MRF decides not to cut capex plans

Company to invest around Rs 800-1000 cr & bets big on defence

Despite the auto industry has slowdown, the Chennai-based tyre major MRF has decided not to cut its capex plan, with would be around Rs 800-1,000 crore.

The company also said that it would look at acquisition opportunities in ASEAN and African regions, where the company feels it got opportunities.

Koshy Varghese, executive vice president - marketing, MRF Ltd said that the auto industry is not doing well. While, if there is a good monsoon things will be better for commercial vehicle industry, the real concern is passenger vehicle segment, which reported around 5-6% negative growth, compared to 20-25% positive growth.

"It means there is an excess capacity in the industry, that brings pressure in after market and margins gets into pressure," said Varghese.

He noted, the good news for the company is, only 20% of the Rs 13,500 crore turnover comes from the original equipment manufacturers (OEMs), while the balance comes from the after market, which is still growing.

According to him, company's plants are running in full capacity and it was decided not to cut down the capex plan, which will be around Rs 800-1000 crore. The plan is to add new lines at the Tiruchy, (Tamil Nadu) and Hyderabad in Andhra Pradesh facilities.

Today the company manufacture around 35000-40,000 tonnes of tyres a month from across all its facilities.

He noted, asset turnover ratio in the industry could be 1:1, so if the company invest around Rs 1,000 crore it will add around Rs 1,000 crore in the top-line

To a question on whether the company would look at inorganic growth, he said, "currently our hands is full with organic growth in the country. In ASEAN and Africa MRF's are footprint is better. So it (inorganic growth) could be in this region only. Though nothing on the cards now, suddenly target will come and that is how it works," said Varghese.

Betting big on defence segment

MRF is one of the leading manufacturers of specialised tyres for Defence.

"We are now one of the 4 or 5 top global manufacturers (in the specialised tyres segments)," claimed Varghese. Today of the total MRF's turnover around one% comes from the defence business.

Some of the investments MRF made, will try to amortise through the long term orders. If I am going to do a quick P&L of one year then it wont work. But if you look this as strategic investment, keeping long term (about 10 years) in mind, then it will be a good business bet, he said.

For instance, Sukhoi is large fleet and its a long-term business. MRF is the only Indian company which supplies specialised tyres to defence. On Saturday, the company launched a new tyre 'Aeromuscle' for Sukhoi 30 MKI's.

The company is also looking at manufacturing tyres for Navy aircrafts 747 and for MIG 29, which is the second largest fleet after Sukhoi in Indian Air Force (IAF).

MRF forayed into the aviation tyre industry through the Chetak Helicopter tyres for the Indian Air Force and HAL and commercialisation was from 2008. MRF has been the only supplier for Chetak Helicopters to HAL and the armed forces, since then.