J K Tyre & Industries aims to reduce debt by over 50% in three years, banks on exports and replacement mkt to de-risk biz

JK Tyre and Industries, India's largest commercial vehicle tyre maker is banking on the growing replacement market and overseas push to counter crippling slowdown in the Indian automotive industry.
Already sitting on a debt of Rs 5000 crore, the company has decided to defer Rs 675 crore investment by a year in Cavendish Industries (a firm it acquired in 2016 from B K Birla Group) to ensure lean operations.

With series of cost cutting initiatives and expected improvement in capacity utilisation, the company’s CFO Sanjeev Aggarwal said J K Tyre is planning to pare its debt to more than half in the coming three years.

Reviewing the year 2019, Aggarwal said the company spotted the slowdown quite early in October of 2018 and increased focus on replacement market and exports market to de-risk from the domestic market slowdown.

“The replacement has grown by 12% last year, the overseas markets grew by an impressive 40%. The new launches for the replacement and expansion of network drove growth. We will look at reducing our long term debts by 40% in three years, we think with higher capacity utilization and growth in the coming year, we will try to accelerate the debt reduction further,” added Aggarwal.

The share of OE business has come down to a fifth from a one-third of total revenues last financial year. Aggarwal says the push on exports and replacement will continue and he expects the double digit growth in both businesses to continue.

To be sure, the share of exports of the total revenues has increased from 11-16% and replacement market share in the overall business has increased from 65% to 70% in the last three to four quarters.

The company exports to over 100 countries and is trying to break into markets of Eastern and Southern Europe and penetrate deeper into Africa.

The investment of Rs 675 crore in Cavendish was to expand the capacity of truck and bus radial plant by half a million tyres, which will be moved by a year, as commercial vehicle market is expected to remain in red with anticipated spike in acquisition price.

Aggarwal says he is hoping that the scrappage policy announced by the government will help in containing the slide and revive demand.

The company’s two wheeler tyre capacity has already hit a 100% utilisation, Aggarwal says J K Tyre would need additional capacity to build market share, but it is yet to take a call on addition of fresh capacity.