase in 2011.
For capacity addition, JK Tyre is spending up to Rs 1,130 crore at its new plant in Chennai and at an existing unit in Mysore. By the third quarter of 2011-12, the Chennai plant would be able to make 25 lakh car radials and two lakh truck and bus radials (TBRs), while Mysore will add two lakh TBR capacity. By end-fiscal, the company would have a capacity of 1.28 crore tyres a year (97 lakh currently). JK Tyre shares on the BSE were up 2.82 per cent at Rs 89.45.