JK Tyre CFO focusses to fight inflation, says improving margins top priority, Auto News, ET Auto
Margin improvement will be a top priority for JK Tyre and the company intends to pass on the raw material price increase to its customers, CFO Sanjeev Aggarwal told ETCFO. Raw material costs rose an unprecedented 30 per cent since December 2020, and compressed the company’s margins to the extent of about 8 per cent, he shared. JK Tyre’s margins stood at 10.1 per cent in Q2FY22 as compared to 18.3 per cent in Q3FY21. The CFO expects inflation to stabilise at current levels. Also, he hopes to finish FY22 with a high double-digit growth; JK Tyre had clocked Rs 9,102 crore revenue in FY21. Below are the edited excerpts.
Q: What has been the major impact of inflation? How severely have you been hit?
Inflation has impacted the entire industry severely. The raw material cost has shot up by as much as 30 per cent since December 2020. This sort of increase is unprecedented. The impact of raw material price increase on the selling prices is about 20% and has impacted margins across Industry including us.Sanjeev Aggarwal, CFO, JK Tyre
Q: How has inflation affected your profitability? Sanjeev Aggarwal: The margins have compressed to the extent of about 8 per cent on account of an unprecedented increase in raw material since December 2020. Our margins stood at 10.1 per cent in Q2FY22 as compared to 18.3 per cent in Q3FY21.
Q: How do you plan to fight inflation?
Sanjeev Aggarwal: There is a robust demand scenario in the market and we intend to pass on the raw material price increase to the customers. However, we would not like to disturb the overall volumes and see how much of it can actually be passed on.
Other ways to fight inflation would include focusing on higher volume growth, widening and premiumisation of our product range, efficient management of working capital cycle, rationalisation of costs, and enhanced attention on digitalisation.
Improving margins would be our top priority and the company hopes to not only maintain but also improve margins in the next couple of quarters through the measures outlined above.~
Q: What is your outlook on inflation in the next six months?
Sanjeev Aggarwal: We expect inflation to stabilize over the next few months. Any further increase in raw material prices are not likely to be as steep as we have seen since Dec-2020. Further, logistics cost is also expected to remain stable as the government has already reduced the duty on fuel prices. So, we are quite hopeful that inflation is likely to stabilize at current levels in the near term.
Q: How would inflationary pressures, even if stabilised at current levels, affect your borrowing plans? Are you looking to borrow more in the short term? Also, what happens to the long-term debt reduction plans of JK Tyre?
Sanjeev Aggarwal: We have no plans to increase our short-term borrowings, as we are confident to maintain our working capital requirements at the present level, despite continued inflationary pressures, as we have been following strict credit discipline and efficient cash management.
As far as our long-term debt reduction plans are concerned, those are intact. The company has a target to reduce long term debt by about 40 per cent (a reduction by Rs.1,250 crore) by FY2024.
Q: What is your outlook for full-year growth prospects? How do you expect to finish FY22?
Sanjeev Aggarwal: We are seeing good traction in the market for all the three business segments — OEM, exports, and aftermarkets. We expect robust demand in replacement with the boost in economic activities emerging from strong infrastructure spending by the government and improved rural demand. Higher vaccination levels shall improve the overall market conditions and consumer sentiments. We expect OEM demand to remain muted in PV in the short term mainly due to semiconductor chips shortages. CV OEM demand has started to go up.
On the exports front, the company is doing good business. We have witnessed increased business opportunities from the US, Europe, and Middle East markets, etc. Our exports propelled to Rs 930 crore in H1FY22, an increase of 96 per cent on a y-o-y basis.
We hope to finish the full financial year 2021-22 with a high teen or high double-digit growth, with highest-ever revenues.