JK Tyre & Industries Limited (530007) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Q2 FY '25 Earnings Conference Call of JK Tyre & Industries Limited hosted by Emkay Global Financial Services. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Chirag Jain from Emkay Global Financial Services. Thank you, and over to you, sir.

Thanks, Niya. Good afternoon, everyone. On behalf of Emkay Global, I would like to welcome you all to the 2Q FY '25 Earnings Conference Call of JK Tyre & Industries Limited. Today, we have with us the senior management team represented by Mr. Anshuman Singhania, Managing Director; Mr. Arun K. Bajoria, Director and President, International Business; Mr. Anuj Kathuria, President, India Operations; Mr. Sanjeev Aggarwal, Chief Financial Officer; and Mr. A.K. Kinra, Financial Adviser. We'll begin the call with opening comments from the management team, followed by the Q&A session. Over to you, sir.

Yes. Thank you. Very good afternoon to everyone, and welcome to JK Tyre Q2 FY '25 earnings con call. On behalf of the entire JK family, I would like to extend my warm wishes for a very happy and prosperous festive season 2024. To begin, I would like to share key performance highlights of the Indian economy and the auto sector, followed by Q2 business performance. India continues to be the fastest-growing economy despite geopolitical uncertainty. Few factors like strong growth in manufacturing, robust credit growth and GST collection, rural economy rebounding and stronger exports in service and high-value manufacturing has strengthened India's position further. We firmly believe that India will keep delivering superior performance, which would strengthen its position in the global economy. The automobile industry is one of the key drivers of growth in the Indian economy. However, the performance was mixed bag during the quarter. While the commercial vehicle segment degrew by high single digit on account of extended monsoon and moderation in infrastructure spend post general election. Passenger vehicle segment sustained on a high base. Two-, three-wheelers witnessed robust growth of more than 12% in quarter 2. JK Tyre being a CV major, the OE sales was impacted by the drop in CV production during the quarter. However, for the domestic market, overall, the volumes are flattish over the previous quarter. As we move into the second half of the year, we expect the demand to improve driven by festive season, resumption of government infrastructure spend and normalization of construction, industrial and mining activities. Further premiumization trend shall continue across sectors, including auto led by increasing aspiration, changing lifestyle and greater availability of ease of finance. Domestic passenger car radial has significantly improved over the previous quarter in the replacement market. Now coming to the Q2 business performance. Overall revenue were reported at INR 3,643 crores as compared to INR 3,905 crores in the corresponding quarter last year. Overall domestic market volume contracted in high single digits, primarily driven by the OEM segment. On export front, volume remained flat on a YoY basis but showed sequential improvement in high single digits. Export demand continues to recover from all markets like American continent, Asia, Middle East. Introduction of new products and expansion of footprint in our own target markets, we are confident that this growth will sustain in the second half despite continuing supply chain issues and uncertainty in the geopolitical scenario. On the margin front, EBITDA margin contracted sequentially due to high raw material costs, which increased by approximately 6% to 7% compared to Q1. We have been actively working to mitigate this impact through judicious pricing actions and product mix enrichment, coupled with operational efficiencies. Presently, we are witnessing a correction in RM prices. During the quarter, we further expanded our market reach in the replacement segment by adding 23 brand shops, 40-plus fleet customers, 2 large accounts in the mobility business. The ongoing capacity expansion programs in TBR, PCR and all steel light truck radial tires for an aggregate cost of INR 1,400 crores is progressing well. In our continued efforts to strengthen our brand visibility, JK Tyre has been recognized as an Icon Brand of India 2024 by The Economic Times for the fifth time. At JK Tyre, we have embraced digitalization as a strategic catalyst to enhance operational efficiencies across functions, including manufacturing, marketing and sales. By integrating digital and predictive technologies with AI, we are accelerating the innovation and product development. It is indeed a matter of pride that JK Tyre has been honored with the prestigious Mahatma Award 2024 for the CSR Excellence. JK Tyre is a green company, and it is committed to reducing carbon intensity by 50% by 2030. Sustainability is at the core of its activity, be it manufacturing excellence or development of the next-generation technological advanced product. Now I would request Bajoriaji to talk about the performance of JK Tornel Mexico.

