The disruption caused by the second wave of Covid-19 creating uncertainty over demand has forced JK Tyre to sweat its asset for the next 12-18 months before it weighs options for setting up a new factory
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JK Tyre is operating all its plants at near full capacity but the Delhi-based company is against creation of fresh volume immediately despite demand hitting multi-quarter high, a senior official informed.
The disruption caused by the second wave of Covid-19 creating uncertainty over demand has forced JK Tyre to sweat its assets for the next 12-18 months before it weighs options for setting up a new factory.
Presently all its nine plants in India are operating at 95 percent utilisation offering little room for capacity expansion. The decision to overlook creation of fresh capacity comes at a time when Ceat and Apollo Tyres are collectively pumping in nearly more than Rs 1500 crore in adding fresh capacities.
Speaking to Moneycontrol Sanjeev Aggarwal, chief financial officer, JK Tyre said, “Demand continues to be very strong. Going forward we have been debottlenecking our plants. We have not completely sweated our assets and there is still some capacity available. We can debottleneck our capacity and add another 10 percent. This should take care of the year”.
The debottlenecking process would make the company inject Rs 200 crore which would enhance output by 10 percent. According to Aggarwal this process will not only help add capacity quickly but will also not hurt JK Tyre’s balance sheet.
“The debottlenecking process does not take much time to get the capacity expanded. We will get two benefits out of this. One is that this can be done faster and at a very low cost. We want to allocate capital in a prudent manner. We want to deleverage and strengthen our balance sheet. It will be at least one year to one and half years before we start talking about fresh capacity,” added Aggarwal.
At the consolidated level JK Tyre reported net profit of Rs 195 crore for the March quarter as against a loss of Rs 53 crore reported in the same quarter last year. Its EBITDA margin also jumped to 16 percent from 12 percent during the two comparable quarters.
“We have repaid almost Rs 930 crore (of loans) and our debt equity has come to 1.6. There is no scarcity of funds at JK Tyre or any hesitation. Things are slightly uncertain at this stage with the second wave and the possible third wave,” added Aggarwal.
JK Tyre claims to be the market leader in the commercial vehicle segment and stands to benefit the most from the expected revival in demand in the upcoming quarters.
“We are expecting strong demand in the second quarter due to pent-up demand followed by the third quarter which will mark the beginning of the festive period and marriage season. The CV market should be doing very well except for the current quarter given the expected pick-up in the economy. Truck and bus radial (TBR) is the highest revenue generator for us,” Aggarwal added.
Two years ago, JK Tyre had taken up the project to expand its TBR capacity. But because of Covid-19 it was forced to put the project on the backburner. The equipment for plant and machinery were, however, ordered which can put the project back on stream, informed Aggarwal.
