Tolins Tyres
- Tolins Tyres is coming out with a 100% book building; initial public offering (IPO) of 1,06,97,674 shares of Rs 5 each in a price band Rs 215-226 per equity share.
- Not more than 50% of the issue will be allocated to Qualified Institutional Buyers (QIBs), including 5% to the mutual funds. Further, not less than 15% of the issue will be available for the non-institutional bidders and the remaining 35% for the retail investors.
- The issue will open for subscription on September 09, 2024 and will close on September 11, 2024.
- The shares will be listed on BSE as well as NSE.
- The face value of the share is Rs 5 and is priced 43 times of its face value on the lower side and 45.2 times on the higher side.
- Book running lead managers to the issue is Saffron Capital Advisors.
- Compliance Officer for the issue is Umesh Muniraj.
Profile of the company
Tolins Tyres is one of the leading players in the industry with all India presence with a diverse product range. It is one of the companies that are present in both verticals - manufacturing of new tyres and tread rubber. The company has established itself as a major tyre retreading solutions provider across India and exported to 40 foreign countries, including the Middle East, East Africa, Jordan, Kenya and Egypt. The major products of the Company include two-wheeler, three- wheelers, light commercial vehicle and agricultural tyres, precured tread rubber and other accessories including bonding gum, tyre flap, vulcanizing solutions, etc.
It is primarily engaged in manufacturing of bias tyres for comprehensive array of vehicles (including light commercial, agricultural and two/three-wheeler vehicles) and precured tread rubber and are also involved in manufacturing of ancillary products like bonding gum, vulcanizing solution, tyre flaps and tubes. It commenced operations in 1982 as a proprietorship concern for manufacture of tread rubber. The company in the year 2003 and commenced production and sales in the year 2005 and since then it has been one of the players for retreading products manufacturing owing to its excellence and innovation in the industry. Over the years, the company has expanded its manufacturing capabilities through infusion of capital from the Promoters, in addition to growing its dealers and distribution network. With over four decades of experience, it relies on its product development capabilities to design and deliver proprietary products such as precured tread rubber and bias tyres that are market fit.
Currently, the company caters to all three segments of market viz. exports, domestic sales and Original Equipment Manufacturers (OEMs) like, Marangoni GRP, Kerala Agro Machinery Corporation Ltd (KAMCO), Redlands Motors, Tyre Grip etc. Further, it sells its products through dealership network and its depots. It has a widespread customer base with its domestic customer base situated in most of the regions of the country and its international customers situated across varied countries covering Middle East, the ASEAN region and Africa. It has been recognized by its customers for the high-quality of the products supplied by the company, which is one of the factors that has helped it to establish long term relationships with them.
Proceed is being used for:
- Repayment and / or prepayment, in full, of certain outstanding loans (including foreclosure charges, if any) availed by the company
- Augmentation of long-term working capital requirements of the company
- Investment in its wholly owned subsidiary, Tolin Rubbers Private Limited to repay and/ or prepay, in full, certain of its short term and long-term borrowings and augmentation of its working capital requirements
- General corporate purposes
Industry overview
The growing turnover of the Indian tyre industry in recent years can be attributed to increasing demand for vehicles, rising disposable incomes, increasing premiumisation of vehicles and tyres, the industry venturing into the luxury segment, growth in exports and reduction in import of tyres. The turnover has doubled in a decade from Rs 46,000 crore in fiscal 2013 to Rs 90,000 crore in fiscal 2023. The domestic tyre industry is dominated by major players such as Apollo Tyres, Balakrishna Industries, Bridgestone, Ceat, JK Tyres, MRF and TVS Srichakra. These companies account for more than 80% of the tyre market in terms of revenue. Global companies such as Michelin, Bridgestone, Goodyear and Maxxis have set up their manufacturing units in India. However, their share in the overall Indian tyre market continues to be low with customers being price sensitive.
Tyre exports from India have seen flat growth this year. The global economy's challenges from recessionary conditions, rising interest rates, political upheaval, and a weakening of external demand impacted the growth momentum of Indian tyre exports. India's tyre exports declined to Rs 23,075 crore in fiscal 2024 from Rs 23,125 crore in fiscal 2023. In fiscal 2024, the top export markets for Indian tyres were the US, Germany, Brazil, Italy, UAE, France, Philippines, Netherland, UK, Bangladesh, and Canada. The US continues to be the largest market for Indian tyres, accounting for 18% of the total tyres exported from the country during the year. The competitive performance and affordability of Indian tyres, combined with the global shift towards diversifying supply chains away from China, have positively impacted export growth. The establishment of manufacturing units by Indian OEMs abroad is also boosting the acceptance of Indian tyres in international markets. Moreover, increased investments in technology and innovation are expected to further solidify the position of Indian tyre manufacturers globally.
