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JK Tyre & Industries Limited (JKTYRE) Q2 FY23 Earnings Concall Transcript

JKTYRE Earnings Concall - Final Transcript

JK Tyre & Industries Limited (NSE:JKTYRE) Q2 FY23 Earnings Concall dated Nov. 03, 2022

Corporate Participants:

Mr. Basudeb BanerjeeVice President

Arun Kumar BajoriaDirector and President

Mr. Anshuman SinghaniaManaging Director

Sanjeev AggarwalChief Financial Officer

Dr. Raghupati SinghaniaChairman and MD

Analysts:

Ashutosh TiwariEquirus Securities — Analyst

Unidentified Participant — Analyst

Subham AgarwalAequitas Investment Consultancy — Analyst

Jinesh GandhiMotilal Oswal — Analyst

Mitul ShahVice President — Analyst

Amyn PiraniJ.P. Morgan — Analyst

Aditya SoniIndividual Investor — Analyst

Presentation:

Operator

Ladies and gentlemen, Good day and welcome to JK Tyre & Industries Limited Q2 FY 23 Earnings Conference Call hosted by ICICI Securities. As a reminder, all participant lines will be in the listen-only mode. And there will be an opportunity for you to ask questions after the presentation concludes. [Operator Instructions]

I now hand the conference over to Mr. Basudeb Banerjee, Vice President at ICICI Securities Limited. Thank you, and over to you, sir.

Mr. Basudeb BanerjeeVice President

Thank you, Ma’am. We have with us the senior management of JK Tyre & Industries Limited represented by Mr. Anshuman Singhania, Managing Director; Mr. Arun Bajoria, Director and President International Business, Mr. Anuj Kathuria, President India Business; Mr. Sanjeev Aggarwal, Chief Financial Officer and Mr. A K. Kinra, Financial Advisor.

So, thanks to JK Tyre management for giving us the opportunity to host the call. Over to you, Mr. Bajoria for your initial comments and post that will take the Q&A. Thanks.

Arun Kumar BajoriaDirector and President

No. So this is, say, opening remarks by Mr. Anshuman Singhania, Managing Director of the company. So he will start and then Mr. Bajoria will add to the other aspects of the business. Over to you, Anshuman.

Mr. Anshuman SinghaniaManaging Director

Good afternoon everyone. A very warm welcome to JK Tyre Quarter 2 FY 23 Earnings Call, and thank you for all joining us today. I’m Anshuman Singhania, the Managing Director. I have with me Mr. Arun K Bajoria, Director and President International; Mr. Anuj Kathuria, President India and Mr. A K. Kinra, Financial Advisor; and Mr. Sanjeev Aggarwal, CFO of the company.

And out said, I would like to thank all our customers, dealers, bankers and stakeholders for reposing trust and partnering in JK Tyre’s growth story. We are proud to share that our product, our innovative, efficient and sustainable in the era of de carbonization and digitalization. In the times of uncertainty, we have robust products, business systems, and processes well-suited for the World Cup world.

During quarter two, the company has registered an impressive top line growth of 26% at INR3,764 crores, which is the highest ever sales for the quarter. Our strong presence in OEM and replacement markets enabled us to leverage on the buoyancy in the Tyre sector. On the strength of our innovation, high performance, diverse product portfolio and high brand visibility, our ever-growing association and strong collaboration with OEMs is continuously resulting in new vehicle launches rolling out on JK Tyre. We continued to achieve robust volume growth in the domestic market across major products that is commercial passenger Tyre segments. During the quarter, OEM offtake improved sharply post easing in the semiconductor supplies, festival season and good traction in the economic activities.

Furthermore, exports have made a significant contribution to our revenue growth despite geopolitical and economic slowdown challenges. We are confident that the strength of our brand, products and distribution network will enable us to sustain the growth in all the market segments.

In quarter two, the automotive industry continued its robust performance. CV segment continued to gather momentum on back of replacement demand, led by higher utilized fleet utilization, government infrastructures push. CV growth is expected to trend further up in the near to medium term.

In the passenger vehicle space, strong performance towards personal mobility, inclination towards SUV segment and ongoing festive season is driving the growth in the PV category. Order book remains healthy for all the major PV OEMs. All these developments in the automobile industry will drive robust demand, both in the replacement and OE market for the tyre industry in India. To capitalize on the growth opportunity, we we are unleashing our capacity wherever possible. Though already announced capacity expansion capex in PCR and TBR tyres, are under implementation stage and progressing well.

To strengthen our product portfolio, we have recently added a new range of tyres for the commercial vehicles. That is JETSTEEL JDH XM and JETWAY JUC XM, in order to ensure long-term benefits to our customers. In our EV journey, we have recently-unveiled the complete range of EV tyres. These namely, JETWAY, are designed to meet the stringent performance needs of EV trucks and buses, and also LCVs. And Ranger HPE for passenger cars, any series.

