CHAIRMANS STATEMENT

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“BUILDING AN ENDURING COMPANY.”

An overview of JK Tyre’s 2015-16 performance by the Chairman and Managing Director Raghupati Singhania

India is poised to become an economic power house. With the visionary leadership at the Centre, Indian economy is showing resilience in the face of global slowdown and has stood out as one of the fastest growing economies in the world.

Various initiatives taken by the Govt., such as ‘Make in India’, ‘Digital India’, etc. should help in accelerating the economic growth beyond 8%. Manufacturing sector including Automobiles, Automobile Components & tyres will have significant contribution in GDP’s growth.

India took an yet another big step forward on the road to reforms. The much awaited GST bill has been finally approved. GST will be the country's most comprehensive tax change since Independence and the single biggest reform initiative after 1991. GST can be a game changer and could significantly transform the $2-trillion Indian economy. As a result as many as 17 central and state taxes will be replaced by a single levy. GST is going to lay the stage for more competitive manufacturing and is expected to reduce logistics costs significantly.

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BUSINESS ENVIRONMENT

India is poised to become an economic power house. With the visionary leadership at the Centre, Indian economy is showing resilience in the face of global slowdown and has stood out as one of the fastest growing economies in the world.

Various initiatives taken by the Govt., such as ‘Make in India’, ‘Digital India’, etc. should help in accelerating the economic growth beyond 8%. Manufacturing sector including Automobiles, Automobile Components & tyres will have significant contribution in GDP’s growth.

India took an yet another big step forward on the road to reforms. The much awaited GST bill has been finally approved. GST will be the country's most comprehensive tax change since Independence and the single biggest reform initiative after 1991. GST can be a game changer and could significantly transform the $2-trillion Indian economy. As a result as many as 17 central and state taxes will be replaced by a single levy. GST is going to lay the stage for more competitive manufacturing and is expected to reduce logistics costs significantly.

The efforts of the Ministry of Road Transport & Highways, are indeed commendable and huge activity has started on the road & highways construction front. Various new projects have been awarded, apart from the incompleted ones being revived. It is interesting, that the rate of construction of highways has more than doubled in terms of kilometres per day. We believe that this reality will create wide-ranging impact: it will, for instance, increase vehicle ownership and, in turn, generate the demand for quality tyres - strengthening prospects for JK Tyre.

In 2015-16, the Indian automotive industry grew by 5.5%, as a number of new models continued to be introduced by passenger and commercial vehicle manufacturers in line with promising long-term prospects.

Both, the commercial vehicle and passenger car segments and their sub segments, e.g., M&HCVs, LCVs and SUVs, registered a positive growth, except for SCV segment which continued to de-grow for the second consecutive year. Recent quarters across the segments, including 2-3 wheelers, reported a growth of 10%. With several initiatives taken by the Government, market is expected to graduate India into a global automobile provider by 2020.

The growth in the automotive sector will translate into promising potential for the Indian tyre industry. In anticipation, investments to the tune of Rs 32,000+ Crores (US$ 5 Billion) have already been made in the industry in last 3-4 years. Major chunk of capacity addition is in PCR, 2/3 Wheeler and Truck/Bus Radials, which will be the key growth drivers for demand.

There was a reasonable growth of 6% in domestic tyre demand in year gone by. In the truck/bus radial segment (TBR), there was healthy growth of 47% on the back of progressive shift to radials in the sector. However, the unabated dumping of cheap Chinese tyres in India, which at times are at prices lower than even the cost of raw materials, is causing huge injury to the domestic tyre manufacturers. Imports from China, accounting for almost 45% of the replacement truck/bus radial market, more than doubled since the last year. Indian tyre industry has sufficient capacities, which have been built up by making large investments as mentioned earlier. The Industry has been taking up this matter with the Govt of India for considerable time, to correct, this situation, by suitably imposing duties such as Anti Dumping.

The Company’s global business encountered one of the most challenging year in 2015-16. Commodity markets weakened across the world, triggering a decline in prices that caused customers to defer purchases. The Brazilian economy weakened considerably during the second half of 2015, impacting exports into that country. Besides, geopolitical and economic volatility affected Middle East and North Africa. These challenges and uncertainties resulted in a decline in export of tyres.

Building an enduring company

Our objective has been to build an enduring company – enduring across market cycles, different geographies, product segments and operating benchmarks. Our robust business model is helping us in transforming JK Tyre.

The external environment in 2015-16, transformed with an unprecedented speed, and we at JK tyre transformed even faster. I take pleasure in stating that in the year ending March 2016, we posted higher volumes, and highest profits. We not only retained national leadership in Truck/Bus Radial segment, but further improved our position in Passenger Car and other segments as well.