The domestic tyre industry is expected to expand in the coming years owing to higher demand for vehicles. The sector’s planned spending is aimed at adding manufacturing capacity, modernisation, technology upgrade and research and development (R&D). With the automobile sector growing, demand for replacement tyres is also increasing. Moreover, increasing acceptance of Indian tyres in the overseas markets is leading to a sharp growth in tyre exports from India to destinations such as the US and Europe. Further, strong presence of Indian two-wheeler OEMs in African and Latin American nations along with better brand image of Indian tyre OEMs to aid increased exports of two-wheeler tyres. Slowdown in exports is expected in other segments owing to weak demand from advanced economies in Europe and America.
Pros and strengths
Diversified product range and customised product offering: The company is divided into two business verticals based on the two product categories. It manufactures Tyres and Tread Rubber. The company has unique competitive advantages and uniqueness in both the categories, which has been discovered through consumer insights, studies and market research. It has a total of 163 stock keeping units (SKU) in tyre category and 1,003 SKUs in tread rubber, this catalogue has been built over the decades to fit in with market requirements and to fulfil customer requirements. Customer satisfaction and adding value to customer operations has helped the company to widen its business operations and expand its customer base.
Quality of products: Quality plays a prime role in growth of any organisation. The company manufactures quality products and adheres to various qualitative standards. Its products undergo quality check at various levels of production to ensure that any quality defects or product errors are rectified on real time basis as a result of which it has minimum product recalls or product claims. For instance, the percentage of product recalls/ claims was 0.20%, 0.19% and 1.00% of the total sales during the Fiscals 2024, 2023 and 2022, respectively.
Long standing relationship with large OEMs: In over three decades of its operations, the company has established long-standing relationships with several well established Indian and global customers like, Marangoni GRP, Kerala Agro Machinery Corporation Ltd (KAMCO), Redlands Motors, Tyre Grip. etc. for products. Its diversified product portfolio helps it to cater the requirements of a broad spectrum of customers which includes OEMs, domestic dealer network and its depots across the country. The strength of its customer relationships is attributable to its ability to customize to customer specifications and requirements, as well as its track record of consistent delivery of quality and cost-effective products and solutions over the years.
Integrated manufacturing operations coupled with in-house products: The company is backward integrated with raw materials, design, process engineering, machining capabilities and production of moulds which allows it greater control over process, delivery timelines, pricing and quality. This reduces its dependence on third parties, streamlines its production process and improves its operational efficiencies. Further, its backward integration helps the company in reacting to emerging trends and develop moulds and new products in anticipation of the same. The company’s manufacturing process, which primarily include designing, mould production, heat treatment, machining and quality inspection and testing are undertaken in-house. As a result, the company can closely monitor product quality, control production expenses and plan delivery schedules.
Risks and concerns
Derive a portion of its revenue from the sale of bias tyres: The company’s product portfolio includes tyres for diverse vehicle types, customer segments and applications and comprises on LCV and small commercial vehicles (SCVs), two and three-wheeler tyres, tyres for farm vehicles and ORVs and tyres for industrial vehicles. The company has generated 24.26%, 20.97% and 17.11% of revenue from operation in FY24, FY23 and FY22 respectively from sale of tyres. Any adverse market development with respect to these bias tyres, or a decline in market share or customer demand for such tyre products, may have an adverse effect on its business, financial condition and results of operations, if it is unable to compensate for any losses resulting from the decrease in demand for its key products.
Dependent on limited suppliers for raw material supply: As on March 31, 2024, the company has 261 suppliers, out of which 249 suppliers are from India and 12 suppliers from overseas. However, the company has received raw material supply of 98.02%, 92.33% and 89.76% in FY24, FY23 and FY22 respectively from top 10 suppliers. The limited number of suppliers for these raw materials may lead to increased costs, production delays, or a shortage of materials, and further, significantly impact its negotiating ability in terms of pricing. Certain raw materials like natural rubber and carbon black that it uses are of specialized nature and finding readymade substitute suppliers for supplying the raw materials of requisite specifications and on terms and conditions acceptable to it may be difficult. Any shortage of raw materials would lead to its estimates being adversely affected, resulting in loss of its business and an adverse impact on results of operations, cash flows and financial condition.