Raw material and other input cost has started softening after long spell of unprecedented increase, which is likely to improve the margins in the medium term. We are extremely proud to share that the JK Tyre has been assigned Best-in-Class rating by CarEdge on ESG parameters. The high rating is primarily driven by leadership, performance on environment, social and governance pillars. This recognition is a testimony of our unwavering commitments and responsibilities towards conserving environment and serving the society needs. It is highly satisfying that we keep sustainability at the heart of our growth journey. We are committed to the goal of being green and clean company, with sustainable use of green energy and reduction on fossil fuels dependence dependency. We stand committed towards the betterment of our people and largest community. We will continue to produce. We will We will continue to provide support through our well-structured CSR programs, we’ll follow global best practices and uphold the highest standards of corporate governance and compliance. We are proud and honored to be featured amongst the Iconic Brands of India 2022. Our recognition received for the fourth time in a row from The Economic Times Iconic Brands of India.

Further, our manufacturing units have gone continuously been receiving many accolades. To name a few, our Chennai Tyre Plant received the CII National Energy Leader Award 2022 for the five th consecutive time. Tyre Plant won the Energy Efficient Unit Award from CII. Kankroli Tyre Plant was awarded the CII National Award for Excellence in Water Management 2022.

Now, I would request Mr. Arun Bajoria to talk about the performance of JK Tornel, Mexico.

Arun Kumar BajoriaDirector and President

Thank you, MD, sir. JK Tornel Mexico continued to perform well in terms of overall revenue and profitability. During the quarter, JK Tornel achieved highest ever turnover of MXN130 million, which is equivalent to INR721 crores as compared to MXN1466 million equivalent to INR542 crores, an increase of 25% in constant currency. Operating profit of MXN164 million equivalent to INR65 crores, is an increase of 13% in peso terms on year-on-year basis.

There has been significant improvement on all operational parameters with plants running at more than 90% capacity utilization and volumes increasing quarter-on-quarter. JK Tornel continues to remain the largest tyre supplier to all the mass merchandisers in Mexico. These are the Walmart’s, Sorianas, Chedrauis, Elektra, Coppel, Casale, Suburbia and commercial Mexico.

JK Tornel continues to command highest PCR market share in the replacement market and holds the leadership position for online sales in Mexico. We are happy to share that JK Tornel secured 4-star rating for British Council Sword of Honor. Since the acquisition of JK Tornel, there has been a significant growth in business operations and has resulted in yielding multi-fold value creation for its parent company. Thus, it has been a successful strategic investment for JK Tyre.

Now I would request Mr. Aggarwal, the CFO to brief about the financial performance of this quarter.

Sanjeev AggarwalChief Financial Officer

And let me briefly highlight the financial performance in Q2, slide 23. The consolidated is were recorded at INR3,764 crores, which is the highest ever quarterly turnover recorded in the history of the company. The corresponding number was INR2,998 crores in Q2 FY 22, registering an increase of 26% on-Y-o-Y basis.

The average capacity utilization was 85% with radial capacity at even higher utilization levels during the quarter. Overall, volumes witnessed double-digit growth over the corresponding quarter. Export revenues from India were recorded at INR514 crore in Q2 FY 23 vis-a-vis INR454 crores in the corresponding quarter, which is up by 13%.

Profitability at EBITDA level in Q2 FY 23 was recorded at INR305 crore as against INR303 crores recorded in Q2 of FY 22. Operating margins0-operating profit margins were recorded at 8.1% which is marginally better as compared to previous quarter. Cash profits for the quarter stood at INR196 crore and profit before tax stood at INR74 crores.

The balance sheet of the company is quite healthy and leverage ratios remain within the acceptable levels, although we are fully committed to deleverage our balance sheet and bring down further the debt to EBITDA ratios and other debt to equity ratio through reduction in long-term borrowings going forward. We have already circulated our earnings presentation which is available on our website, as well as on stock exchange’s websites.

Now we are open for the question-and-answer. Thank you.

Questions and Answers:

 

Operator

We take the first question from the line of Ashutosh Tiwari from Equirus Securities. Please go ahead, sir.

Ashutosh TiwariEquirus Securities — Analyst

Yeah, hi. So firstly, on the export side, it seems to have grown quarter-on-quarter. So which geographies are doing well for us?

Arun Kumar BajoriaDirector and President

Can you please be louder slightly because there was- we couldn’t get the point. You are talking about exports, so

Ashutosh TiwariEquirus Securities — Analyst

Yeah, yeah. Because it seems to have grown quarter-on-quarter despite a global issue. So, which geographies are doing well for us? That’s the question.

Arun Kumar BajoriaDirector and President

Okay. So basically, we have been exporting to more than 105 globally. And when we have been exporting to North America, Latin America and Europe, Middle East and other countries. So North America, as we have discussed earlier in the previous calls, that is providing a good opportunity for our products. So probably, that is the one which is contributing the most in the exports increase.

Ashutosh TiwariEquirus Securities — Analyst

Okay. And secondly on India side, how is the demand in terms of volumes on a quarter-on-quarter basis across segment like Truck and PCR and on?

Mr. Anshuman SinghaniaManaging Director

Yeah. So, on the outlook of the industry, the C-is the CV demand looks to be coming in strong, and expected to have a structural upcycle over the near to medium term, that’s what we are looking at.

And then, even in the PV segment, passenger car, we are seeing that tapering off of the chip shortage is waning off, but it is still there. And we are hoping that the tractor segment should do well on the onset of monsoon. Overall, we are seeing the automotive industry to have a good growth.

