TVS Srichakra - Annual Report Summary
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TVS Srichakra Limited is one of India’s largest manufacturers and exporters of two-wheeler, three-wheeler and off-highway tyres. Domestically, the company is a supplier of tyres to all leading two and three-wheeler vehicle manufacturers (OEM).
The company also accesses international markets with sales to more than 70 countries worldwide across all continents. The company manufactures tyres in two manufacturing sites - one in Tamil Nadu and the second in Uttarakhand.
Products are precision engineered to provide superior performance under different conditions. The product range includes two and three-wheeler tyres, and a range of off-highway tyres including industrial pneumatic tyres, farm and implement tyres, floatation and other multi-purpose tyres. The company’s tyres are designed to global standards and are sold under the brand names “TVS Eurogrip” and “TVS Tyres”.
The Company’s focus was on developing the aftermarket and increasing market share, consolidating and increasing its presence with OEMs - particularly in the premium segments and building its presence in the export markets. With this in mind, numerous branding activities were initiated in all major markets.
AUTO INDUSTRY DYNAMICS
India ranks among the top five automobile markets in the world. The Indian automobile industry contributes to 7.1% of GDP and accounts for 49% of manufacturing GDP (source: Deloitte Touche Tohmatsu). India’s relatively young population, rising middle class and FDI inflow of USD 30.8 billion as investments in the automobile sector over the past two decades have been driving this growth.
The EV sales market in India showed robust growth during FY 2021-22. 231,338 electric two-wheelers (464% Y-o-Y growth) and 17,802 cars (257% Y-o-Y growth) were sold during the past year.
The tyre industry is expected to grow in FY 2022-23. An increase in OE demand and stable replacement volumes should drive growth. However, this growth in the tyre industry could be dampened by margin pressures due to a rise in input prices.
TYRE INDUSTRY DYNAMICS
Indian tyre exports recorded a 55% growth during FY '22 with the value of exports growing to `18,277 crores from `11,759 crores in FY’21. Export of Two-wheeler and OHT tyres recorded growth of 64% and 50% respectively during FY’22.
The export market outlook remains positive and is expected to grow during the next year. Overall, more than Rs 20,000 crores of capital expenditure on vehicle manufacturing is expected in the next five years to cater to the growing domestic and export markets. The tyre industry is poised for positive growth in the short to medium term.
The company has strengthened its distribution network and now covers 640 districts across India serviced through 600 distributors. Through this network, more than 50,000 tyre retailers are served.
COMPANY UPDATES FOR THE YEAR
The year saw a significant increase in the overall raw material cost. The supply chain remains a bottleneck and requires tight inventory management. Crude oil derivatives required for the tyre industry were in short supply and prices increased sharply due to crude oil price volatility.
The war in the West has resulted in increased economic uncertainty across global markets with extreme variation in input prices. Prices of all petrochemical products, steel and metals have been at all-time highs.
Acute shortage of coal due to the ban on exports by Indonesia coupled with the power crisis in China in Q3 meant prices skyrocketed by 400% followed by a marginal reduction in Q4.
Both natural rubber and crude prices are controlled by the external environment and are, therefore, beyond the control of the management.
During the year, the company undertook a brownfield expansion in the Madurai plant for doubling OHT tyre production capacity. The project is in the final stages of completion and will help increase the company’s share in this segment. The project focuses on producing and supplying a range of tyres to address global markets.
The Company has successfully designed, developed, produced, and tested tyres for vehicles used in competitive racing. It continues to stress the importance of applying contemporary technology in its new product development program.
The risk in the current business environment is changing rapidly as well as dynamically, including the dimensions of cyber security, information security, business continuity, data privacy and large deal execution.
During 2021-22, the company undertook several technological initiatives described below
Setting up of a satellite technical centre for off-highway tyre technology in Israel.
Industry-Academia Partnership with Sastra University to research multi-body dynamics and tyre mechanics. Such partnerships enable fast tracking of technological development and opportunities for filing new patents.
Modernization of a state-of-art test track with dry and wet grip test tracks specifically designed to test motorcycles and scooters.
Technical Centers in Milan, Italy and Madurai, India worked together to develop and launch a range of premium tyres (e.g., Bee Connect, Bee City, Bee Sport) for the European, Southeast Asian and Indian markets.
The company’s research focus has been on the development of Low Rolling Resistance (LRR) tyres for OEMs with a focus on developing sustainable technologies and reducing carbon footprint. The company was successful in launching a Low Rolling Resistance tyre suiting the needs of the Electric Vehicle Segment.
The company’s focus on developing cutting-edge technologies has resulted in the filing of 30 patents of which 16 patents are published and 1 patent has been granted.
FINANCIALS
Awesome reading. Very nicely analysed as always. Seems to have some near-term growth triggers.