New Delhi: JK Tyre and Industries is looking to acquire a rubber plantation to offset rising input costs that are eroding the tyre maker’s profits, a top official said on Tuesday.
“We are seriously examining this possibility as a business proposition,” JK Tyre president Arun Bajoria told reporters.
“Production of natural rubber is not increasing while demand for tyres is increasing globally,” he said, adding the company was working on developing substitute for rubber at its R&D centre.
Bajoria didn’t give details of location or deal size for plantation buy but said the company had enough cash to fund such a deal.
The tyre maker plans to raise tyre prices by 4-6% from 1 June, he said, adding “this was not sufficient to cover the rise in input costs.”
“There is a limitation on what customers can absorb.”
The overall raw material prices have increased 43% in FY11 while company has been able to increase tyre prices by only 17%, he said.
JK Tyre and Industries on Tuesday reported a 50% drop in quarterly net profit to Rs130 million from the year ago, though sales grew 29% to Rs1,347 crore in January-March.
Operating margins contracted to 5% from 7% a year ago.
“The biggest challenge we faced was prices of raw material. That has had an adverse impact on profitability,” A. K. Kinra, director-finance, said.
The company expects its performance to improve in the current year as it plans to ramp up capacity, he said.
Chinese tyre makers have been able to sell tyres in Indian market at about 20% discount because of subsidies provided by the Chinese government, giving tough competition to Indian tyre makers. Bajoria hoped the anti-dumping duty on Chinese imports stay.
The company plans to invest about Rs1,150 crore to ramp up capacity, of which Rs930 crore would be spent in FY12, he said.
The company plans to raise truck radials capacity by 75% to 1.4 million units by March 2013 from 800,000 units now. It would also raise tyre capacity for light commercial vehicles and car by 50% to 7.5 million unit by March 2012, he said.
“We are expecting that radialization will go up to 35% from 17-18% in the domestic market as of now.”
The car sales in India, which saw a record 30% growth in 2010/11 driven by demand from a growing middle class in Asia’s third-largest economy, easier access to loans and a wider choice of models, has now started moderating.
Car sales grew by 13.2% in April as higher interest rates, fuel prices and vehicle costs crimped demand and local industry body expects auto sales growth to slacken to 12-15% this fiscal year.
Ahead of the earnings announcement, shares in JK Tyres, valued at about $80 million, ended 1.32% up on Tuesday in a Mumbai market that closed up 0.15%.