Ashutosh TiwariEquirus Securities — Analyst

Okay. And as you mentioned that raw materials is softening now. So, what kind of decline you expect in the raw material cost in third quarter versus the last quarter?

Mr. Anshuman SinghaniaManaging Director

See, the average increase in the raw material prices are expected to soften in Q3. So that’s what we are expecting and- and, and I hope that this type of sustenance or the softening will happen going forward.

Ashutosh TiwariEquirus Securities — Analyst

So, you mentioned you expect a softening or do you modest increase in the last-in the third quarter?

Mr. Anshuman SinghaniaManaging Director

No, no. I said softening in the- in the coming quarters-quarter three, onwards.

Ashutosh TiwariEquirus Securities — Analyst

Okay. And lastly, on the net debt side, how it has moved versus March with net debt at level now?

Mr. Anshuman SinghaniaManaging Director

Sanjeev? Do you

Sanjeev AggarwalChief Financial Officer

Yes, sir.Yes, sir. In fact, on the debt side as we have been repaying our scheduled debt, as we have committed. So there has been a reduction to the extent of about INR450 crores on the long-term debt side. But on-on the parallel side, on working capital, in fact there is a slight increase in borrowing because of increase in the raw material prices, the finished goods prices and there was increased requirement for working capital to grow our business further. As you would have noticed that there has been a very good growth, which is coming in, in terms of the revenues, so there was a requirement for increased working capital.

So to that extent, we have been actually on the overall debt side. We have been almost at par with the number which was there in the month of March.

Ashutosh TiwariEquirus Securities — Analyst

Okay, what- is the- is the RM basis come down, going ahead in that case- can the working capital come down?

Sanjeev AggarwalChief Financial Officer

That should help in reducing the working capital going forward.

Ashutosh TiwariEquirus Securities — Analyst

Okay. Okay, thank you and all the best.

Operator

Thank you very much sir. We take the next question from the line of from Growth Capital. Please go ahead, sir.

Unidentified Participant — Analyst

Yeah, hi, sir. Sir, could you mention the price hike taken during the quarter?

Mr. Anshuman SinghaniaManaging Director

During the quarter two, the average royalty rate increased by 4%.

Unidentified Participant — Analyst

And sir, what about the price hike we have taken?

Mr. Anshuman SinghaniaManaging Director

And the impact on the selling price was 3%, but we were able to take a price increase mitigating that 3%. But having said that, in the last seven, eight quarters. We are witnessing-we have witnessed an unprecedented raw material price increase. And the under recovery to the extent of 7% to 8%, which we will try to recover by restoring our product price increase, which we have been doing and though our focus and first on operating leverage and even efficiency improvement and cost reduction measures, and several other measures for- including product.

Unidentified Participant — Analyst

So sir, if you are mentioning that the price hike taken by us in the quarter is around 3%, if we look at quarter, quarter-over-quarter sales of the company, the sales have increased by 3%. So could we say thats a negligible growth in terms of volumes?

Mr. Anshuman SinghaniaManaging Director

Well, our growth in terms of volume has been 15%

Unidentified Participant — Analyst

Sir, I’m talking about from quarter-over-quarter, not year-over-year.

Mr. Anshuman SinghaniaManaging Director

As compared to the corresponding quarter as compared to the corresponding quarter.

Unidentified Participant — Analyst

I’m talking about Q2 compared to the Q1.

Mr. Anshuman SinghaniaManaging Director

Oh, so the, the volume growth has been flat only.

Unidentified Participant — Analyst

It has been remained flattish. So is there any specific reason behind the flattish growth because no as you have mentioned, over your commentary OEMs are picking up. So the volume growth would have been increased.

Mr. Anshuman SinghaniaManaging Director

I would request – Arun, would you like to take–?

Arun Kumar BajoriaDirector and President

Yeah, so you know, generally for the tyre industry, quarter two is a slow quarterif you take the previous quarters, so as compared to quarter one this year, I think. So if you have been able to maintain the volumes, it is actually a good demand a good sign. And the demand from OEMs has been very strong, especially in the month of September. So going forward, because in quarter two, the mining and the road construction activity slows down because of the monsoon. There is a general sentiment it’s also not very strong. So generally, quarter two is slow, but this time, I think so, quarter two has been equal to quarter one, which is a very good sign.

Unidentified Participant — Analyst

Sir, to follow that up, will you be providing discounts in the market to push the volumes?

Arun Kumar BajoriaDirector and President

Not really. In fact, we have been taking price increases. But again segment to segment, there may be certain special incentives at. But other than that, there are no major discounts actually.

Unidentified Participant — Analyst

Okay. And sir, one more question. So, sir, what is the reason behind our increase in inventory, whereas OEMs have been picking up?

Arun Kumar BajoriaDirector and President

Could you repeat your question, please?

Unidentified Participant — Analyst

Yes. So what is the reason behind increase in our inventory, whereas no OEM sales have been picking up, in general?

Arun Kumar BajoriaDirector and President

Yeah. So basically, overall inventory may have gone up slightly. There was a specific reason because couple of OEMs, they had faced certain they could the stocks because of certain order postponements from the export market. But that is all very useful inventory, which actually has got liquidated even in the month of October. So there is nothing, no reason to worry about that.

