Thank you very much. We will now begin the question -and-answer session. The first ques tion is from the line of Amar Kant Gaur from Axis Capital. Please go ahead.

Sir, I had two questions. One was regarding the growth that we have seen in the OEM segment quarter-over-quarter. What is contributing to that, because most of the OEMs, we haven't seen a great growth in the production sequentially. And a commensurate decline we are seeing in the replacement segment when sequentially we typically see an improvement in the 2nd Quarter. So, could you shed some light on those numbers, please?

In the OEM segment, the major decline was in CV segment, especially the MHCV which has shown a decline and has been quite sluggish in H1. In passenger there has been slight growth over the previous quarter, however, it declined on y-o-y basis.

I'm talking about sequentially. From the numbers that I have, there's about Rs. 100 crores of addition, almost 15%-16% addition in the revenues quarter-over-quarter. Then the growth in 2- wheelers might not be that great, maybe around 6 %-8% kind of growth there, and CVs would be largely flat and LCV would be lower. So, would that mean that we have gotten into more OEM, certain models where we are present have done relatively better?

In terms of the numbers, there has been slight degrowth in the OEM on sequential basis. We got impacted because we have the largest participant in t he OEM, in the CV segment and in the passenger car, it has been a minor growth in terms of volumes . This is from the sequential quarter.

And regarding replacement, sir?

In r eplacement segment, we have grown in volumes both from sequential as well on corresponding basis.

My second question relates to the pricing actions that we are seeing in the market and the competitive intensity that has been relatively high in certain segments and not in others. So, would you please elaborate the kind of competitive intensity you are seeing in the market as far as pricing is concerned and which segments are the most competitive and how much price hikes have you taken in individual segments over the last couple of quarters?

We have been able to take price hikes of about 3% - 3.5% in H1 across various categories.

And regarding the competitive intensity, if you can c omment? Why I'm asking that is because in the past a lot of your competitors have been quite vocal in terms of being very prudent on price increases and protecting the margins. But lately margins have come under pressure quite a lot and we have seen some of the competitors also resorting to some pricing action to protect market share rather than the margins. So, is that something that you are seeing in the market as well or that is something you believe that is a maybe a shorter term phenomena and we might see more price competitiveness coming through going forward?

It's not just about competition; it's also about the market’s capacity to absorb price increases. We are carefully evaluating this aspect. As you might know, freight rates haven’t risen significant ly, which has limited our ability to pass on higher costs, particularly in the replacement market. On the other hand, in the passenger car segment, we have successfully taken more substantial price increases. We anticipate that as overall demand improves and freight availability strengthens in Q3 and Q4, we will have a better opportunity to implement further price adjustments."

Thank you. The next question i s from the line of Abhishek Jain from Al fAccurate Advisors Private Limited. Please go ahead.

Sir, in CV segment, how's your T BB versus TBR? And how is your market share over there? And what is the outlook for the replacement demand in TBR and TBB?

In the TBR segment, the replacement demand is holding steady. Typically, when new vehicle sales are lower, the replacement market tends to see an uptick . However, in Q2, demand was slightly muted due to the extended monsoon, which slowed down construction and mining activities whereas, demand in the long-haul segment remains strong. For the PCR segment, there is a positive trend, with replacement market demand picking up. Overall, while there were temporary challenges due to seasonal factors, the underlying demand in both TBR and PCR replacement segments remains strong.

So, in commercial vehicle, the new contribution is around 53% to 55% There how much revenue mix for TBB versus TBR?

In terms of revenue the total truck bus accounts for almost say 52%-53% for us and there roughly 40% comes from TBR.

And as you are adding the new capacity most probably that this ratio will increase?

Yes, absolutely. The TBR ratio will further go up because now we are seeing that even in the mining segment the use of TBR is increasing.

And our capacities are all being set up in TBR, not in TBB.

So, because of the capacity constraints, your TBR percentage overall is low, right?

Within the segment of truck and bus, The TBR definitely will go up.

First of all, the overall we consider Cavendish or JK Tyre like one unit only, but just for the sake of your question clarity, so you are talking about the growth percentage, right?

Yes.

The growth percentage in JK Tyre will be higher going forward because of the increase in passenger line radial tyres capacity.

