Cautiously optimistic of reaching pre-Covid sales by Dec-end: JK Tyre CMD

About Covid-19, Raghupati Singhania says it has caused the company to defer its expansion plans

The government recently imposed curbs on the import of certain new pneumatic tyres. JK Tyre & Industries Chairman and Managing Director Raghupati Singhania tells T E Narasimhan that the decision will help promote domestic manufacturing. About Covid-19, he says it has caused the company to defer its expansion plans. Edited excerpts:

How has Covid-19 impacted the tyre industry?

The auto industry was witnessing a slowdown in FY’20. The lockdowns impacted it further. This, in turn, affected the automotive and allied industries, including tyres. However, the tyre segment has seen a recovery in June 2020, especially in the replacement market. The movement of essential commodities during the lockdown sustained the demand in the replacement segment, specifically on the commercial side. The farm segment, too, maintained its growth. The biggest de-growth was witnessed in the OEM tyre segment, which is gradually picking up the pace now. Overall, we are seeing signs of revival in the replacement and rural segments.  

When do you think the industry (auto and tyre) will revive? 

We are witnessing pent-up demand in both the industries, and it would be fair to say that we are on a path to gradual recovery. However, the manufacturers are still stabilising the operations, be it labour availability, supply chain or dealer network. Intermediate lockdowns are also adding to these disruptions at the local level. However, we do expect things to become better in the coming quarter. On the demand front too, the prospects are promising with a good monsoon and sustained performance in the agricultural sector. The festive quarter is expected to further add to this momentum, and we are cautiously optimistic of reaching pre-coronavirus sales by the end of the calendar year.

In the near-term, which segments will fuel growth? 

The replacement segment will continue to lead the recovery process in the tyre industry. In fact, we registered a strong double-digit growth in the replacement business in June 2020.The OEM industry is reviving rather slowly. But in the farm sector, the demand is quite good. Going forward, the passenger segment, including two- and three-wheelers, will drive growth, in addition to the commercial segment in the replacement market.

How will the import restrictions of tyres from China help the Indian manufacturers? 

The restrictions are in place all countries, thus ensuring “Atmanirbhar Bharat” in this category. Fortunately, the industry has always been ahead of the curve and has been globally competitive in terms of technology and manufacturing of all kinds of tyres. The import restrictions would certainly help in better capacity utilisation and capacity expansion, for both the domestic market and exports. This will certainly give a boost to the Make in India initiative.

To what extent have the imports dropped after the restrictions were imposed? And in which segment?

The restrictions came into effect only in June 2020, so it is too early to evaluate the impact, especially when the market is still not fully functional because of the pandemic. So, we have to wait to assess their impact.

Has the capacity utilisation of domestic players increased because of these restrictions?

Considering the impact of Covid-19 on the manufacturing sector, particularly the automobile sector, the capacity utilisation has been low. The gradual ramp up of production has only just begun with markets opening up. Currently, we have crossed 70 per cent capacity utilisation and expect to improve it further in the coming months. Hence, at this point, the impact of restrictions cannot be assessed. However, this step will certainly help improve the capacity utilisation.

Is the demand back to last year's levels? The OEMs have said it is close to the July 2019 level.

July has definitely been better for the OEMs, and the momentum is expected to be sustained in the coming months. However, there might be a demand-supply mismatch due to the ongoing disruptions on the supply front. It would be fair to wait and watch for the next few weeks to make a realistic assessment. At JK Tyre, we are closely monitoring the situation and are aiming to achieve 80 per cent of our pre-Covid production levels by the end of this quarter.  

How have you realigned your priorities for this quarter? 

We will continue to expand our stronghold in the replacement market, across passenger vehicles, as also for commercial and two and three-wheelers. Exports also continue to be our focus as we are receiving a promising response from the United States and Latin America. Internally, the stabilisation of manufacturing operations remains a key priority, and we are hopeful of streamlining it in the near future. 

Are you going ahead with your investment plans?

We have deferred our expansion plans for the present and will review them subsequently. Currently, we are prioritising capex for only the essentials. We will take a view after the market stabilises, when we can ascertain definite demand trends.