See 7-8% volume growth for 2 wheelers in FY17: TVS Srichakra

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The two-wheeler industry volumes are likely to register 7-8 percent year-on-year (YoY) growth in FY17 and this will augur well for TVS Srichakra   , says P Vijayaraghavan, Director at the TVS Auto Ancillary Group’s tyre manufacturing company. Vijayaraghavan says continued discipline in inventory and working capital management will help in maintaining the strong performance posted in the fourth quarter of FY16, despite prices of certain raw material, particularly natural rubber, hardening in last few weeks. On Wednesday, Srichakra reported fourth quarter FY16 revenue at Rs 525 crore, a growth of 13 percent year-on-year (YoY). Lower raw material costs lifted margins 70 basis points to 14.5 percent. This, coupled with other income of Rs 18.4 crore led to a 51-percent jump in net profit to Rs 51.4 crore for the quarter. The company plans to expand the capacity of its two and three-wheeler tyres to 2.5 million units per month in FY17 from 2.3 million units. Below is the verbatim transcript of P Vijayaraghavan’s interview with CNBC-TV18’s Latha Venkatesh and Sonia Shenoy. Sonia: The growth on your topline has been solid if you compare it to other players a double digit growth is very good in an environment like this. Are you seeing a pickup in demand with your core clients and if yes, do you think that could continue? A: You are right, we had a pretty good year and a double digit growth in our revenue. And also practically doubling the profit also and I must say the aftermarket numbers grew well and we could retain significant position with the original equipment manufacturers (OEMs) and I must say that the company did extremely well in overall disciplines, efficiency improvements, operational excellence and excellent working capital management and also in material cost and inventory management helping us. So, it has been a good year and we hope to continue this. Latha: Last time you all had an advantage of lower raw material. Does that continue to the same extent, you could of course improve your margins by about 70-80 bps. Do we see more of that? A: Raw materials continue to be stable. Except that natural rubber has been going up marginally in the last few months but we are confident that our performance will be retained in this year also but there will be pressure because of material cost, there will be pressure because of competition but overall our company\\’s good discipline in various management, faculties as well as in our inventory control or financial management or technology or infrastructure and our operational all these coupled with our growing good market in after market as well as sustaining the position into OE should help us in this year also. Sonia: Give us an estimate of what the growth could be in FY17? You are sitting on a base of almost Rs 2,400 crore of revenue in FY16. How much could it grow to in FY17? A: I won\\’t be able to speak immediately about my company because it depends on the industry which I am sure you will appreciate. The two wheeler industry grew only by 1.6 percent last year but I am sure it will grow by 7-8 percent in this year because the Union Budget allocation to rural has been pretty good. We are expecting a good monsoon, I personally feel motorcycle sales will grow up well, scooters will continue to do well. Aftermarket potential continues to be good, so I personally feel it will be a good market and a good year for us also and we hope to continue the good performance. Latha: When you say two percent or seven to eight percent guidance for current year are you talking about volumes or are you talking about revenues? A: I am talking about volumes. The volume growth of two wheeler industry was 1.6 percent in the last year. I am expecting two wheeler growth to be 7-8 percent this year because of the factors I mentioned. Latha: Revenues of course have been subdued I would assume because some of the lower raw material prices were passed on in the form of product prices as well but your earnings before interest, taxes, depreciation and amortisation (EBITDA) growth in the last quarter has been 20 percent. Is that a decent run rate to expect for FY17? A: We are working hard, I can only say that. As you rightly said having done a great performance we have to work harder to keep it up. We will do our best, we are confident. Sonia: What the street is also very enthused with is the fact that you are expanding your capacity in both of your plants in Madurai and in Uttarakhand. Just tell us about what the plan is, what have you done so far and how much will you raise your capacity to over the next one year? A: Last time I was mentioning to you, we grew from 2 million to 2.3 million tyres per month. This capacity of 2.3 million tyres was reached in December 2015. Now, we are planning to expand to 2.5 million tyres per month in this financial year. So, if you see on an average we did 2.2 million tyres last year in the financial year 15-16. So, we should be doing 2.5 million tyres per month in 2016-17. We will be expanding both the plants in Madurai and Uttarakhand. Sonia: These will be mostly two wheeler and three wheeler tyres or will you be expanding your tractor tyre capacity as well? A: That is a good question. We are expanding our two and three wheeler range and parallelly we are also adding volumes in our off-road tyres and as I was mentioning tractor tyres, tractor radials have been launched a year and half back and pilot supplies have gone all over Europe and we are expanding the range and the volumes. That will also form part of our work in this year 2016-17. Latha: Can you tell us when these expansions get completed, what is your likely volume in FY17 and once the capital expenditure (capex) kicks in what is the volume in 2018 and 2019? A: I can only talk about 2016-17 now. As I said 2.5 million tyres per month will be the capacity and that should be reached within the next 3-4 months time. We will sustain that. We will watch the market and then take a call for 2018-19. Latha: You mean all the capex kicks in, in 2017 itself? A: Yes, in 2016-17, this financial year we are planning to expand from 2.3 million to 2.5 million per month. Sonia: A lot of the export oriented companies like the likes of Apollo Tyres are not doing very well currently. You have about 15 percent of your business that comes from export and the last time we spoke you had indicated that you wanted to grow it further. But do you think at a time when the exports are slowing down is that a good decision to grow your export business or would you just look to focus on domestic? A: Exports has formed part of our range and our strategy. Mainly we have been concentrating on off road tyres. You are right in saying that last year European market were pretty dull from the agricultural segment but now we are seeing better demand in the agricultural tyres from Europe and also US and we are hoping for off-road tyres to grow but two and three wheeler tyres because of the increased exports of two wheelers from India to Africa, South America and other countries we are also seeing more demand for Indian two wheeler tyres and particularly for my company TVS Tyres we are seeing a good growth in our exports of two and three wheeler tyres.