Release Date: August 05, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- JK Tyre & Industries Ltd (BOM:530007, Financial) reported a significant expansion in operating margins, with EBITDA margins increasing to 14.1% from 12.5% year-on-year.
- The company achieved a net profit of INR212 crore, marking a 33% growth on a year-on-year basis.
- JK Tyre & Industries Ltd (BOM:530007) saw a 19% increase in export sales over the corresponding quarter.
- The company has been awarded the Great Place to Work in the auto & auto components segment, highlighting its commitment to a high-trust and high-performance culture.
- JK Tyre & Industries Ltd (BOM:530007) continues to focus on premiumization and digitalization, with new product launches and capacity expansions in TBR, PCR, and all-steel light truck radial tires.
Negative Points
- Overall revenues were flat compared to the corresponding quarter, primarily due to lower OEM sales.
- Net debt increased to INR3,832 crore, up by 3% over the previous quarter due to higher working capital borrowing.
- The commercial vehicle segment posted low single-digit growth, impacted by a slowdown in infrastructure projects due to general elections.
- The raw material cost pressures are expected to continue, with an anticipated 5% to 6% increase in the raw material basket in the next quarter.
- JK Tornel Mexico's sales were lower by about 13% year-on-year, affected by general elections, fewer working days, and peso appreciation impacting exports.
Q & A Highlights
Q: This quarter seems to have muted volume growth. Can you explain what led to the low volume and provide some numbers around the growth across various segments, OE, aftermarket, and exports?
A: In the CV segment, particularly M&HCV production was low due to a slowdown in infrastructure projects because of general elections. This led to lower OEM offtake. Domestic volume remained flat in the replacement market, but export market saw a significant jump of 19% over the corresponding quarter. OEM volumes fell by about 5% to 6%.
Q: Can you reiterate the impact of raw material costs this quarter and expectations for Q2?
A: The average raw material prices increased by 3% to 4% quarter-on-quarter. We expect the average raw material basket to increase by about 5% to 6% in Q2.
Q: What is the plan for further price hikes to negate the impact of raw material cost inflation?
A: We have taken a price increase of about 1% to 1.5% in July and will assess the situation to decide on further price hikes in the subsequent months of Q2. The current raw material price increase is mainly due to supply chain disruptions and monsoon season, but we expect stabilization in the coming quarter.
Q: How do you view the competitor's strategy of not taking price hikes in the TBR segment and offering discounts?
A: We are focusing on margin expansion and product premiumization. We believe demand in the M&HCV and CV segments will be robust in the latter half of the year. We aim to increase top-line growth without compromising margins, despite competitors' strategies.
Q: Could you quantify the EPR cost for this quarter?
A: We have started passing on the EPR cost as a direct line item from May onwards. About INR25 crore has been charged to the P&L this quarter.
Q: What is the outlook for the Mexico operations of JK Tornel?
A: The financial performance was subdued due to general elections, holidays, and peso appreciation. However, we expect stabilization and improvement in H2 with the new government and strategic price increases across categories.
Q: What is the contribution of fleet management and mobility services to the consolidated revenue?
A: Fleet management and mobility services contribute around 3% to 4% of the overall top line. This segment is growing at a faster rate compared to other parts of the business.
Q: What is the revenue mix by market and product line for Indian operations for Q1?
A: For Q1, the revenue mix by market is approximately 60% from the replacement market, 24%-25% from OEM sales, and 14%-15% from exports. By product line, 60% is from the total truck line, 25% from passenger car radial, and 15% from others.
Q: What is your take on the outlook for tire demand driven by policy reforms and infrastructure development?
A: We are optimistic about tire demand due to policy reforms, infrastructure development, favorable monsoon conditions, and the upcoming festive season. The government’s focus on mobilizing the infrastructure sector further supports this positive outlook.
Q: How do you see the replacement market demand for M&HCVs in the next two to three quarters?
A: Q1 replacement demand for M&HCVs was stable. Q2 is typically slow due to monsoon, but we expect demand to pick up in Q3 and Q4, driven by positive BTKM growth and infrastructure projects, leading to high single-digit growth in replacement demand.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