Unidentified Participant — Analyst

And sir, the last question, if we compare our other expenses on a year-on-year basis- on half yearly figures, other expenses have increased by 22%, what is the reason behind it?

Arun Kumar BajoriaDirector and President

So other expenses have increased by what is your-22%, 22%. Yeah. So I think the production levels have also gone up and if you’re comparing-correspond-with the corresponding quarter, in fact the production, which was, which was at almost about 90% plus. Because the capacity, as I mentioned, was almost at the peak of the utilization levels. So this is one reason that the production-whenever the production goes up, but expenses also goes up accordingly. But not to that extent. In some of the cases, of course, because these are semi-fixed kind of expenses that may have come down. But that expenses have gone up, and also the power and fuel cost, may have gone up because of the increase in the fuel cost.

Unidentified Participant — Analyst

Okay, so that’s primarily the reason behind increase in other expenses- on a half yearly basis. Okay. Thank you, sir. That’s all from my side.

Operator

Thank you, sir. We take the next question from the line of Mr. Subham Agarwal from Aequitas. Please go ahead, sir.

Subham AgarwalAequitas Investment Consultancy — Analyst

Yes. [Technical Issues]

Operator

I’m sorry to interrupt, Mr. Subham, but there is a background disturbance from your line.

Subham AgarwalAequitas Investment Consultancy — Analyst

Hello, is this fine?

Operator

Yes, sir. Please go ahead.

Subham AgarwalAequitas Investment Consultancy — Analyst

Yeah. My first question was slightly long term. So, I wanted to understand that when the Tyre industry will go up to technological, whether it is related to electric vehicle or the enabling of enabling norms by government going ahead in the future? So how does this impact the overall capacity of the current capex – the current assets that we have? So I just wanted to understand a bit more around that.

Mr. Anshuman SinghaniaManaging Director

So, as you know that now the automotive industry is going into transformation, which is into EV. And there are lot of models being introduced in the short term and the long-term. There will be lot of models introduced by the manufacturers.

Here at JK Tyre, as I told you that we are already launched our easy- for our clients in various categories in the passenger and commercial categories. We’ve already launched that. So that is, that is- that is technology and innovation which we are harnessing. And in the near future, these percentages are- in terms of EV, will go up.

Subham AgarwalAequitas Investment Consultancy — Analyst

Yeah, I have understood that point. But the thing that I want to understand a bit more is our current fixed asset is capable of producing a certain kind of Tyres right? And as we go ahead in the technological, in terms of the new launches that we are doing, how does it impact our assets or how does it reduces the productivity from current level?

Mr. Anshuman SinghaniaManaging Director

No the assets, which produces our Tyres with those assets, we’ll not have any kind of shortage in terms of impact on the tonnage or numbers.

Subham AgarwalAequitas Investment Consultancy — Analyst

Okay.

Arun Kumar BajoriaDirector and President

Okay, so and just to add for your information, which we have already shared. We have two capacity expansion projects that are underway. One for PCR and one for TBR. So these capacities would also have the latest equipment and technology. So there will be no gap in terms of producing the EV tyres or low RRC tyres, green tyres.

Subham AgarwalAequitas Investment Consultancy — Analyst

So we are not seeing any redundancy of existing assets?

Arun Kumar BajoriaDirector and President

No. No. Not really.

Subham AgarwalAequitas Investment Consultancy — Analyst

Okay, got it. Noted. And secondly, just wanted to understand on the volume growth part, so Y-o-Y volume growth- how much did you mentioned?

Mr. Anshuman SinghaniaManaging Director

Compared to the corresponding quarter-corresponding quarter, we had a 10% volume growth.

Subham AgarwalAequitas Investment Consultancy — Analyst

10% volume growth. Okay. Yeah, that’s it from my side. Thank you so much.

Operator

Thank you very much sir. We take the next question from the line of Mr. Jinesh Gandhi from Motilal Oswal. Please go ahead.

Jinesh GandhiMotilal Oswal — Analyst

Hi, my question is on volume growth. So, of the 10% volume growth, can you give a breakdown between how did volumes grow between OEM and replacement on Y-o-Y basis?

Mr. Anshuman SinghaniaManaging Director

One second please. Hold on.

Jinesh GandhiMotilal Oswal — Analyst

Sure.

Mr. Anshuman SinghaniaManaging Director

Well we figures. But we will-what we’ll do- we’ll get back to you.

Jinesh GandhiMotilal Oswal — Analyst

Okay. Okay. But broadly speaking, would OEM would have been more or less flattish to marginal growth? And, sorry- replacement would be flattish to marginal growth and OEM would have grown faster? Would that be the direction?

Arun Kumar BajoriaDirector and President

Generally, what you’re saying is correct and that the OEM growth because of the lower base of last would be higher, but we’ll get back to you.

Jinesh GandhiMotilal Oswal — Analyst

Sure, sure. And second question was on the replacement market trend. So over the last couple of quarters, replacement demand had started to moderate on high base of last year. So, are we seeing any signs of recovery in TBR and TBB? And as well as PCR now?

