Date:14/11/2004 URL: http://www.thehindubusinessline.com/bline/iw/2004/11/14/stories/2004111400100800.htm

Back JK Industries: Let it roll for a year

Sowmya Sundar

THE fixed deposit programme of JK Industries can be considered for a one-year tenure. The company offers 8 per cent for one year and 8.5 per cent for two and three years.

The longer tenures can be avoided as the business risks may increase after a year due to the cyclical nature of the tyre industry.

JK Industries does not offer higher incremental returns on a three-year deposit.

Hence, there is no incentive to opt for it, given the increasing possibility of an interest rate hike in the near term.

JK Industries makes automobile tyres under the brand name JK Tyres. It has a good presence in the four-wheeler market, especially the truck and bus segment and also caters to the radial tyre demand in the passenger car segment.

Over the past couple of years, buoyant automobile demand led to a steep increase in the demand for tyres, helping JK Tyres maintain a robust topline. At the operating level, however, the profit growth is flat due to higher input costs.

Prices of natural rubber rose 30 per cent during the year and the cost of crude-based inputs too has been rising.

Tyre makers have not been able to pass on the price increases to the end customer. Tyre prices were raised 3-5 per cent during the year.

From a one-year perspective, a depositor faces only the risk of margin pressure, as volume offtake is still robust. The profit before payment of interest costs is twice the interest costs for the nine months ended June 2004.

Though the interest coverage is not very high, it appears comfortable enough to protect against risks in the next one year.

Despite the 22 per cent decline in interest costs for the period, the interest coverage has been stable.

Over two years, a depositor faces the twin risks of margin pressure and the possible tapering off of volume growth due to a higher base.

If the offtake volume drops, the profitability could decline steeply, reducing the cushion available for meeting interest payments. Hence, one can avoid locking in for two or three years.

One can get further information from the company's head office at `Link House', 3, Bahadur Shah Zafar Marg, New Delhi, 110002.