Dependent on OEM customers for the sale of a significant portion of agricultural tyres: The company’s business has been and continues to be concentrated on providing products to automotive original equipment manufacturers (OEMs) and is therefore dependent on the performance of the automotive sector in India. The contribution from automotive OEMs agricultural tyre revenue to its total revenue from operations was 5.06%, 9.89% and 9.78% in Fiscal 2024 (on a consolidated basis) and in Fiscals 2023 and 2022 (on a standalone basis), respectively. The company may be unable to maintain its relationships with its automotive OEM customers or such automotive OEMs may not renew orders commensurate to existing levels or place orders at all. It may be unsuccessful in competing for desired automotive OEM customers to promote and sell its products. If any of these relationships were to be altered or terminated and it is unable to obtain sufficient replacement orders on comparable terms, its business, financial condition, results of operations, cash flows and business prospects could be materially and adversely affected.
Substantial working capital requirement: The company’s business is working capital intensive as it requires significant capital to operate and expand its Manufacturing Facilities. Its historical working capital expenditure has been and is expected to be primarily used towards the working capital requirements. Historically, it has funded its working capital expenditure requirements through a combination of equity or internal accruals and loans. During the Fiscal 2024 (on a consolidated basis) and during Fiscals 2023 and 2022 (on a standalone basis) its finance cost was Rs 115.80 million, Rs 50.52 million and Rs 42.96 million, respectively. The company’s sources of additional financing required to meet its working capital expenditure plans may include the incurrence of debt or the issue of equity or debt securities or a combination of both. If it decides to raise additional funds through the incurrence of debt, its interest and debt repayment obligations will increase, and could have a significant effect on its profitability and cash flows and it may be subject to additional covenants, which could limit its ability to access cash flows from operations.
Outlook
Tolins Tyres is a tyre manufacturing company. The company provides tyre retreading solutions in India and exports to 40 countries, including the Middle East, East Africa, Jordan, Kenya, and Egypt. The company is backward integrated with raw materials, design, process engineering, casting and machining capabilities which allows it to greater control over process, timelines, pricing and quality. Its competitive strengths lie in its operational efficiency, ensuring timely delivery, stringent quality control, and product innovations. These factors have been instrumental in cultivating enduring relationships with its OEM customers, fostering both operational expansion and geographical penetration including exports. On the concern side, the tyre manufacturing industry is encountering difficulties because of limited suppliers for key raw materials such as natural rubber and carbon black. Further, the company does not have any long-term contracts with its suppliers and engage them by way of placing purchase orders. Volatility in the prices and availability of raw materials or any failure by its suppliers to make timely delivery of raw materials or breakdown of its relationship with such suppliers could have an adverse effect on its business, financial condition and results of operations. Moreover, the company is dependent on its automotive original equipment manufacturer (OEM) customers for the sale of a significant portion of its agricultural tyres.
The company is coming out with a maiden IPO of 1,06,97,674 equity shares of Rs 5 each. The issue has been offered in a price band of Rs 215-226 per equity share. The aggregate size of the offer is around Rs 230.00 crore to Rs 241.77 crore based on lower and upper price band respectively. On performance front, the company’s revenue from operations increased by 92.16% from Rs 1,182.46 million in Fiscal 2023 to Rs 2,272.18 million in Fiscal 2024, primarily due to increase in sales of tyres and negligible change in tread rubber & other ancillary products. The company recorded a restated profit after tax for the year increased by 420.95% from Rs 49.92 million in Fiscal 2023 to Rs 260.06 million in Fiscal 2024. The company is operating at an average capacity utilization of around 33.40%. It intends to increase the production capacity progressively in the next few years to go up to 75% capacity utilization under various product portfolios completely aligning ourselves fully equipped with working capital enablement, this being a working capital-intensive industry. The focus products for capacity utilization would be in the category of Off the Road (OTR) highway, agricultural and industrial segments besides aggressively addressing the ever-growing market in two and three wheelers. Further, it intends to concentrate penetrating markets in India and abroad on its time-tested products for replacement market and OEM through enhanced production and marketing of PCTR. Through its focused efforts to continue to expand its production capacity, the company will be well placed to meet the emerging demand in the domestic markets and also target expanding into global markets.