Thank you, MD sir. I will now share the highlights of Mexican economy and JK Tornel, Mexico for the second quarter of financial year '25. Mexico's economic activity slowed in the second quarter of 2024, following the establishment of the new government. GDP growth decelerated to an annualized rate of 0.8%, down from 1.1% in the previous quarter, and employment growth rates also slowed down. Peso weakened against the dollar, which should support exports in the coming quarters. The IMF projects Mexico's GDP growth forecast for 2025 at 1.5%. The positive development for the Mexican tire industry is that the Mexican government imposed antidumping duties at 32% on imported passenger car and light truck tires from China effective October 1, 2024. This move is expected to provide a significant boost to JK Tornel's domestic sales of PCR tires. Now coming to quarterly financial performance. JK Tornel, Mexico registered quarterly sales of MXN 342 million, which is equivalent to INR 593 crores lower by about 8% on year-on-year basis on constant currency terms. EBITDA margins sustained at 8%, that is MXN 106 million, equivalent to INR 47 crores. However, due to depreciation of Mexican pesos, which is about minus 10% vis-a-vis the Indian rupee, the overall revenue and profitability were further impacted in Indian currency. During the quarter, raw material cost has increased significantly by 11% over previous quarter. To offset this impact, we have taken strategic price increase across categories and could increase our net sales realization by about 9%. In an effort to boost sales of passenger radial tires, 18 new SKUs in the premium category have been introduced to the market with plans underway to launch over 14 more premium SKUs by December 2024. These efforts have resulted in increasing PCR capacity utilization to nearly 90%. JK Tornel is onboarding new customers in the mobility and mass merchandise segments. Recently, it has started supplying premium SKUs to Walmart, Mexico. Now I request Mr. Sanjeev Aggarwal, our CFO, to brief about the financial performance of the quarter.

Thank you. Thank you very much, sir. So let me briefly share the key highlights for financial front with you all for Q2 FY '25. The first one is the consolidated revenue for Q2 FY '25 were recorded at INR 3,643 crores as compared to INR 2,905 crores in the corresponding quarter last year. EBITDA margins during the quarter were recorded at 12.2%, vis-a-vis 14.1% in the previous quarter, contracted by 195 basis points due to higher raw material costs primarily driven by significant rise in natural rubber prices while the crude oil prices remain moderated at present. Profitability at EBITDA level was reported at INR 443 crores as against INR 597 crores in Q2 last year. On a quarterly basis, cash profit stood at INR 323 crores as compared to INR 488 crores in Q2 FY '24. Profit after tax stood at INR 144 crores. Consolidated capacity utilization for the quarter was 83%. The utilization of radial tire capacities remained strong ranging between 85% to 90% for radial segment at present. Consolidated exports stood at INR 693 crores, up by 6% on Y-o-Y base. Subsidiary companies, Cavendish Industries Limited and JK Tornel Mexico, continued to perform well and have contributed significantly to the revenues and profitability on a consolidated basis. Cavendish posted a top line of INR 957 crores with EBITDA at INR 123 crores, registering an operating profit margin of 12.9%. Earnings per share on consolidated basis stood at INR 4.93 per share in second quarter. Return ratios in terms of ROCE and ROE are within the mid- to high teens range and are expected to improve going forward. Net debt stood at INR 4,340 crores as on 30th of September '24 as against INR 3,704 crores in March '24. The debt levels have risen due to increased working capital borrowings, primarily related to a strategic buildup of key raw material inventory. For FY '23, '24, the company paid a total dividend of INR 4.50 per share, including an interim dividend of INR 1 per share paid earlier. And the final dividend of INR 3.50 per share was paid during the quarter. On September 16, the Board of Directors of JK Tyre and CIL respectively approved the scheme of amalgamation, which involves the merger of Cavendish Industries Limited into the parent company, JK Tyre. The merger aims at synergizing the benefits, simplified structures unlocking value for the shareholders and consolidate tire operations into one single entity. As per the swap ratio worked out, the shareholders of CIL will receive 92 shares of JK Tyre for every 100 shares they hold in CIL, in Cavendish Industries Limited. The proposed merger will go through several approval processes and is expected to be completed within the next 10 to 12 months' time. And the leverage ratios, the net debt to equity and net debt to EBITDA remain within the comfortable zone of 0.9x and 2.15x as on September 30, respectively. The balance sheet and the return ratios of the company have been within the healthy levels. Now we open the session for question and answer.

[Operator Instructions] The first question is from the line of Amar Kant Gaur from Axis Capital.

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 OEMs -- most of the OEMs, we haven't seen a great growth in the production sequentially. And a commensurate decline we have seen in the replacement segment when sequentially, we typically see an improvement in the second quarter. So could you shed some light on those numbers, please?