Sir, I am asking about Cavendish now. They have achieved a revenue of Rs. 975 crores. So, how do you see the revenue growth over t here and what would be the key triggers of the revenue growth and EBITDA margin over there?

EBITDA margins are definitely better in the case of Cavendish, presently and going forward we would not like to comment on the EBITDA margins, as the new c apex in passenger vehicle segment at JK Tyre would help in improving margins in JK Tyre.

My next question is on the Tornel Mexico. So, how much export of the Tornel Mexico in the different countries and which are the key markets?

This is about 50% and the key markets for export from Mexico are Brazil and Latin America. And in Latin America, it is Colombia, it is Argentina, Venezuela, Cuba. So, these are the countries and they keep varying because it depends on the exchange rate of those countries. A s you know, that the exchange volatility, whether it is Brazil, the real was at around 4.7-4.8 reals to a dollar. Today it is about 5.6 reals to a dollar. So, the import into Brazil has become, to that extent, much more un remunerative, very expensive. And so also the other countries in Latin America. For example, Argentina and Venezuela, the exchange rates are absolutely gone haywire.

So, because of this imposing duty on the Chinese companies by the 32% rate, domestic business will see a significant growth from this quarter onwards?

Yes. We are expecting our domestic sales to go up significantly going forward. That is from November 24 onwards.

Thank you. The next question is from the line of Mitu l Shah from DAM Capital. Please go ahead.

Sir, my question again on the Mexico Tornel, sequentially Q2 is always stro ng on a Q -on-Q basis. And we have seeing 10%, 15%, 20% type of revenue growth compared to Q1. This time, it is a decline. So, as initially you highlighted about this new government formation related challenge, etc.. But anything one time or it is overall slowdown which has impact on the Q2 and we'll see similar impact at least for next few quarters?

We are currently facing challenges in our export sales due to subdued demand in the Latin American markets. This dec line has impacted our overall sales performance. Additionally, currency depreciation, particularly the weakening of the Mexican peso against the Indian rupee, has further impacted this. Although our sales in peso terms have not decreased significantly, the issue arises during consolidation. Previously, we converted peso sales to Indian rupees at a rate of around 4.5-4.6. Now, with the conversion rate at approximately 4.2, we are seeing a 10-11% impact on consolidated figures due to this currency fluctuation.

On sequential basis sir, Q-on-Q 10% to 11% you are talking?

Yes.

And second question is on how much would be roughly intersegment between Cavendish and JKI?

This is approximately 250 crores. The inter-unit sale you are talking about, right?

Yes.

250 crores in the quarter.

And lastly, sir, any meaningful benefit of this restructuring of Cavendish going forward, merging with the JK?

The proposed restructuring and amalgamation, approved by the board, will bring multiple strategic benefits. Primarily, we expect to realize significant economies of scale, which will enhance overall operational efficiency. Additionally, the simplification of our corporate structure will lower costs and improve ease of doing business. We also anticipate tax b enefits stemming from carried forward losses in Cavendish, specifically for income tax purposes (these losses do not appear on the balance sheet). These carried forward losses can be utilized over the next 1.5 to 2 years, providing a valuable offset and co ntributing to improved financial performance.

Unlocking value of the stakeholder and consolidating tire operation into one single entity. We see a lot of synergical benefits.

We thought that this would be the best time and the ideal situation is because now Cavendish Industries is also generating a good amount of profitability and business. This has stabilized now more or less. So, it is the best time to reap the benefits of the merger.

Sir, can you quantify these losses? How much would be the most peripheral losses which can be used as a benefit for you?

Thank you. The next question is from the line of Aditya Akhani from Omkara Capital. Please go ahead.

Could you help us with revenue mix by market and product line for India business for either Q1, Q2 or H1?

By market, the broad numbers I can share with you. The replacement is 60%. OEM is about 26% to 30% and the exports remaining.

This is for Q2 or H1?

This is for Q2 I had talked about. Both are more or less similar.

And revenue mix by product line?

Revenue mix by product line, truck and bus is again the major contributor to the revenue to the extent of about 60% and passenger car radi als would be about 30% and balance from two- wheeler and non-truck bias.