Arun Kumar BajoriaDirector and President

So all the segments are kind of showing signs. But as I mentioned earlier, Q2 is generally a low quarter because of the monsoon. But this time, we have seen a very steady demand internally as well. And we are, JK Tyre, have been doing consistent throughout the quarter, month-on-month.

Jinesh GandhiMotilal Oswal — Analyst

Okay. Okay. And lastly, on the Tornel, we are operating at 90% capacity. So do we see a need to add capacity there as well? Or we would be servicing that market through the capacity expansion in India? How are we seeing that?

Arun Kumar BajoriaDirector and President

We have already taken up, as you just heard my colleague say that we are on an expansion in terms of PCR and TBR. And similarly, we are also planning some expansion in the Mexican plant- JK Tornel plant. But for now, the capacity that we have are completely taken care of the market, including the slight growth that is taking place in 2022. So going forward, we don’t see any gap in the demand versus supply.

Jinesh GandhiMotilal Oswal — Analyst

Okay. And this expansion at Tornel would be more of a debottlenecking exercise, I believe.

Arun Kumar BajoriaDirector and President

That’s right, absolutely, you said it.

Jinesh GandhiMotilal Oswal — Analyst

Okay, got it. So broadly speaking, our capex plans are more or less similar to what we indicated in first quarter earnings call of 1100 in next two years?

Arun Kumar BajoriaDirector and President

This is on track. As far as the expansions in India-that is absolutely on track and we will be able to complete the project as we have announced earlier.

Jinesh GandhiMotilal Oswal — Analyst

Got it. Great, thanks, and all the best.

Operator

Thank you very much. We take the next question from the line of Mr. Mitul Shah from Reliance Securities. Please go ahead, sir

Mitul ShahVice President — Analyst

Congratulations, sir, for very strong performance. Thanks for giving the opportunity. Sir, one clarification on your long-term debt. Is this– for this filing, it’s almost flat versus-March versus the September. In March it was and in September it was. Also, you highlighted that we repaid INR200 crores- is it after September or-? What is the details, sir?

Mr. Anshuman SinghaniaManaging Director

No, actually I was referring to the scheduled debt, which has been repaid. To the extent of about point in particular as per schedule. So that has been repaid, but because as we have also undertaken the new expansion, so some bit of the new debt is getting at it. Not in the form of long-term debt at the moment, but at least in the form of, let’s say, the sort of buyers, credit and suppliers in those kind of things. So this is to be considered in the long-term.

Mitul ShahVice President — Analyst

So this is in addition to what we have increase in on working capital debt side also, right?

Mr. Anshuman SinghaniaManaging Director

Yes. So the net impact is the net debt, as on March 31 was INR4940 crores and as on 30th September, this was about 5,000 crores. So roughly around the same level, but yes, there has been an increase in the short-term borrowings to the extent of about INR200 crore.

Mitul ShahVice President — Analyst

Sir, second question on OEM revenues, sir. If I look at your stand-alone business or India business, it is almost flat quarter-on-quarter, first quarter versus second quarter. Whereas if we adjust for these 2% or 3% price increase, then there is a decline in volumes of OEM compared to overall production level has gone up by 20% to 25%. So are we losing market share or what is the change in major change in mix?

Mr. Anshuman SinghaniaManaging Director

We have actually-we have increased our revenue for all volume. We have increased our volume, and particularly as I told you that in the CV market where the CV vehicle have started coming back. There, we have really increased our percentage share.

Mitul ShahVice President — Analyst

In terms of revenue, it seems to be a flat Q-on-Q compared to industry volume going up by 25% between the quarters, but

Arun Kumar BajoriaDirector and President

Say, actually, if you take the year comparing with the previous quarter, right?

Mitul ShahVice President — Analyst

Right.

Arun Kumar BajoriaDirector and President

Yes, if you compare the revenues with the previous quarter in the replacement market, we are up by 3% to 4%. And in the OEM yards there is almost, it’s flat or maybe minus one or two.

Mitul ShahVice President — Analyst

Yeah because production level has gone up by 24% between the quarters-OEM production.

Arun Kumar BajoriaDirector and President

OEM production-OEM production, you mean the automobile industry product?

Mitul ShahVice President — Analyst

Yes.

Arun Kumar BajoriaDirector and President

Okay, okay. You’re talking about the OEM production. So within the OEMs, you will have to also see which OEMs we are talking about because our-in terms of, our major revenue comes from the commercial vehicle. So there, I don’t see that the production has gone up to that extent. And also, being the half yearly closing, they would also like to correct their stockings position–their raw material inventories.

Mr. Anshuman SinghaniaManaging Director

But if we compare H2 of corresponding quarter, H2 to H2 FY 20-FY 23 to FY 22, their corresponding quarter in terms of revenue from OEMs, we have increased to 38%.

Mitul ShahVice President — Analyst

Sir, similar question on other segments also. There is a decline of around 10% on a Y-o-Y basis year-on-year, so is it to do with the volume or there is a major change in product mix? And I believe this segment being a high-margin segment.

Arun Kumar BajoriaDirector and President

Mr Shah, can you please repeat your question? Which 10% deduction you-you’re talking about in

Mitul ShahVice President — Analyst

In, and all the other segment. Our revenues have declined by 10% Y-o-Y corresponding quarter last year, sir. So is it to do with the volume? Because we must have taken price hike or there is a major change in product mix.

