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We expect strong pent-up demand in the second quarter

We expect strong pent-up demand in the second quarter

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"We expect strong
pent-up demand in the
second quarter"

Sanjeev Aggarwal
Chief Financial Officer, JK Tyre and Industries Limited

What effective measures and initiatives did JK Tyre take to reduce the impact of the pandemic?

Well, the pandemic has posed the most challenging scenario to the global and Indian economies. The nation was under complete lockdown during the first quarter of FY 2021. We immediately swung into action to take care of our employees and our businesses. During these unprecedented difficult times, we focused on maintaining sufficient liquidity and conserving cash through faster conversion of working capital. Our priority was to ensure the safety and security of our employees and we worked out a mitigation plan, re-visited our systems and processes, increased communication with our customers and channel partners, initiated digitalization practices across operations, focused on improving operational efficiencies and worked towards leaner cost structures. 

Which factor has contributed the most in delivering multi-fold growth in PBT and PAT on a year-on-year basis in Q4FY21?

In Q4FY21, there was significant volume growth on a year-onyear basis due to a strong rebound in demand backed by a sharp recovery in economic activities resulting in higher utilisation of vehicles, coupled with robust demand for passenger car radials (PCR), two and three-wheeler tyres and farm tyres in rural and suburban markets and our aggressive focus on channel expansion and extraction program during the financial year. Secondly, we also focused on increasing our market share through strengthening product positioning which enabled improvement in margins as well.

On the cost front, we emphasized on strict cost control and improving our manufacturing efficiencies across plants through consistently reducing the consumption of resources such as water and energy. We are happy to share that 55 per cent of our power requirements are met through renewable sources. Our efforts to control costs and improving operational efficiencies resulted in a leaner cost structure for the year as a whole. Further, the company has substantially reduced its borrowings by `929 crore in FY21 due to higher cash accruals and better working capital management, which also resulted in lowering interest cost by 22 per cent in Q4FY21 and 15 per cent in FY21 as compared to the previous year.

Has the company charted any additional capex plans for the coming financial year? Can you throw some light on the same?

We have plans to incur about `200 crore to debottleneck our plants over the next 2-2.5 years to increase our operational capacities. The company is presently focused on prudent capital allocation and better working capital management to ensure faster deleveraging.

What is your future outlook on the tyre industry?

Considering the impact of the second wave of the pandemic, we believe the impact on business operations is likely to remain restricted till the first quarter. We expect normalcy to come from the second quarter with a slowdown in corona virus cases and a higher level of inoculation. We expect strong pent-up demand in the second quarter. We are optimistic about the outlook on the tyre industry for the next few years on the back of the government’s push for infrastructural and development plans.

This also includes voluntary scrappage policy and a strong rebound in demand in all the vehicle segments post normalcy of the present situation. There could be some impact on operating margins due to cost inflation in the first half of FY 2022. We are working out strategies to mitigate the price pressure through judicious price hikes, premiumization of products, operating leverage gains and capacity debottlenecking. Despite these headwinds, the company expects to continue capturing opportunities that are arising in this new environment in India and abroad.

What steps are being taken to improve your market share?

We have added more than 1,400 dealers and newly opened 90 exclusive brand shops to penetrate deeper into key geographies, especially in rural and suburban markets. We now have a total of 6,000 plus dealers and 650+ exclusive brand shops in India. We have already undertaken content-oriented digital marketing and association with e-commerce platforms such as TyrePlex, CarDekho, Amazon and Flipkart, etc. On the OEM front, we have received approvals for fitment in some of the country’s largest-selling car models Such as Hyundai Creta, Kia Seltos, Maruti Suzuki Swift, Wagon R, etc. and many more approvals received for the other product categories as well. Lastly, we are committed and striving hard to increase our presence in both replacements as well in the OEM segment.

 

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