Thank you. The next question is from the line of Amit Ag garwal from Le eway Investments. Please go ahead.

What is the volume growth, YoY for 6 months?

In H1FY25 compared to H1 FY24, the domestic sales volumes were lower in mid-single digit.

Could you define in percentage?

See, this was not across the categories actually this lower number, in terms of volume.

That’s okay, but I just wanted to know the exact price rise and volume growth so that I can, you know, it helps me in forecasting the future growth of the company and the capacity utilizat ion of the company.

To relate that, then it is better to look at the tonnage rather than the numbers.

In any case, as we have discussed and Anshumanji talked about in his speech, this quarter is not a real representative quarter for the future growth of the company, simply because the OEM was not doing so well, and therefore this is a picture completely different this quarter.

So, in terms of market segments we can talk about this. So, replacement is low single digits. OEM is low double digits. And then export is positive high single digits.

So, what is the capacity utilization of the Indian operation?

85 to 90 percent. Again segment wise it is completely different.

Radial capacity is 90% and the other overall is 85%.

So, what is the increase expected in the capacity in the next two years?

It will be around 10% on consolidated basis.

That is okay, but looking at I think in last concall we s hould look at investing Rs. 900 crores around for the next two years, so there will be some expansion on the capacity. So, just wanted to know how much will be the expansion of the capacity?

We are expanding our capacities mainly in passenger car radial tyres, Truck bus radials and all steel light truck radial category for an aggregate amount of Rs.1,400 crore.

So, should we expect around 20% increase in total capacity including buses, cars, and scooters?

Yes, in PCR it will be around 20% and TBR will be around 10%.

Thank you. The next question is from the line of Mayur Milak from AMSEC. Please go ahead.

So, on the RM basket, sequentially, you said it is up by about 11%. Am I get it right?

Sequentially, in the RM basket, it is an increase of 6 % to 7%. For the H1, it is a bout 13% increase.

13% in H1 you said and 6% to 7% QoQ.

Yes.

And in your previous call, you had mentioned that in 1Q, your price realization increased by about 2% and you had taken a 1 % to 2.5% price hike in the month of July. Now overall, you mentioned that your price hike for the first half has been 3% -3.5%. So, largely, post -July, we have not really been able to take any price hike because of the softness in replacement demand. Am I reading that right?

But so far till November of this quarter you haven't really taken any price hike?

We have announced the price hike in the TBR segment, in the end of October.

So, you've taken one already in this quarter earlier?

Yes, only for the TBR.

And sir, coming to overall the demand scenario, I think clearly the industry is reading a typical low single digit demand scenario, which largely means a steady replacement demand and maybe low single digit OE demand. What I understand almost 70 %-75% really comes from replacement. So, any particular reason that you see that why the replacement has kind of been very sluggish? O E we understand, there's an inventory thing, but why is the replacement not really picked up?

Replacement demand has not played out to that level as was expected in the beginning of the year and Q2 particularly w as more muted, on account of extended monsoon and the construction and mining activity, which has also had slowed down during this period. Also, because of the election, the infra capex did not happen. So, overall economic activity was slow. The movement of the core sectors, such as cement, steel, even that was also curtailed to a large extent because of the construction activity being muted. So, we see that the government spend will be much better in infra in the next half. We will see movement in the core industries. Rural economy also starting to churn . Therefore, overall the economic activity will increase and that would also result in better utilization of the vehicles with more freight availability.

But one structural question, if you allow me so the direct freight corridor is pretty much on its verge of getting completed, the Western corridor. What we understand from the experts on railway is largely that there could be a dramatic shift of goods from road to rail, which will have its own fleet impact on the M &HCV industry per se. So, if the overall run were to come off, does it also mean that the replacement cycle in the M &HCV should kind of see a structural slowdown in the next 2-3 years? Any take from your side? Have you done any kind of readi ng into that?