Arun Kumar BajoriaDirector and President

Yes, sir. Your observation on but you know, that was a very specific one order that we had serviced in the previous corresponding quarter. And in this quarter, that order was not there. So that has impacted us, but I don’t think so. That is such a big part of any worry for us.

Mitul ShahVice President — Analyst

Sir, lastly if you can give details on in terms of volume, revenues, margin or profitability. And what would it be inter-segment revenue?

Arun Kumar BajoriaDirector and President

So, okay. And this gives you about. has of course been doing well and the revenues have grown in the case of Yeah. So in Q2 FY 23, the net revenue turnover was registered at INR982 crores with an EBITDA margin of 6.3% in the case of Cavendish and the PBT was minus INR18 crore. So this was slightly loss on account of some foreign exchange losses.

Mitul ShahVice President — Analyst

So what was the

Arun Kumar BajoriaDirector and President

The topline has grown, as compared to the previous corresponding period quarter to the extent of 34%. So there has been a growth in the revenue and CIM in this quarter.

Mitul ShahVice President — Analyst

Intersegment revenues sir?

Arun Kumar BajoriaDirector and President

Intercompany revenue has been in the range- to the tune of about INR200 crores from CIM to JK Tyre intercompany- inter unit transfers. That is what is. So INR200 crore of revenue from CIM to JK Tyre.

Mitul ShahVice President — Analyst

Thank you, sir. And all the best.

Operator

Thank you very much sir. We take the next question from the line of Mr. Amyn Pirani from J.P. Morgan. Please go ahead, sir.

Amyn PiraniJ.P. Morgan — Analyst

Yes, thanks for the opportunity. My question is actually on the anti-dumping duty on Chinese truck radial. As we understand, the duty was supposed to expire in September of this year and it has been put on review. So, any indication as to when we will hear from it and any indications from the government whether this could be extended or what would happen going forward?

Mr. Anshuman SinghaniaManaging Director

So the duty has been extended, right now till December 2022, and the government is still right now under review. Okay. Okay.

Amyn PiraniJ.P. Morgan — Analyst

So we don’t have a final verdict yet, on the scene, beyond December.

Mr. Anshuman SinghaniaManaging Director

No, not yet.

Amyn PiraniJ.P. Morgan — Analyst

Okay, thanks for the opportunity. I’ll come back. Thank you, sir.

Operator

We take the next question from the line of Mr., Asian Market Securities. Please go ahead, sir.

Unidentified Participant — Analyst

My question has been answered. Thank you very much.

Operator

We take the next question from the line of Mr. Bhaskar Jain from Jindrich Capital. Please go ahead, sir.

Unidentified Participant — Analyst

Hi sir. Congratulations on goods set of numbers. My question was over raw material basket as a whole, how much has the price soften in terms of percentage, if you can give any clarity? And if you can give the per unit sizes of prices of natural synthetic rubber correctly.

Arun Kumar BajoriaDirector and President

This is what we have been noticing off late in the last- about a month or so that there has been been slight softening in the raw material prices. But in terms of the percentage-exact percentage because this is a basket of various commodities, so we have to compute in each of these commodities, how much, because we have the accumulated inventory as well. And the average cost is coming out to be the almost, like very small reduction, at the moment till September. So, we will let you know next quarter what it is looking like.

Unidentified Participant — Analyst

And sir, if you can give me like in Q1 call you gave the prices of natural rubber-synthetic rubber. So can you give me the current prices?

Arun Kumar BajoriaDirector and President

Difficult to comment at this point in time. This is too early to comment, because the prices for all these commodities have been quite volatile. So let’s see for some more time and then with the comments.

Unidentified Participant — Analyst

Okay, sir. Thank you so much.

Operator

Thank you, sir. We take the next question from the line of Mr. from Invest. Please go ahead, sir.

Unidentified Participant — Analyst

Sir, you have mentioned that the raw material prices impact while they have softened. In Q2, the impact wasn’t fully realized partially, I guess, because you have inventories partially because stock- [Technical Issues] Given that there was the price increase at subsequent price increases are there, and on the other hand, you have seen softening of rubber prices and others. Where do you see your margin going towards Q3 and Q4? Because historically, margins-operating margins are up to 15, 16% and currently they are at around 8%. So where do you think they will settle down in Q3 and Q4?

Arun Kumar BajoriaDirector and President

I think when we talk about the margins on long-term basis, we have noticed that the average long term margin is in the range of about 11% to 12%. Except for the financial year 21 which you referring to where the margins have shot up to about 15, 16% range. So we are happy to again, of course, register those kind of margins. But at this point in time, I do not know how the markets will behave in terms of the raw material prices and because the crude is also quite volatile as I just said.

So I think we should notice and we should get some improvement in margin going forward. But how much it would be, it is really difficult to comment at this point of time.

Dr. Raghupati SinghaniaChairman and MD

I would like to just add here that because of what we are seeing the softening of the raw material cost side price in going forward in Q3, and we are hoping that it will remain at is softening or stabilizing at Q4. The margin the margin will slightly better. I would say, the margin would slightly better from Q2.

