Rajratan Global Wire Ltd Management Discussions.
Global economic overview In 2017, a decade after the global economy collapsed, a revival manifested: ongoing Euro-zone growth, modest growth in Japan, late revival in China and improving realities in Russia and Brazil. The result was an estimated 3.7% global economic growth in 2017, some 60 bps higher than the previous year. It would be relevant to indicate that crude oil prices increased in 2017 from $54.13 per barrel at year-start to a low of $46.78 per barrel in June 2017 and year-close at $61.02 per barrel, the highest since 2013.
Global growth forecasts for 2018 and 2019 were revised upward by 20 bps to 3.9%. (Source: WEO, IMF)
Indian economic overview After registering GDP growth of over 7% for the third year in succession in 2016-17, the Indian economy reported slower growth of 6.7% in 2017-18 (7.7% growth in the last quarter). The year under review was marked by structural reforms by the Government. In addition to GST introduction, the year witnessed progress in the resolution of problems associated with bank non-performing assets, FDI liberalisation, bank recapitalisation and privatisation of coal mines. After remaining in negative territory for a couple of years, export growth rebounded in 2016-17 and strengthened in 2017-18; foreign exchange reserves rose to USD 426 billion as on April 2018. (Source: CSO, Economic Survey 2017-18) Outlook World Bank projects Indias economic growth to accelerate to 7.3% in 2018-19 and 7.5% in 2019-20. Strong private consumption and services are expected to support economic activity. Private investment is expected to revive as soon as the corporate sector adjusts to GST. (Source: IMF, World Bank)
Global automobile overview Global automobile sales are expected to rise 3.6% in 2018, up from an estimated 3.3% growth in 2017 with emerging markets contributing the bulk of growth, while sales in major developed states could slow or even contract. Europes growth is expected to slow in 2018 and the US too is likely to face downward sales. Sales in Asia are expected to grow by 4.7% in 2018, slower than the previous estimate of 5%. (Source: BMI)
Impact of GST on the automobile sector
GST levies on the two-wheelers sector were fixed at 28% (engines <350 cc) and 31% (on engines >350 cc). Since the segment was charged 30.2% earlier, there was no adverse sales impact. Earlier, the commercial vehicle segment was paying a tax of 30.2%.
Following GST implementation, the fiscal charges applicable for the segment declined by 2.2%. The economy car section was levied a base rate of 28% and a cess of 1% and 3% less than the erstwhile 31.4% to 33.5%. Bigger sedans and SUVs (?1,500 cc or more, ?4,000 millimetres in length and ?170 millimetres in terms of ground clearance) were levied with a GST of 28% (+15 % cess), far lower than the earlier rate of 46.6% to 55.3%.
(Source: Masters India)
The Indian tyre industry
Riding the back of rising demand for tyres fueled by a surge in auto sales, the Indian tyre industry emerged as a USD 8.5 billion-dollar industry, contributing approximately Rs. 90 billion to the national exchequer. There was significant investment in capacity creation as the industry invested more than Rs. 420 billion in recently completed and ongoing greenfield/brownfield projects, which represent an all-time high. The domestic tyre industry is expected to post volume growth of 7-8% to 1,805 Lakhs tyres during FY2018. The export volumes were estimated to grow 10-12% for FY2018 and approximately 8-9% between 2019 and 2022 with favourable demand outlook and rising competitiveness of Indian tyre makers, in terms of quality and pricing. Import volumes declined by 31% post-demonetisation and re-imposition of anti-dumping duty on import of Chinese truck and bus radials for five years (effective from 18th September 2017). In a boost to domestic truck and bus radial manufacturers, the customs duty on imports increased from 10% (effective duty on imports from several countries under various free trade agreements resulting in a lower rate of approximately 0-9%) to 15%. Consequently, tyre manufacturers invested approximately Rs. 25,000 crore in incremental capital expenditure over the past five years.
Corporate overview The Company is a globally-competitive manufacturer of special steel wires, specialising in bead wire and high-carbon content steel wires. The Company possesses manufacturing facilities in India and Thailand. The Indian facility had an installed capacity of 31,000 tonnes per annum of bead wire and 5,000 tonnes per annum of high carbon steel wires. The Thai facility had an installed capacity of 26,000 tonnes per annum of bead wire. The capacity at the Indian facility is being doubled to 72,000 tonnes per annum (to be completed by March 2019) and the Thailand capacity is being expanded as well.
Achievements, FY2017-18 Strengthened product quality Grew customer wallet share Added customers Improved market share Outperformed market growth Embarked on capacity expansion Highlights, FY2017-18 Revenues increased by 14% (Rs. 348 crore during FY2017-18 vis--vis Rs. 304 crore during FY2016-17) EBIDTA declined to Rs. 38.22 crore during FY2017-18 vis--vis Rs. 43.15 million during FY2016-17 Increased capacity utilisation at the Pithampur facility from 83% to 99% Increased aggregate output volumes (India and Thailand) by 10% Post-Balance Sheet development Proposed capacity expansion with an investment of Rs. 60 crore
Why Thailand is the new centre of the tyre manufacturing universe...
Thailand is the source of 37% of the worlds raw rubber supply. Thailand is the worlds largest rubber exporter.
Thailand can already produce every category of tyre except flat tyres.
The Thai Government plans to increase tyre production from 530,000 tonnes per annum to >1 million tonnes over the next couple of years. The US is playing a role in making that happen. The long-running battle against low-priced Chinese tyres being dumped into the US has seen tari_s introduced and raised on various classes of imported tyres. Tyres made in Thailand are not subject to these anti-dumping and countervailing duties, so some companies are moving investments into Thailand. The worlds tenth-largest tyre maker (and Chinas largest) Hagzhou Zhongce Rubber has built a new facility in Thailand, as did Linglong Tyre and Double Coin.
Thailands government-operated Board of Investment announced it would be investing USD 100 million to build a major automotive tyre-testing facility.
Bridgestone Corporation, Shandong Linglong Tyre Company and Goodyear Thailand would be investing >USD 312 million to turn the country into an ASEAN hub for aircraft tyre manufacture.
Most of the major global tyre players such as Bridgestone, Michelin, Sumitomo, Yokohama, Goodyear, among others, have production facilities in Thailand. The Thai tyre market is projected to cross the USD 5.6-billion mark by 2022.
(Source: Traction News, Tech Sci Research)