Yes. In the OEM, in terms of the segment, here, CV market has definitely -- the truck, especially the MHCV, has shown a decline. And that has been quite sluggish in H1. Then in the passenger car, there has been growth in H1. There has also been a growth high double digit in the 2-, 3-wheeler as well in the segment. So that is for the OEM.

Sir, I'm talking about sequentially from the numbers that I have. There's about INR 100 crores of addition, almost 15%, 16% addition in the revenues quarter-over-quarter. And the growth in 2-wheelers might not be that great, maybe around low single digit, 6% to 8% kind of growth there. And CVs would be largely flat and CVs will be lower. So would that mean that we have gotten into more OEMs? Certain models where we are present has done relatively better?

No. So in terms of the numbers, for us, there has been degrowth in the OEM when it comes to truck. We are the largest -- we have got impacted because we are the largest participant in the OEM -- in the CV segment, one. There has been a flattish for LCV and HCV in terms of the OEM, this thing. And in the passenger car, we are -- it has been a minor growth for us in terms of volumes. And we have been flattish in the 2-,3-wheelers. This is on -- from the sequential quarter.

Okay. And regarding replacement, sir?

I'm sorry?

Replacement.

Replacement segment.

Yes, replacement. From the corresponding quarter we have grown in terms of 3% in volumes. And even on the sequential, overall volumes have grown.

Okay, okay. 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 could 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?

So you see, we have been able to take about 3% to 3.5% in H1. And in various categories, there are obviously various different level of price increase. So we've been -- also, we've also got a price increase by the OEM as well, apart from the aftermarket.

Okay. And regarding the competitive intensity, if you can comment.

It is -- the market is dynamic. Each company is on their own to decide about the pricing strategy. So we are in a very competitive environment.

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 letting -- 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 actions 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 maybe a shorter-term phenomenon, and we might see more price competitiveness coming through going forward?

See, actually, it's not only about the competition, but it is also about the ability of the market to absorb the increase. So we are working on that. So as you're also aware, that the freight rates have not been going up to that extent. So therefore, we found that the market, especially in the replacement market, the opportunity to pass on was not there. We have taken increases. I'm specifically talking about the commercial vehicle segment. But if you take the passenger car, we have had a much better increases that we have been able to take. So with the overall demand, the availability of freight that will get better in quarter 3 and quarter 4, we feel that the opportunity to take further price increases should be better.

[Operator Instructions] The next question is from the line of Abhishek Jain from AlfAccurate Advisors Private Limited.

Sir, in CV segment, how is your revenue mix in TB versus TBR? And how is your market share over there? And what is the outlook for the replacement demand in TBR and TBB?

So as I was saying that the -- so on TBR, the replacement demand is holding on, I would say. And it is -- when the new vehicle sales are a little lower, the replacement market generally picks up. So we have seen that the quarter 2 was a little muted as compared to quarter 1 because of the monsoon. And even the monsoon got extended, in which the construction and mining activity is slowing down. But otherwise, we see that the demand in the long-haul segment is holding as usual. Even in PCR segment, we have found that the demand in the replacement market is steady.

And how is your revenue mix over there TBR versus TBB?

TBR actually has grown at a little faster -- higher rate as TBB. But I would say TBB also, there has been a growth. It has not come down. So overall, the total -- say, in the replacement market, the total size of the market has increased. But in that, the increase is more for the TBR.

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

Say, 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...

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.

Okay. So because of the capacity constraints, your TBR percentage in overall revenue is lower, right?

See, within the segment of total bus, the TBR definitely will go up. But overall, in terms of revenue contribution, I think because we are setting up large capacities for passenger line radial, so that will go up.

Yes.

Okay. And my next question is on Cavendish. How do you see volume growth over there in next 2 years?

See, overall, if we see, first of all, see, overall -- in terms of Cavendish or JK Tyre, we consider like one unit only. But just for the sake of your question clarity, the increased percentage is -- yes. So the growth percentage you're talking about, right?

Yes, yes.

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

So I'm asking about the Cavendish now. They have achieved a revenue of INR 975 crores. So how do you see the revenue growth over there? And what would be the key figures of the revenue growth and the EBITDA margin over there?

So the EBITDA margins are definitely better presently in the case of Cavendish Industries Limited. And going forward, in terms of EBITDA margins, I do not know, but the passenger vehicle margins are better. So I believe that this will move in tandem with Cavendish Industries in the case of JK Tyre also.

Yes. But Cavendish, the revenue...