Arun Kumar BajoriaDirector and President

And the demand is robust.

Unidentified Participant — Analyst

Would you say that by the end of the year, it would be close to your long-term margin clients?

Arun Kumar BajoriaDirector and President

It is very difficult to estimate at this amount of time and keeping in view the volatility as has already mentioned the volatility of the prices of raw materials and what we have already gone through, I think, as MD has said that we look to improve the scale of margins in the two quarters, Q3 and Q4.

Unidentified Participant — Analyst

Okay. Fair enough. Also, in terms of whatever expansion plans, which are there for capacity, what is the plan to fund them? And also is there a plan- like while we appreciate that, long-term borrowing has been reduced. But since the short-term working capital requirement is offset. So, is the company happy to let the, you know. One, how will you fund the expansion plans? And two, where do you see that going from here? So is it that, long-term will keep producing and working capital could possibly take that or take space created or because of expansion, overall debt goes up? Or you see it a conscious effort to break it down and like force it to slightly move or rather lower level?

Arun Kumar BajoriaDirector and President

So we have, first of all, we have been fully focused and committed to reduce our long-term debt. Going forward, right. And even on the working capital side, we have been controlling it in the best possible manner, but because the raw material prices and the finished product prices have gone up significantly in the last one year or so. So that is the impact which we have noticed even for the reasons of sales increase in the volumes also, that is getting reflected. The levels of working capital has not gone up as had been the case. That is one.

Secondly, we have been funding our projects in the ratio of 1.5 is to 1. It means that 1.5 is debt, and 1 would be the internal revenues. So to that extent, and because we have been repaying our existing debt, to the extent of about 500 to 600 every year. So, there will not be any net increase in the borrowings in long-term debt, so to say. And there will be reduction over the period of next three years. As we have already said in our previous calls, also, that we are expecting the total debt to go down, but by the year 2025-2025 to the extent of about 40%. So I think this will continue to be there and the total amount of debt because of the new projects, as of will only be an addition of about INR500 crores broadly.

Mr. Anshuman SinghaniaManaging Director

So it will be with the improved margins. As mentioned by MD in Q3 and Q4, it will give us some leeway to achieve these both objectives of debt reduction and part putting of the capex. By way of internal accruals. I think it will give us a good leeway as we go along.

Unidentified Participant — Analyst

Thank you.

Operator

Thank you very much, sir. We take the next question from the line of Mr. Aditya Soni, Individual Investor. Please go ahead, sir.

Aditya SoniIndividual Investor — Analyst

Hi. I just wanted to know the demand outlook for quarter three for the Indian operations, especially in the truck and bus segment.

Arun Kumar BajoriaDirector and President

Demand Growth you are talking about, right?

Aditya SoniIndividual Investor — Analyst

Yeah, I demand for quarter three.

Arun Kumar BajoriaDirector and President

Sorry, your voice is not very clear. Can you please repeat? To have a better understanding of your question.

Aditya SoniIndividual Investor — Analyst

Yeah, I just wanted to know the demand outlook for quarter three, in respect of the domestic business. So the CV segment.

Mr. Anshuman SinghaniaManaging Director

Yeah, there was, there was an earlier question on the same. But I’ll repeat that CV is expected to do good and the benefit from structural upcycle over the near to medium term. And the CV market has started picking up, as you would know, that the core industry like cement, mining, steel industry has picked up-and infrastructure. So on that we are very, we are expecting that CV market will be more buoyant in the coming quarters.

Aditya SoniIndividual Investor — Analyst

Okay. So this is in respect. So could you just give us the split as well like in terms of replacement market and OEM as well? Like how do you expect both of them, individually?

Arun Kumar BajoriaDirector and President

You are looking for the overall? Or you’re looking for CV in specific?

Aditya SoniIndividual Investor — Analyst

The CV in specific, sir.

Arun Kumar BajoriaDirector and President

CV in specific-specific replacement is definitely higher than the OE. I think, so it could be a ratio of 1:2. In respect of the growth outlook, sir. Oh, the growth-the growth, I think so in OEM, we can expect growth because it is on a lower base of last year. Replacement market would be better than Q2, but the growth rate would not be as high as what we see, we would say in going.

Sanjeev AggarwalChief Financial Officer

In fact, as for one of the reports of a rating agency leading rating agency, whether it is, which was published the industry the CV industry which was peaked at about in the year 2019. That is likely to get repeated in 23 years, 23 and 24. So, this number of about one million according to their assessments, one million number on automobile side, including the CV and MSV so that number is going to be repeated in the year 2024. So we are seeing a good growth actually in the next financial year, as well as next-generation.

Arun Kumar BajoriaDirector and President

And also just to add, especially in the M&HCV segment, the vehicle or their product mix has gone for a higher tonnage, so that the number of wheels or the number of tires per axle per vehicle has actually gone up. So that is a good sign for us.

Aditya SoniIndividual Investor — Analyst

Right, sir. Well, that’s it from my side. Thank you.

Operator

Thank you, sir. We take the next follow-up question from the line of Mr. from Living Road Capital. Please go ahead, sir.

