“Considering the rapid pace of growth of ‘radialisation’ across product categories, we are investing heavily in expanding our capacities, both at existing locations and at the new green site location near Chennai,” says AS Mehta, Marketing Director, JK Tyres. In an exclusive chat with Equipment India, Mehta speaks at length about the current trends in the tyre industry, the challenges of import and rising input costs, with special emphasis on the core competencies of JK Tyres. Excerpts from the interview.
How do you look at the Indian economy and to what extent has the growth pattern impacted the tyre industry? The Indian economy is gradually returning to its high growth trajectory. GDP growth, which is hovering around 8.85 per cent, is expected to touch nine per cent next year. GDP directly impacts the tyre industry and in the last two quarters, we have seen good GDP growth. Also, the passenger car industry has grown at higher double-digit level in the last quarter, boosting the PCR segment.
What is the total market in terms of size and value for the off-the-road tyre segment? The overall potential is quite good. If you look at it segment-wise, for large and ultra large tyres, the potential is around 50,000 units; for medium size, it is around 30,000, whereas for small grader size, the potential is 50,000 units; ie, the total potential can be pegged at 130,000 units. Of this, JK Tyres controls around 40 per cent of the market.
What was the total turnover in 2009-10 and how do you envisage growth this fiscal? In 2009-10, JK Tyres achieved a turnover of Rs 3,956.30 crore and in 2010-11, we expect to clock a target of Rs 5,000 crore, which is a growth of 30 per cent.
How strong is your presence in the replacement market? We are among the top three companies in India holding around 20 per cent market share in truck and bus tyres, which account for 70 per cent of the automobile tyre industry. Also, we are strong in the PCR and light commercial vehicle segment. At present, the domestic four-wheeler tyre market in India is around 60 million tyres.
Is the segment for large-sized tyres picking up now? JK has entered this segment recently and has produced the country’s biggest OTR Tyre 40.00-57 60 PR VEM 045 E4 T/L. JK will be a major player, in collaboration with BEML and Coal India. JK is presently marketing 49” tyres, and the highest size which has gone on the wheels is 27.00-49 48 PR E4 T/L.
What are the challenges you face, especially since the price of natural rubber has shot up by over 150 per cent? The tyre industry is highly raw material intensive which comprises almost 70 per cent of the total cost. Natural rubber is 40 per cent. The high composition of natural rubber makes the industry’s profitability highly sensitive due to natural rubber price movement. Currently, the industry has seen an unprecedented rise in natural rubber prices over the last one year, directly affecting the profit margin. We are also affected by it. We have taken price increases from time to time, but they are not commensurate with the increase we have seen in the rubber prices. Some of the costs have been absorbed by us. There is greater focus on improving operational efficiency and cost compression.
Tell us about the export potential and the business achieved from exports. We have been exporting to over 80 countries and are in the process of enhancing our product offering in these existing markets. Further, one-and-half years ago, we acquired Tornel in Mexico. This gives us a substantial foothold to cater to the North and South American markets. We are looking at participating in several other areas of the world. India is emerging as one of the largest producers of tyres and we strongly feel that in the next few years, we shall be participating in many key markets like the US and Europe at a much higher level.
How do you look at the competition, and what do you think that makes JK Tyres stand apart? The Indian tyre industry is largely dominated by domestic players with five players controlling 85 per cent of the market. The largest segment is the truck segment, which is almost 70 per cent of the industry. This segment has predominantly been a biased market, with domestic players dominating but now it is undergoing a major transition with preference for truck radials increasing. JK Tyres has pioneered radialisation in India and now we are seeing the entry of other players. We will see increased presence of MNCs as well. The competition will definitely intensify. We have worked hard to educate the customers about the benefits of radials and have continuously introduced new products and services to stay ahead of the competition. Fleet management, truck care centres, CRM programmes etc are some of the initiatives we have taken.
Technology and R&D form the pillars of our growth strategy and going forward, this shall provide us substantial leverage to help boost our market share not only in India but also in other global markets. Our unflinching commitment to build product and brand relevance at each and every customer touchpoint will help us in strengthening our market perception even further.
JK Tyres enjoys a strong brand equity and a large and wide dealer distribution network in India. We have significant market shares in almost all categories of tyres that we participate in. One of the biggest strengths of JK Tyres is the strong association with radials which we pioneered in India. We will continue to strengthen and leverage our technology, brand and product leadership in radial tyres to effectively lead the Indian market in the future.
What is the scenario regarding import of tyres? Does it adversely affect your business? In the Indian tyre industry, imports have significant pressure on truck and PCR segment. Imports are largely governed by the government regulations. Recently, we have seen significant drop in imports, especially truck/bus radials, due to the introduction of anti-dumping duty. These imports are largely from China and have a significant presence on the industry. We welcome all forms of competition as long as they are fair and healthy. The imports from China are subsidised and come at a significantly lower price and local players do not have a level playing field; this is injurious to the domestic industry.
Name some of the OEMs JK Tyres is supplying to. We are currently supplying not only to major Indian OEMs across all categories like Tata Motors, Ashok Leyland, Eicher Motors, MSIL, M&M, and Escorts, but also to MNCs like VW, GM, Fiat, etc.
What is the present status of radial tyres in the OTR segment? Presently, OTR radials are insignificant. JK’s entry into the OTR radials segment is still in the drawing board stage.
How do you look at the retreading segment? As the new tyre market is growing, we expect retread will also grow. Newer vehicles (trailers) with higher axle configuration will lead to more retreading of tyre on dummy axles. The increasing population of trailers in view of improved infrastructure will lead to more numbers of retreaders. Improved road infrastructure will also lead to higher retread factor. Drop in overloading will result in higher retreading factor as the casing would be less fatigued.
Tell us about your products and services and future expansion plans, if any.We manufacture all categories of four- wheeler tyres, namely truck tyres, PCR, LCV, tractor, trailor, ADVs, large and ultra large off-the-road tyres.
Apart from the products we manufacture, we offer specialised services to our customers like fleet management, truck care centres, one-stop solutions like wheel alignment, wheel balancing, tyre rotation, tyre care at our franchised retail outlets (steel wheels), and dial-a-tyre (home delivery and replacement of tyre over a phone). Considering the rapid pace of growth of radialisation across product categories, we are investing heavily in expanding our capacities both at existing locations and at the new green site location near Chennai.
Our greenfield expansion at Chennai is in full swing. We will be setting up a 0.2 million truck/bus radial and a 2.5 million passenger car radial facility in the first phase. The first tyre is expected to roll out in the second half of 2011. We plan to reach full capacity by end of 2011-12. Apart from this, we have already expanded our Banmore facility by 0.5 million passenger car radial tyres; our 0.2 million truck/bus radial expansion at the Mysore facility is expected to be completed soon.
Where is your R&D headed? Both Hasetri and Centre of Excellence (COE) at IIT Madras are playing a key role in maintaining our technological edge in critical products like TBR and PCR, among others. We are advanced with our predictive tools and technologies. COE, a joint venture with IIT Madras, is a major success story of industry-academia interaction. We are extremely satisfied with our efforts in this area.
Some of the breakthroughs we have achieved are drastic reduction in raw material evaluation cost and time, development of new materials, silica- based compounds for improved performance in rolling resistance and mileage. The COE has helped us develop a new model to predict tyre performance.
Apart from this, we have a plan in place for investments in technology and R&D, which will give us a further lead in the segment. We are also working on developing new high-tech, value-added products which will be launched in a phased manner over the next three years.