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Buoyant auto demand impact: JK Tyre to invest INR 1680 cr for production ramp-up

JK Tyre & Industries is set to make a cumulative investment of INR 1680 crore, in two tranches starting this quarter, to increase production capacity and tap emerging demand potential in the automotive industry. The company has plans to enter the luxury tyre segment, where it is lacking now, right up to creating a new brand. “Brand strategy is always evolving. We don't have to have a brand, we can create our own brands,” Raghupati Singhania, CMD, J K Tyre & Industries told Autonexa.

Singhania said the first tranche investment of Rs.780 crore, a revised figure of Rs.680 crore originally planned for 2018, will start to bear fruit during the current quarter. “We are planning another investment of INR 900 crore in FY25. Most of the investment is for passenger tyres,” he said. Financing will be through a combination of debt and equity.

With the new investments, the major tyre company wants to increase its production capacity of passenger car radial tyres by 14% each in the first two phases, followed by 16% in the third phase. "And on radial trucks, capacity will increase by about 12%," he said.

JK Tyre, which has a capacity of 106,000 radial passenger cars, aims to bring it to 121,000 units in the first phase of expansion. Its annual production capacity is 4 million truck radials. The company has 9 factories in India and 3 in Mexico.

Industry Outlook

Singhania expects the existing demand for cars in the domestic market to continue and this should lead to an "8% to 9%" growth for the tyre industry "in the coming years".

On the export front, J K Tyre expects to maintain a FY22 profit of INR 1,800 crore in FY23, with minimal impact from recessionary trends in the West on its business. India's largest tyre maker has only limited exposure to high-risk markets like the US, at just 0.2%. Singhania said its main overseas markets are in Latin America, West Asia and Africa.

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New brand intervention

JK Tyre as a brand has a strong presence in the full-size passenger car market, but not so much in the high-end tyre segment dominated by brands like Pirelli, Michelin, and Continental. Singhania said his company is working on plans to raise the stock scheme. A new tyre brand can also be added to expand the range of the top of the market segment.

Apollo Tyres has acquired the Vredestein brand from the Netherlands, to play in the luxury/high performance tyre market globally. Last year, it also started manufacturing this brand of Tyres in India.

With the premium high, Singhania said, 45% of the passenger car Tyres his company sells are for the "premium" segment of cars with wheels 16 inches or larger.

The company acquired Myusru-based Vikrant tyres in 1997 to grow its commercial vehicle tire business. On the eve of the 25th anniversary of the takeover, Singhania said the plant has seen a 10-fold growth in sales (now INR 3,000 crore), wages and production since 1997.

For new expansions, the company will use a combination of debt and equity to fund it. JK Tyre & Industries' debt-to-equity ratio is currently 1.5:1. The company said that in the past three years, its long-term debt has been reduced by 30%.

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