Unidentified Participant — Analyst

Yeah, hi, sir. Could you also comment for the increase and exceptional items?

Sanjeev AggarwalChief Financial Officer

Exceptional items-so that is because of the foreign exchange losses. In fact, because as we both know, there has been a deep appreciation of rupee dollar vis-a-vis this quarter, to the extent of about 3% within the quarter itself.

So to that extent, we had to reinstate our foreign exchange loans and these are all mostly the unrealized losses and these are mark-to-market losses, which we have to book in our accounts, as per the accounting standards and accounting guidance issued by the institute. And I believe that once the rupees start, let’s say, strengthening vis-a-vis the dollar, the guide is driven by the bankers and experts, is that the dollar will be dollar rupee parity should be in the range of about 80 to 82 by the end of the financial, some of it will come back. So this is just a reinstatement for the purpose of mark-to-market, the outstanding loans

Unidentified Participant — Analyst

Accounting standards require all the dollar liabilities to be stated at and prevailing on the last day of the quarter. As Sanjeev has said, I think going forward with the expectation of the rupee dollar 20 to be slightly better. I think we’ll see how it moves on, but these are all unrealized, there is no cash outgo or anything. There is still many payment use payments will be made. This is only to report the values as on the last day of the quarter.

Unidentified Participant — Analyst

Thank you, sir. That’s all from me.

Operator

Thank you, sir. We take the next follow-up question from the line of Mr. Mitul Shah from Reliance Securities. Please go ahead, sir.

Mitul ShahVice President — Analyst

Yes, sir. Thank you for the follow-up opportunity, sir. I have question again on your capex cash flow and debt. So, as you highlighted in earlier also capex of roughly INR1100 to INR1200 crore for two years. That is nearly INR600 crores. So in first half, we spent around INR200 crore capex, so roughly INR350-400 crore capex is yet to be spent in second half. Also, we are indicating INR400-500 crores, kind of a debt repayment, which remained plate right now.

So if I do this, it’s coming INR800 to INR900 crore kind of a cash flow generation from operations in second half compared to what we generated nearly INR400 crore in first half. So I’m not getting how will

Sanjeev AggarwalChief Financial Officer

So this will be a-Mr. Shah- partly the loan, this project will be funded through loans as well. So 60:40 is the ratio, 1.5:1. So whatever internal accruals are required debt, of course, we will be in a position to generate, and in fact, just to give you some more comfort, in the first quarter. I think we mentioned it earlier also. We had received some INR200 crore rupees of outs tandings from the government against the GST and export incentives and all those things. So that cash is also made available to us. So we don’t see any challenge as far as the cash requirement is concerned to fund these projects. And because the loans will also get this first, everything will fall in place.

Mitul ShahVice President — Analyst

So based on that calculation, roughly your net debt can be slightly higher, maybe around INR500

Sanjeev AggarwalChief Financial Officer

It will be divided, so INR766 crore of the capex, which will get funded in the ratio of 1.5:1 and the INR300 crore, the maintenance capex provision-sort of provision or announcement, which we made, this could be plus-minus any number. So INR300 crore is for the maintenance capex. So for that, of course, we will also raise some amount of debt, but net debt increase will not be as meters. What we are going to repay in the next few years and 23 FY 23 and in FY 24.

Mitul ShahVice President — Analyst

Okay. And sir, lastly, if you can throw some more light on Mexico industry-tyre industry in terms of this replacement, which segment within that or which products are doing well and our market share trend-what is the potential debt?

Sanjeev AggarwalChief Financial Officer

Mexican industry-the requirement in terms of, let’s start with Passenger Car Radial, the PCR tyres is-the growth is reasonable. And we are growing at the rate of something like 8% to 10% and that will continue. And for that our market shares are steadily increasing. We are inching up and that will continue at least for the next two to three years.

Beyond that, I may not be able to tell you at this point of time. And in terms of the Truck Bus Radials- also the market is growing, albeit a little lesser than the Passenger Car Radial and there also. We have maintained. We are not manufacturing purpose failures in Mexico, but we are feeding the market by getting tyres from India, as well as from our other outsource partners. And of course, the Truck Bus tyres, the market is certainly degrowing. And to that extent, we are now in terms of expanding into or diversifying into industrial tyres, as well as into farm tires. So that is the situation. But overall the growth in the Mexican market is quite reasonable. In fact, I would say it’s good.

Mitul ShahVice President — Analyst

How has been the pricing there? How much were taken in input Q2 and first half?

Sanjeev AggarwalChief Financial Officer

Overall, I would say that the price increase taken in Mexico is roughly about 16% in the whole year of 21- I mean 22 and let’s say, last 15 months, we have taken roughly 16% and which has been more or less enough to cover the increases. But if we are able to take another one or two percent going forward then I think we’ll be a little more comfortable in terms of our operating margin.

Operator

Thank you very much. Ladies and gentlemen, that was the last question for the day. I would now like to hand the conference over to the management of JK Tyre for closing comments.

Arun Kumar BajoriaDirector and President

Thank you very much for joining us on this call. And we hope we have been able to reply your questions to your satisfaction. Oh and behalf-on behalf of JK Tyre, once again, thank you everyone. Thank you.

Operator

[Operator Closing Remarks]

 

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