Anti-dumping duty of 10-12% to support rubber market: JK Tyre

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The revenue for JK Tyre & Industries have fallen in the fourth quarter of FY16 and the demand, too, has seen sliding. A lower demand and dumping of cheap Chinese tyres have made the topline growth weak for the tyre major, said Raghupati Singhania, the chairman and managing director of the company. Margin growth of the company was low due to the 9 percent price cut in FY16. The price cut was undertaken to combat growing Chinese and domestic competition, said Singhania. Singhania maintained that he does not  see any increase in rubber prices from current levels at Rs 12,700 per 100 kg. It has added substantial capacity at its Chennai (Kesoram Plant) to fight falling margins. It also plans a capacity expansion of Rs 2,000 crore (via acquisition), added Singhania. The disparity in rubber pricing between Indian and Chinese tyres is nearly 25-30 percent, but Singhania hopes 10-12 percent anti-dumping duty should help the domestic market. Below is the transcript of Raghupati Singhania’s interview with Sonia Shenoy and Latha Venkatesh on CNBC-TV18. Sonia: The revenues have once again fallen this quarter. Tell us more about the slowdown that you are noticing in demand and how has the quarter looked for you? A: The quarter has been reasonably good. Our sales was at Rs 1,685 crore against, and if I tell you consolidated, it is Rs 1,932 crore instead of Rs 1,981 crore. And our earnings before interest, taxes, depreciation and amortisation (EBITDA) was Rs 275 crore against Rs 258 core. And the profit before tax (PBT) was Rs 157 crore against it was almost the same and the profit after tax (PAT) was Rs 116 crore against Rs 104 crore in the corresponding quarter last year. Basically, our sales in number terms and tonnage terms has gone up by 4-5 percent. Of course, in value terms, it has come down by 3 percent essentially, as you rightly said, because some of the selling prices were lower during this period, vis-à-vis the last year. Latha: How many price cuts did you have to take in the last six months? What is the percentage fall in your realisations? A: During the whole of last year, we brought down the prices by nearly 9 percent which is part of the number of factors. One was of course, the passing on of the lower commodity price benefits because the industry was accused unduly and they did not realise that the industry has passed on substantially over the period. And second of course, to an extent, in certain select segments, as you rightly said, with the Chinese competition which is coupled with the domestic competition. So, that is what these factors were basically for reducing the prices. Sonia: So do you see the margins get hit further due to higher rubber prices? This time margins were fine, but rubber prices are now at a one year high of Rs 133 per kilo. What will that impact be on your margins? A: Couple of things. Firstly, the rubber prices spurt which we saw in the last one month would even out a little bit because ultimately, it is a weak season is on. But, this kind of increase cannot sustain in the market, because even globally, rubber demand is not all that high. So, it should even out. Yes, there might be marginal increase still left. On the other hand, it could impact margins to an extent, but on the other hand, as far as we are concerned as a company, we have added substantial capacity in completion of our Chennai expansion which was done at the end of last year which is December, 2015. So, that capacity has come into operation. Apart from our latest acquisition of the Laksar plant of eerstwhile Birla which has also helped us to get access to more capacities both in truck-bus radial and of course, the other radials like the two, three-wheelers. So, overall by sheer volume increase, we should be able to by and large, maintain our margins going forward. Latha: Volume expansion, give us more colour on that. What exactly is the capacity expansion and how much will your revenues grow? A: We are looking at about an increase of about Rs 2,000 crore or the like during the coming year, because of these expanded capacities available to us including the acquisition. Sonia: There is a big slump that we are noticing in your Mexican subsidiary Tornel. What is happening there? Is there a downcycle underway? A: In fact, it is not very bad really. But, of course, margin was a little bit under squeeze. But more importantly in Mexico the situation was the devaluation of the peso vis-à-vis the dollar. So, that was the bigger issue. So we had to take a hit in devaluation of the peso. But nonetheless, on quarter-on-quarter, the profit in Mexico was better. In fact, our quarter profit was Rs 21 crore on PAT against Rs 18 crore in the last corresponding quarter. So, that way, it is clearly stable and secondly, our sales in Mexico are improving even in this current months. So, we see Mexico reviving in that sense of the word from what we saw in the past some quarters. Latha: What is the price difference between Indian tyres and Chinese tyres? What kind of a safeguard duty or antidumping duty will be needed to make Indian tyre competitive? A: Today, the disparity between Chinese and Indian tyres is anything between 25 percent and 30 percent. I am talking about the dumped Chinese tyres. As far as the likelihood of antidumping being imposed, we are quite hopeful because now, they have gazetted the process and they are proceeding, taking it up. So, hopefully within a matter of another couple of weeks or a month or two, maximum, we should see something happening. And if that does happen, which I am hopeful of, then I would imagine that I cannot guess what percentage duty they would impose but, maybe even if 10-15 percent duty is imposed, that should help the Indian situation.