Revenue growth.

Because we -- as you know, we announced a CapEx of around INR 260 crores so that will add to the tonnage that we'll be able to produce over there. So therefore, we expect that this additional capacity will get utilized in FY '26. And therefore, it will result in a revenue growth.

Okay. And my last question on the Tornel Mexico. So how much exports in our revenue in the Tornel Mexico? And what are the key markets where we are exporting?

Can you repeat your question, please?

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

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. As you know that the exchange volatility, whether it is Brazil, the real was at around BRL 4.7, BRL 4.8 to $1. Today, it is about BRL 5.6 to $1. So the import into Brazil has become, to that extent, much more unremunerative, very expensive. And so also the other countries in Latin America. For example, Argentina and Venezuela, the exchange rates have absolutely gone haywire. But however, the total exports versus the domestic is something like 41% to 59% -- let's say 60% is domestic and about 39% to 40% is export.

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

Yes, yes. We are expecting our domestic sales to go up significantly going forward, that is from November '24 onwards.

The next question is from the line of Mitul Shah from DAM Capital.

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

No. Basically, the subdued demand sentiments in the Latin American markets have been impacting our exports. So that has also impacted the overall sales, as you've seen. And the currency depreciation that is the Mexican peso versus the rupee, as I said, that it has come to minus 10% is leading to lower conversion rate. So in terms of peso, it does not show less. But when you see in the consolidation, which takes place when we get the figures from Mexico into India as per the Indian GAAP, then this difference is seen. Because earlier when we were converting peso sales into Indian rupees, it was at INR 4.5, INR 4.6. And today, it is at INR 4.2. So that is the difference that you are observing. As I said that is 10% to 11%.

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

Yes, yes.

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

This is approximately INR 250 crores. The interunit sale, you're talking about, right?

Yes. Yes, sir.

INR 250 crores in the quarter.

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

So many benefits, of course, would be accruing because of this restructuring of the amalgamation which has been proposed and approved by the Boards of these 2 companies. And some of them will be large economies of scale, which we can get the benefit of. And also the simplified structure, the cost benefits, the ease of the doing business and also some tax benefits which will accrue. Because there is some carryforward losses in Cavendish in income tax, not in balance sheet. So in income tax, whatever carryforward losses are there, so those will get, let's say, set out over the year or maybe in 1.5 year or 2 years' time. And that will be the benefit to...

And unlocking value of the stakeholders and consolidated tire operation to one single entity.

Right. So we will see a lot of synergical benefits. So we thought that this would be the best time and the ideal situation is because now Cavendish Industries also is generating a good amount of profitability and business. So this has stabilized now more or less, so it is the best time to get the benefits of -- to reap the benefits of the merger.

Some duplicity will be reduced, [ with maintaining ] two companies. So that will give us some benefit to the cost.

Right. Right. Great, sir. Sir, can you quantify these losses? How much would be those carryforward losses which can be used as a benefit for?

That would be very difficult. But we will work out and we can discuss separately.

The next question is from the line of Aditya [indiscernible] from Omkara Capital.

Sir, could you help us with the revenue mix -- product line for either -- for India business.

Sorry, your voice is breaking. So can you repeat your question?

Yes. Could you help us with revenue mix by market and product line for India business for either Q1, Q2 or H2 -- H1, sorry.

By market, the broad numbers I can share with you. The replacement is 60% kind of the revenue. OEM is about, again, it's varying from time to time depending upon the situation. But this is between 26% to 30%. And the exports revenue.

This is for Q2 or H1?

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

And revenue mix by product line?

And revenue mix by product line, truck and buses, again the major contributor to the revenue to the extent of about 60%. And passenger car radial would be about 30%. And balance -- not 30% exactly, but it is also improving. So let's say about 25%, 26%. And the balance is from 2-wheeler and nontruck.

[Operator Instructions] The next question is from the line of [ Amit Agarwal from Leeway Investments ].

Just wanted to know, 6 months volume, what is the growth in the 6 months for last quarter -- sorry, Y-o-Y?

Could you please repeat the question?

What is the volume growth Y-o-Y, 6 months -- for the 6 months for Indian operations?

Volume growth.

One second please. H1 FY '24 compared to H1 FY '25, the domestic sales volume was around lower single digits.

Could you define as a percentage?

See this was not across the categories. Actually, this lower number in terms of volume basically was because of the 2-, 3-wheeler segment, but the value is not substantial.