We responded to every challenge with speed, sensitivity and passion. We virtually doubled new product launches, increased capacities across categories, expanded our distribution network and maintained customer connect. In turn we created an even stronger company.

The result: Our consolidated turnover stood at Rs. 7,654 crore, while on a standalone basis it stood at Rs. 6,580 crore. Profit after tax strengthened by 40.7% to Rs. 464 crore – an all time high on consolidated basis. Profit increased substantially by 58.3 % to Rs. 401 crore on a standalone basis. This was achieved through an all-round cost reduction, better operating efficiencies and deeper rural penetration.

As you may be aware, JK Tyre pioneered the Radial technology in India, and was the first to introduce Tuck/Bus Radial tyres way back in 1999, and today, it has the proud privilege of being the No.1 producer of Truck/Bus Radials in the country. I am delighted to share with you that we have rolled out our “10 millionth Truck Radial tyre” in Mysuru, just two weeks ago – a unique milestone, which only JK Tyre has achieved in India.

Acquisition of Cavendish Industries Limited (CIL)

In mid April 2016, we took yet another step towards building JK Tyre, an enduring Company. It acquired, Cavendish Industries Limited (Cavendish) which houses three plants, located in Laksar (Haridwar), manufacturing a range of tyres, tubes and flaps.

This acquisition is in line with the Strategic Vision of JK Tyre to emerge as one the leading global tyre companies.

As a result, JK Tyre has acquired additional capacity for truck & bus radials, which is a critical growth segment where the Company is already the No.1 player. JK Tyre has also entered the high growth segment of 2-3 wheeler tyres.

Expansion of truck/bus and passenger line radial capacities at our all-radial state-of-the-art Chennai plant was completed in 2015-16, and has become operational. The benefits of this will start accruing during the current year and further strengthen the Company’s leadership in these segments. This, alongwith acquisition of Cavendish, has helped JK Tyre possess a comprehensive portfolio, helping better cater to the domestic as well as international markets.

Now, JK Tyre manufactures complete range of tyres, i.e., right from a 3 kilo scooter tyre to the 3.7 tonnes Ultra Large OTR tyre.

It will be worth mentioning here, that today, JK Tyre is truly a global company with 12 plants, 9 in India and 3 in Mexico, with an aggregate future ready capacity of 350 lac tyres per annum.

JK Tornel

JK Tornel, Mexico recorded a turnover of Rs. 1,104 crores despite a continued slowdown in US and South American markets. The Profit before tax was Rs. 78 crores, despite unprecedented depreciation of Mexican Peso vis-a-vis US Dollar/Rupee, as a result of the global financial turbulence. The plants in Mexico manufacture ‘JK Tyre’, ‘Vikrant’ and ‘Tornel’ brand of tyres. During the year, JK Tornel started selling TBRs in Mexican market, which has large potential for growth. PCR capacity expansion by 50% in JK Tornel has also become operational.

JK Tornel continues to work with leading OEMs, including Chrysler, Nissan, Volkswagen, John Deere, Case New Holland (CNH) etc.

Customers

JK Tyre, keeps ‘Customer First’ in everything it does, be it product, services or retail touch points. Towards this end, we have created a chain of retail outlets of 180 – “JK Tyre Steel Wheels” for passenger car radial tyre consumers and 25 “JK Tyre Truck Wheels” for the discerning truck tyre users. These Centres provide high-end tyre care and maintenance. Likewise, we have undertaken a Fleet Management programme, where a large number of fleets are reached out and serviced, directly through a team of dedicated personnel. All these efforts strengthen our customer engagement to reinforce our identity, as a Company that cares.

The pace of introduction of new products accelerated during the year. In the passenger car segment, we introduced advanced high performance, ‘UX Royale’ for premium and mid-sized sedans, and ‘Ranger’ series for SUVs.

In the TBR category, the Company launched a super-premium mileage tyre with all-wheel application. Besides, several value-engineered products launched for various applications, a new low aspect ratio tyre was specially developed for truck racing. In the OE segment, Hyundai and Renault Kwid were added to the Company’s list of valuable customers.

Brand

Brand ‘JK Tyre’, India’s leading tyre brand, was recognized nationally by Superbrands Council and internationally by the World Branding Council, London.

Years back, we opted for motorsports as a platform to build our brand. Towards this end, JK Tyre continued to promote the 18th ‘JK Tyre Racing Championship’ and 12th ‘JK Tyre National Rotax Karting Championship’, both annual events. JK Tyre also extended its Brand presence in North East India with a new ‘off-roading’ initiative called ‘JK Tyre Orange Festival of Speed in association with the Government of Arunachal Pradesh.

