Release Date: November 06, 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 consolidated revenue of INR 3,643 crore for Q2 FY25, indicating a stable performance despite challenging market conditions.
- The company has expanded its market reach by adding 23 brand shops and 40+ fleet customers, enhancing its presence in the replacement segment.
- JK Tyre & Industries Ltd (BOM:530007) has been recognized as an icon brand of India 2024 by the Economic Times, highlighting its strong brand visibility.
- The company is actively embracing digitalization and AI to enhance operational efficiencies and accelerate innovation in product development.
- JK Tyre & Industries Ltd (BOM:530007) is committed to sustainability, aiming to reduce carbon intensity by 50% by 2030, and has been honored with the Mahatma Award 2024 for CSR excellence.
Negative Points
- The company's EBITDA margin contracted by 195 basis points to 12.2% due to higher raw material costs, primarily driven by a significant rise in natural rubber prices.
- Overall domestic market volume contracted in high single digits, primarily driven by the OEM segment, indicating a challenging market environment.
- JK Tyre & Industries Ltd (BOM:530007) faced a decline in sales in the Mexican market due to currency depreciation and subdued demand sentiments in Latin America.
- The company's net debt levels have risen due to increased working capital borrowing, primarily related to strategic buildup of key raw material inventory.
- The commercial vehicle segment experienced a decline, impacting the company's OEM sales, which were affected by the drop in CV production during the quarter.
Q & A Highlights
Q: What is contributing to the growth in the OEM segment quarter over quarter, and why is there a decline in the replacement segment?
A: Raghupati Singhania, Executive Chairman, explained that the commercial vehicle segment has shown a decline, while the passenger car segment has grown. The company has seen a de-growth in OEM due to its large participation in the CV segment. The replacement segment typically improves in the second quarter, but this time it was impacted by extended monsoons and reduced construction activity.
Q: Could you elaborate on the competitive intensity in the market and the pricing actions taken?
A: Raghupati Singhania noted that the market is dynamic, and each company decides its pricing strategy. JK Tyre has taken a 3% to 3.5% price increase across various categories. The competitive environment remains intense, with some competitors focusing on market share rather than margins.
Q: How is the replacement demand in the TBR segment, and what is the market share outlook?
A: Raghupati Singhania stated that the replacement demand is holding steady, especially in the long-haul segment. The TBR segment has grown at a higher rate than the TB segment. The overall market size in the replacement segment has increased, with TBR contributing significantly.
Q: What are the expected benefits of the merger between Cavendish Industries and JK Tyre?
A: Sanjeev Aggarwal, CFO, highlighted benefits such as economies of scale, simplified structure, cost benefits, and tax advantages from carried forward losses. The merger aims to unlock value for shareholders and consolidate tire operations into a single entity.
Q: How do you see the impact of the dedicated freight corridor on the MHCV industry and replacement cycle?
A: Sanjeev Aggarwal mentioned that while some freight may shift to rail, the overall freight movement is expected to grow with GDP. The company is working with OEMs to make road transportation more cost-effective. The road sector is expected to remain significant, with infrastructure improvements supporting demand.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