No, that's Okay. But I just wanted to know the exact like price rise and the volume growth so that I can -- it helps me in forecasting the future growth of the company and the capacity utilization of the company.

To correlate that then it is better to look at the tonnage rather than the...

In any case, as we have discussed in our -- Anshuman-ji 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...

So that, I understand. But still, it's better if you could give me the percentage. Is it 2%, 5%, 6% or 3%? Or is it negative? Because the turnover has been stagnant. So I just wanted to get an idea what is the price rise and what is the volume growth in Indian operations?

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

Okay. And so what is the capacity utilization of the Indian operation?

85% to...

90%, 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 2 years?

Next 2 years?

Yes.

Yes. So it will all depend upon the kind of demand sentiment. And we are very hopeful that the demand will improve, not only from the third quarter, but overall, the demand sentiment will remain very positive because of the good GDP growth, which is expected going forward. So we are expecting...

No that's okay. But I think in the last con call, you said we have been investing INR 900 crores around about next 2 years. So there will be some expansion on the capacity. So I just wanted to know how much is the expansion of the capacity.

Okay. I will tell you that also. So for the time being, because you asked me about the capacity utilization in the next 2 years. I think it would be, for radial again, plus 95%. And for the bus in the similar range of about 80%. Okay. And as far as the new capacities which are under commissioning, so we see that because we are expanding our capacity mostly in passenger car radial tires, so these capacities will be fully utilized. And these are all large capacity, which is getting added in PCR and also in TBR and also in one of the other segment, which is all steel truck light radial tires. So these are the 3 categories where we are adding capacity.

So should we expect around about 20% increase in the capacity -- total capacity, including bus, including passengers cars and scooters?

Car is definitely getting added. But in scooters, we have not announced any increase in capacity.

The next question is from the line of Mayur Milak from AMSEC.

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

No. Sequentially, in the RM basket, it is an increase of 6% to 7%.

6% to 7%.

Corresponding, it is 13% increase.

Okay. 13% was Y-o-Y, you said, and 6% to 7% QoQ. 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 1.5% price hike in the month of July. Now overall, you mentioned that your price hike for the first half has been 3%, 3.5%.

Correct.

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?

No, your numbers are correct. So by H1, we've been able to take cumulatively about 3%, 3.5% price increase. And we are assessing the situation now in the -- in this quarter as well. In third quarter as well, we are assessing the situation to see the market dynamics. And through that, we will be taking our decisions of price increase.

Sure. But so far, until November of this quarter, you haven't really taken any price hike?

No, We have announced a price hike in the TBR segment in the end of October.

Okay. Okay. So you've taken one already in this quarter?

Yes. Only for the TBR.

Okay, yes. Right. And sir, coming to overall the demand scenario, so 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. Now from what I understand, almost 70%, 75% really comes from replacement. So any particular reason that you see that why the replacement is kind of been very sluggish? OE we understand this inventory thing. But why the replacement not really picked up?

Anuj-ji?

The replacement demand, actually, what was expected in the beginning of the year, it has not played out to that level. And quarter 2 was, in particular, more muted. Maybe this time we had extended monsoon and the construction and mining activity also had slowed down during this period. But now -- and even the -- because of the election, the CapEx that is steadily invested in the infra did not happen. So all this 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 now with all that kind of -- we see that the government spend will be much better in infra. We will see a movement in the core industries. We will also have the -- now with the rural economy also starting to churn, I think so overall, the economic activity will increase. And that would also result in better utilization of the vehicles with more freight availability.

Sure. Sir, one structural question, if you allow me. So the direct freight corridor is pretty much on its verge of 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 street 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 reading into that?

See, over here on dedicated freight corridors, it is not yet in place. But what we have understood and we are in dialogue with our OEM customers because they are also monitoring this very carefully, finally, the total freight availability or the freight movement will be increasing somewhere similar to the GDP growth rate. That is quite closely correlated. So what the OEMs are also working upon is to make the overall per ton per kilometer transportation cost by road more attractive than the rail. So that is one thing which we are working on by improving the vehicle dynamics, vehicle performance. And we are also working along with them to improve the fuel efficiency or even the other cost per kilometer of the tire also. So that, in my view, should -- despite the dedicated freight corridors coming in, which will take some part of the freight and especially there, where there is point-to-point movement is possible, say, maybe cement, maybe steel. But wherever transshipment is not something which is going to help there, either it will be road or, at best, it will be multimodal. So finally, in the long term, 5 to 6 years, yes, there will be lot of multimodal. But in our understanding, even in a developed economy, say, if you take China, even there, till date the road transportation has almost accounts for 60% to 65% of the total movement. And the road infrastructure is also improving with the national highways and also the state highways being built. So we feel that while yes, some of the freight will move towards the dedicated freight corridors, but it will not reduce the overall the availability for the road sector.