Currently, the dedicated freight corridors are not fully operational, but we are closely monitoring the situation in dialogue with o ur OEM partners who are also evaluating its impact. Freight movement typically correlates with GDP growth, and we anticipate an overall increase in total freight availability. OEMs are focusing on reducing per-tonne-per-kilometer road transportation costs by enhancing vehicle dynamics and performance. Similarly, we are working on optimizing tire fuel efficiency and reducing overall costs per kilometer. While dedicated freight corridors will likely to handle point-to-point shipments (like cement or steel), transshipment-heavy freight will still rely on road transport or a multimodal approach. Even in developed economies like China, road transportation remains a dominant mode, accounting for 60-65% of total freight movement. With ongoing improvements in national and state highway infrastructure, we believe that while a portion of freight may shift to rail, road transportation will continue to play a major role, supported by better vehicle and t yre performance.

So, your view is the industry will continue its CAPEX as anticipated?

Yes.

Thank you. The next question is from the line of Basudeb Banerjee from CLSA. Please go ahead.

The raw material basket which moved up 6 %-7% in Q2, how do you see that with today's commodity price come down in Q4 per se, not in Q3, because it will have a lag e ffect. So, this is with respect to the question of further price hike , whether price hike is required at all or not because commodities would have corrected equivalently by Q4 today’s price?

In Q3, definitely the price hikes would be required, but it will finally find its own level as to the raw material prices will also start softening. So, there will be some lag effect which will go into Q3, but more towards the end of the quarte r, we may see some softening happening. We are considering further price increases; however, the extent of these will largely depend on the market's capacity to absorb them. As mentioned earlier, we already implemented a price hike at the end of October and will continue to evaluate opportunities for adjustments in other segments as market conditions allow."

Second question, the last time when did the JK or industry in general reduce replacement market prices to pass on commodity price benefit?

No, there was no significant such thing. It was mostly because , if you remember prior to that there was a sharp increase of 40% plus in the commodities. So, overall if you see we were able to sustain whatever increases we had taken even when the commodity prices had softened after.

Thank you. The next follow up question is from the line of Abhishek Jain from Alf Accurate Advisors Private Limited. Please go ahead.

Sir, as you mentioned that, you are adding the capacity in the TBR and PCR, and these are fully utilized now. So, what will be the incremental revenue in FY26 because of these capacity additions?

So, when these are getting commissioned?

So, these are getting commissioned in different quarters, but you can broadly assume second half of FY26 . All the capacities will start and then ramp up will happen over the next 2-3 quarters.

And sir, also import raw materials to different countries like Indonesia, Vietnam. And so just wanted to understand what is your import requirement? W hat is your R M requirement comes from the import and what is the difference in the prices now domestic versus imported in terms of the RM?

If you take the different components in the RM, the import percentage varies from quarter-to- quarter, because the production of the domestic rubber is also not reformed for the year. So, there that is one area, but there are other areas where I think so now the domestic capacities are being set up, for example say Carbon Black. But there again in some cases other than commercial reasons we keep on importing but very difficult to give you the figures because it is strategic and tactical which changes from every one quarter to the other quarter.

So, import must be around 50% of the total requirement of RM?

Not really. But again it varies from quarter-to-quarter.

And as the freight rate was very high in the last two quarters, but now it has started to go down. So, because of this, do you give the benefit in other expenditure?

You are talking about the what?

International freight rates.

Ocean freights had gone up but now they have started coming down again.

And my last question on the overall debt, what is the current debt in the company and how is your repayment plan for the next two years?

So, the debt repayment schedule is being followed as per what we have to pay fully and in next two years basically we will be reducing our debt by almost about Rs. 1500 crore.

And what is the current net debt sir?

Debt to equity today is 0.90:1.

And in number terms, sir?

And that will reduce to the Rs. 1,500 crores or it will be reduced by Rs. 1,500 crores?

It will be reduced by Rs.1,500 crores.

Thank you. As there are no further questions from the participants, I now hand the conference over to the management for closing comments.

I thank you for joining Q2FY25 investors call today and I hope we have provided clarifications to all your questions satisfactorily. Good day.

Thank you very much. On behalf of Emkay Global Financial Services, that concludes this conference. Thank you for joining us, and you may now disconnect your lines. Thank you.

This is a transcript may contain transcription errors. The Company takes no responsibility of such errors, although an effort has been made to ensure high level of accuracy. Some minor editing may have been done for better readability. In case of discrepancy, the audio recordings uploaded on the stock exchange on November 06, 2024, will prevail.