JK Tyres and Industries, one of India’s largest tyre manufacturers, plans to bring down debt by around 45 per cent in the next three years as part of its deleveraging plan involving maintaining a tight leash on costs and spends.
The company has net debt of ₹4,800 crore as of December 31, 2021. The large debt overhang has restricted JK Tyres from arranging large capital expenditure (capex) for setting up new tyre factories.
, Sanjeev Aggarwal, Chief Financial Officer, JK Tyre and Industries, told BusinessLine, “We have been focussing on deleveraging and that is the reason behind us not announcing large capex numbers. This year itself, our long-term loans have gone down by ₹475 crore in 9 months. At the net level we have reduced debt to ₹300 crore this year so far. We will be able to reduce it significantly to the extent of about 45 per cent by FY25.”
As the company does not have any non-core assets that could be sold, it will depend entirely on business operations to generate income and reduce debt.
While the company claims to be operating its manufacturing plants (India and overseas) at an average of 90 percent, its desire to expand capacity is restricted due to the large debt and finance cost. However, given the robust demand for tyres, JK Tyres is management is contemplating the setting up of new capacity.
“We have been doing expansion through debottlenecking of our plants. We have been doing expansion in passenger car radials. We have not decided on any (greenfield or brownfield expansion) new expansion. (But) We have been working on that strategy because we are seeing that strong demand is emerging across segments. So, we will chalk out a plan and the board will work on it,” Aggarwal added.
Raw material costs
JK Tyres relies on the commercial vehicle segment to a large extent where it is one of the significant players. A revival in this segment, which has sustained since the last two quarters, augurs well for JK Tyres. Passenger car segment is the next big segment followed by two-wheelers and by three-wheeler tyres.
Because of the surge in demand for tyres, JK Tyres has been able to pass on the increase in raw material costs to the customer to the extent of 60 per cent. The balance of 40 per cent will be passed on by the first quarter of FY23.
“Most of the increase in raw material prices might have happened already. So, going forward things are likely to improve. We will be able to pass on the balance, without affecting our volumes, by the first quarter we should be able to pass on the entire hike,” Aggarwal said.
CCI order
The Competition Commission of India (CCI) imposed an aggregate penalty of ₹1,788 crore on five tyre makers and their lobby body for exchanging price sensitive data among themselves and being involved in cartelisation. JK Tyres, which was one of the companies named in the CCI report, has been penalised ₹309.95 crore.
“There has not been any wrongdoing on the part of JK Tyre. We have never indulged in cartelisation. We will evaluate this order for further legal action and the company follows the highest levels of corporate governance practices and operates in letter and spirit of the law,” Aggarwal added.