Okay. So your view is the industry will continue its CapEx as anticipated?

Yes.

The next question is from the line of Basudeb Banerjee from CLSA.

Just to continue with [indiscernible] cumulative price at 6%, 7% sequential, raw mat basket inflation. But if I look at...

Can you please speak loudly?

Yes. So just to continue with the price hike aspect, which you just now discussed, and the raw mat basket sequential cost increase. But if I look at the last [indiscernible]...

Sorry to interrupt you, sir, there is a disturbance in your line.

I'm not audible?

Yes, better.

Yes. I'm saying, sir, the raw mat 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 effect. 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 to this 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 while there will be some lag effect which will go into Q3. But maybe more towards the end of the quarter, we may see some softening happening. And definitely, there will be -- we are looking out for further increases, but that will purely depend on the market's ability to absorb that increase. As I mentioned earlier, one increase we have taken at the end of quarter -- sorry, the end of October. And we would be looking at other segments if there is any opportunity.

And second question sir, last time when one can recall that you have reduced prices in replacement market to pass on commodity benefits?

Could you repeat that question, please?

The last time when did JK or industry in general reduced replacement market prices to pass on commodity price benefit?

No, that was not a significant thing. It was mostly because, if you remember, prior to that, there was an increase, 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 have softened thereafter.

[Operator Instructions] The next follow-up question is from the line of Abhishek Jain from AlfAccurate Advisors Private Limited.

Sir, as you mentioned that you are adding the capacity in the TBR and PCR, and these are the fully utilized now. So what would be incremental revenue in FY '26 because of this capacity addition?

So whatever capacities we are adding, these are all brownfield projects. And we are expecting 1.1 to 1.2x the investment. That is the kind of increase in revenue we can expect.

So when these capacity will be commissioned?

So these are getting commissioned in different quarters. But you can broadly assume that the second half of FY '26, all the capacities will start. And then we will have to ramp it up over the next 2 to 3 quarters roughly.

Okay. And sir, as you import raw materials to different countries like Indonesia, Vietnam. And sir, just wanted to understand what is your import requirement -- what is your RM requirement comes from the import? And what is the difference in the prices now, domestic versus imported, in terms of the RM?

See, again, over here, if you take the different components in the RM, the import percentage or the dependence is one of the largest areas is international rubber. There again, it varies from quarter-to-quarter because the production of the domestic rubber is also not uniform throughout 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, for reasons -- in some cases, reasons of capacity, in some cases other commercial reasons, we keep on importing. But very difficult to give you figures because it is strategic and tactical, which changes from every one quarter to the other quarter. So we play it out that way.

So import must be more than 50% of the overall requirement, sir?

Sorry, could you repeat your question?

Sir, I was saying that import has been -- must be around 50% of the total requirement of RM?

Not really, but again it varies from quarter-to-quarter.

It varies quarter to quarter. Okay. And as the freight rate was very high in the last 2 quarters, but it has started to go down. So because of this, will you get the benefit in others as well, sir?

You're talking about the...

Yes, international freight rates, sir.

So ocean freight rates had gone up, but now they have started coming down again. So when the rates had gone up for our outbound, it was always being shared between the customer and us. And now also the similar situation will be there. So the impact is now mostly kind of negated.

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 2 years?

So the debt repayment schedule is being followed as per what we have to pay fully. And in the next 2 years, basically, we will be reducing our debt by almost about INR 1,500 crores.

INR 1,500 crores. And what is the current net debt, sir?

Net debt to equity today 0.8:1.

In number terms, sir?

In terms of numbers, the net debt is about INR 4,000 I mentioned, INR 4,340 crores.

INR 4,340 crores. And that will reduce to the INR 1,500 crores or it will be reduced by INR 1,500 crores?

It will be reduced by INR 1,500 crores.

[Operator Instructions] As there are no further questions from the participants, I now hand the conference over to the management for closing comments.

It was really very nice session we had with you all, investors and analysts. So thank you very much all of you joining the Q2 FY '25 earnings call. And I hope that we have provided all the clarifications which were asked for. Thank you very much. Have a good day. Thank you.

Thank you.

Thank you.

Thank you very much.

Thank you. 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.