How is the overall replacement demand holding up in India? Are you seeing further improvement in Q1 and beyond? What is the outlook when it comes to sales of the Mexico operations?
Raghupati Singhania: The current demand is sound and good in the country and we are looking for nearly 6-7% growth in the industry going forward during the year ahead. And if I were to break up in segments, the passenger segment is growing the best and it is also showing more robust demands. In the CV category, there is a little bit of up and down and little flattish demand for the year as a whole as we can foresee.
Of course, the farm sector is still a little slow in growth and two wheelers are growing very well. So, as far as the demand is concerned, overall, it looks like a sound 6% to 7% growth in demand for the tyres going forward. As far as we are concerned, our presence in the market is increasing and we have been able to do an excellent sales pitch during this year which has gone by and also we have been able to rake up good profits and good margins.
As far as Mexico is concerned, the Mexican economy is slow and the GDP is expected to grow barely 1.5% or so going forward. Even last year there was barely a growth of one plus percent. But we have been able to maintain our shares in the market. We are the largest suppliers of passenger car radials in the replacement market of Mexico. We have the largest market share and we have the largest presence. Going forward, we see reasonable growth in demand; not very fancy growth, but low-single digit growth and we are there to participate in that growth.
Talk us through the EPR impact this year and what could be the likely impact in FY25? Also can you help us understand how to calculate that exactly?
Raghupati Singhania: In FY24, in the last quarter, we had to make a provision for Rs 106 crore on account of the last two years for EPR because we are obliged to do that and the government has imposed it retrospectively. But prospectively, in FY25, we have started charging.
We started putting it as a line item on the bill invoice itself on a per tyre basis and we are charging EPR charges from the customer, recovering it from the customer. The basis is simple, that whatever they are pricing of the certificates, that translated into selling price terms is what we are seeking. We are not making any margin or profit on top of that. It is not warranted and it is purely passing on the impact of the cost to the consumer, that is the mechanism. Going forward, this is the mechanism the government has agreed that we should pursue and we have done it. We have started charging. I believe a couple of more manufacturers started charging. Some who have not, I am sure will start doing so shortly.I also wanted to get in a sense from you because there has been a significant reduction in your net debt. Keeping the capex plans in mind, how are you looking at your FY25 net debt number shaping up?
Raghupati Singhania: In March ‘24, our net debt came down to Rs 3,700 crore, which is a nearly Rs 800 crore deduction or nearly 18% net reduction. This is also leading us to a debt equity ratio of 0.80 to 1, which is certainly a good deleveraging. This was attained by a very consistent focused policy and strategy that we did, that infusion of capital into the company at two stages and this has helped us to lower debt.
In addition, going forward, in all our project financing which we are doing for our capex obligations, we have evolved a different methodology and we are resorting to minimal borrowings. All that is helping us to retain and maintain this debt profile. Going forward, we are going to undertake two expansions, one is a Rs 1,400-crore expansion and the other is a Rs 600 crore expansion which is being fulfilled. But we plan to raise a very limited debt and gradually when we raise debts in a staggered fashion, in the meantime, the due repayments will also take place with the result that our net debt position will be very marginally effected at all and we shall be able to maintain a similar debt position going forward.
How do you see the raw material basket cost moving in FY25, given that natural rubber prices have significantly shot up in Q4?
Raghupati Singhania: If I go back to Q4, some marginal increases in raw material prices already took place in Q4 and in Q1 we are expecting another couple of percentage point price increases, taking here 3% to 4% or so. We have tried to cover it up by a marginal increase of 1.5% or so in selling price in the last quarter.
Going forward, we shall see the intensity of it. For the year as a whole, we see about 6% to 7% raw material price increase and then we will see how to cover it up. One is, of course, some passing on into the marketplace, but more recovery will take place via our internal processes, primarily by more premiumisation.
And how is the expansion going to help increase output in higher sizes more and more? We as a company were capable of making 25% in premium sizes which means 16-inch rim and above in the passenger car segment. Now, based on the last expansion, we have become capable of producing 45% or so of our capacity in the premium sizes and going forward in two years’ time we will become 68% capable of producing premium sizes. This itself will help us tremendously. Apart from this, we have come out with premium products in the CV categories, which have caught up very well in the marketplace.
