Tyre manufacturers are facing increased pressure on margins, owing to rising rubber prices. J K Tyre and Industries Limited is investing close to Rs 1,500 crore on a greenfield facility in Chennai to keep pace with the growing demand in the domestic market. Vice-Chairman and Managing Director, Raghupati Singhania, in an interview with Sharmistha Mukherjee, says the company is considering scaling up its presence in overseas markets. He adds the company may commission the new facility by the end of the year. Edited excerpts:
Commodity prices have been rising and this has hit the margins of original equipment manufacturers (OEMs). How have increased input costs impacted the company?
We raised the prices of J K tyres by 3.5-4 per cent in April to offset the increase in commodity prices. Though our margins are slightly better now, we have to look at the cumulative impact that increased commodity prices had in the last financial year. This year, India would see a shortage in the production of natural rubber. We have to source from overseas markets, where prices have been rising due to global demand. We have requested the government to allow duty-free imports of rubber.
It has been said OEMs are increasingly looking at importing tyres from low-cost countries like China, due to supply constraints in the domestic industry.
This is a bit of a myth. Some companies had imported tyres from China. However, as we understand, they are lying in stock and have not been used.
The automobile industry has been recording strong double-digit growth. Is the current capacity at your plants sufficient to cater to the increased demand for tyres?
We are working on advancing the commissioning of our greenfield facility in Chennai. The plant was earlier scheduled to become operational in mid-2012. However, we are now looking at commencing work by the end of this year. The plant would have the capacity to produce 2.5 million tyres for passenger vehicles and 450,000 units of truck and bus radials.
J K Tyre acquired Tornel in 2008. Are the overseas operations profitable?
Tornel has been profitable from the first year. We are considering capacity expansion at the facility in Mexico. The details of the investment required are being worked out. The production, across our plants in Mexico and India, rose by up to 940 tonnes a day.
J K Tyre has agreements with manufacturers for sourcing products and selling tyres in overseas markets. To what extent do you plan to scale up overseas operations in the future?
Today, our overseas presence is worth Rs 800 crore. Products valued at around Rs 450 crore are exported from India, while the rest are sourced from Tornel and our other partners in China, Vietnam and Sri Lanka. We are looking at expanding our overseas presence by 15-20 per cent every year. At J K Group, we have set up a special team to explore opportunities abroad across different business verticals. J K Tyre is looking at acquisitions in low-cost countries, particularly in Southeast Asia.
As a group, you evinced interest in the power business. What are your plans in this segment?
We are setting up a 660-Mw power plant near Jhansi in Madhya Pradesh and this should be operational in two years. The organisation is investing Rs 1,300 crore in the first phase. In the second phase, another plant of 700-Mw capacity would be set up. A special purpose vehicle would be set up by the company to manage its venture in the power segment.
