During the inauguration of the company’s R&D Centre Raghupati Singhnia Centre of Excellence, in Mysuru recently, Rajiv Prasad, President, India Operations, JK Tyre & Industries spoke to BusinessLine on the challenges faced by the tyre industry and how the company is preparing to meet the changing demands of the auto manufacturers.

Excerpts:

The auto industry is on the cusp of a host of changes such as the implementation of the new axle norms for commercial vehicles, the switch over to BS VI fuel and the mass adoption of hybrid and electric vehicles. How is the tyre industry gearing up for the changes?

In terms of the switch over to BS VI emission norms, we are already ready for that. The whole industry is actually ready. On the axle loads, what the government has done is more like redefining the weights which have been in use in the country all along.

For a long time now, vehicles across the country have been put to a lot of test in terms of overloading. And these vehicles as well as the tyres have been performing. From the tyre industry standpoint, if the government specifies what sizes are to be used (for what category of loads), it will mean a lot of investments and it may not be good for the industry.

Otherwise, in terms of technology or product capability, to meet the changes, the industry is ready. As far as electric vehicles go, the scenario is a bit far away. However, we have already supplied tyres for electric buses in the country to a customer and the testing is going on. That is one side, but it is going to take a while for mass adoption of electric vehicles because the infrastructure required in terms of charging points, battery availability, etc will be huge.

Has the threat from cheap Chinese tyres abated?

A good portion of the tyres in the unorganised market comprises the cheaper, imported ones from China, catering to truck and bus radials and, to a certain extent, car radials. This segment has been supplying to the lower end, where price is more important than quality. The government did put some brakes on this last year by imposing an anti-dumping duty, which brought down the imports to a certain extent.

The question is: Are we, as a country, willing to sacrifice quality and safety? Tyres in India follow BIS quality standards. Are the Chinese tyres meeting the standards? Even for fleet operators, while the Chinese tyres may be cheap, the total life cycle cost of the vehicle may go up. Our study shows that the mileage of these tyres is far lesser and, hence, fuel can turn out to be a large cost factor. The world over, everyone is protecting their markets, specifically with respect to China. If you look at the raw material cost, say, Thailand natural rubber, the price is the same for everyone except for the freight differences.

This being the case, how is it the prices at which the Chinese tyres are sold are even lower than the raw material price? There are obviously some duty drawbacks or benefits that are being given to them, which are unfair to the Indian industry. We have been talking to the government about this.

It is not that the Indian tyre industry does not have the capacity to meet the domestic demand. Talking about JK, we have added capacity and are talking about further capacity as well. When we bought Cavendish in 2016, there was a capacity of truck and bus radials that was lying uninstalled, which is under commissioning right now. So as the market opens up, there is capacity available.

The tyre industry is raw material-intensive. How do you optimise your raw material costs?

Tweaking the domestic-to-import mix as well as the synthetic-to-natural rubber mix can optimise costs. As far as the domestic-to-import mix goes, it varies every quarter. Apart from supply factors, you also need to have stability on other parameters.

For instance, when rupee depreciates, even if international prices are stable, the landed price can be high. A certain level of substitution of synthetic rubber for natural rubber and vice-versa is possible when natural rubber or crude prices go up. But if the substitution goes over a certain level, the properties of the tyres change. Hence, we need to balance it out carefully.

What are the new areas you are focusing on in your R&D wing?

We are concentrating on a couple of things. One is getting ready for tomorrow’s need in terms of electric vehicles. Unfortunately, no one knows what the requirements are in terms of parameters such as heat, noise, rolling resistance, friction, etc. So we are trying to figure out what can be possible in all this. Secondly, in terms of domestic and international customers, the stringency of the norms is getting tighter and tighter.

There was a time when we would not be bothered about noise in a tyre. Today, this is becoming an important parameter for customers. Besides, if you look at auto sales, the number of SUVs sold is increasing. The industry is moving from smaller to larger rim sizes. SUVs require larger tyres, which means higher rolling resistance. But what Indian customers would also require is higher mileage, which means lower rolling resistance.

So there is continuous change and we need to be prepared for that. We are also looking at the future in terms of being able to design for Europe, where they have winter tyres.

There are different requirements for different parts of world as the land, road and weather conditions are different. To that extent, we have to invest in R&D to look at global markets.

Your debt-to-equity ratio has moved up sharply in the last three years…

It’s a question of timing. We may be looking at debt in a big way today because we are investing for the future. We will be ready with the capacities when others are in the investment phase.

Also, the debt-to-equity ratio has gone up because the debt of Cavendish, which we acquired in 2016, has been added to our consolidated books, as it is a subsidiary now. Cavendish is just about turning around. This year should be better.

Cavendish’s radial unit is just being set up and the utilisation rate is going up month on month. Even in the Chennai plant, while the truck-bus radial facility is running at full capacity, the passenger car radial segment is running only at 78 per cent capacity.

With larger capacity utilisation, we will be able to gain more operating leverage and absorb fixed costs better.

The writer was recently in Mysuru at the invitation of JK Tyre & Industries

comment COMMENT NOW