RESEARCH & DEVELOPMENT

Automotive sector is known for its fast growing technology. Keeping pace with this growth, JK Tyre has always had high focus on technology upgradation and continuous innovation. JK Tye has made substantial and strategic investments in R&D and technology development.

HASETRI (Hari Shankar Singhania Elastomer and Tyre Research Institute), an independent R&D Centre, promoted by your Company, is the driving force behind Company’s technology edge. Towards this end, HASETRI continues to collaborate with National and international institutes, to stay ahead on technology front. The ‘RPS Centre of Excellence’ for Tyre and Vehicle Mechanics, set up by the Company, jointly with IIT-Madras, is an unique Industry-Academia joint venture.

We have invested in most advanced testing and evaluating equipment for Elastomer & Tyre Research and development, which are manned by highly experienced engineers and scientists with deep insight into material sciences, designs, aesthetics and structures.

Scientists from HASETRI today represent your company in all global technology forums and are widely acclaimed for their knowledge and expertise.

Besides developing latest technology in our products, we have also implemented similar approach in our complete chain, be it manufacturing, logistics, sales and customer contact.

People

At JK Tyre, we are convinced that in world of today, it is talent and employee engagement that creates and sustains a competitive advantage.

Your Company has invested significantly in effective HR practices including need based management development programmes, as also in skill upgradation initiatives at the shop floor level. No wonder, JK Tyre has achieved one of the highest per person productivity in the Indian tyre industry.

Safety at our work places occupies an important priority. A number of initiatives are undertaken to enhance safety, which has resulted in significantly lower incidents of accidents.

In recognition of our human resource development initiatives, JK Tyre was bestowed with the National Award for Excellence in Talent Management 2015 by Delhi Management Association and the ‘Innovative HR Practices’ award at the Asia Pacific HRM Congress.

SOCIAL COMMITMENT

JK Tyre draws inspiration from the ethos of its Founder and Key Architect of J.K. Organisation, late Lala Lakshmipat Singhania, who emphasised: "We seek a society which is proud of its past, conscious of the present and full of hope for the future – a society, where every citizen would be equally conscious of its rights and responsibilities."

The company is committed to improve the quality of life of communities around our plant locations in the areas of education, healthcare, livelihood enhancement and environment.

We have made large investments in community development. For example, our Adult Literacy programme has helped impart basic reading and writing skills to more than 40,000 rural women. The Adult Literacy initiative in the Central Prison at Mysuru, has made more than 4,000 prison inmates functionally literate.

JK Tyre’s reproductive and child healthcare initiative in remote areas, under “Project Parivartan”, has benefitted more than 2 lakh patients & significantly moderated maternal and infant mortality rate. JK Tyre is actively engaged in prevention of HIV/AIDS and has helped more than 2.5 lakh people in the trucker/transporter fraternity till now.

Might I mention, that under the ‘Swatch Bharat Mission’, JK Tyre has been helping building & renovation of toilets at schools, public places and individual households around all our facilities across the country. Recently, we have signed an MOU with Zila Panchyat Mysuru, Karnataka, to build 500 individual household toilets during this year.

In the rural areas, the Company is implementing programme for agriculture improvement and live stock development for assisting farmers in enhancing their income through better crop and milk production.

Environment

At JK Tyre, we believe that a business is as good as its environment record. I am proud to mention, that the Company has been a responsible industrial citizen. The company initiated various ‘beyond the fence’ water conservation initiatives, and various activities like field bunding, trenching, pond deepening, among others, were implemented to conserve and efficiently utilise water.

One of our mission, is to be a “Green Company”, and JK Tyre is going greener, not only in its manufacturing processes and plants but also in its products. JK Tyre is widely respected for its green practices, and has even received many recognitions and accolades for the same.

The Green tyres that we produce, have low rolling resistance, which helps in saving fuel. At a process level, we are constantly reducing our ‘carbon footprint’ by reducing our energy and water consumption, which are two critical resources used in tyre manufacturing. JK Tyre is the first company in India, to have completed the certified ‘Carbon Footprint Verification process’ as per the standards set down by the British Standard Institute. I am proud to share, that JK Tyre, this year, achieved a total energy benchmark levels of 10.9 GJ/Ton, which stands among top five best companies in the sector, worldwide. Likewise, in water consumption as well, some of our plants are world benchmarks, with all JK Tyre plants having zero water discharge.

During the year, more than 10,000 trees were planted in and around JK Tyre manufacturing facilities. (making a total of more than 5 lac trees planted so far)

SUSTAINABILITY REPORT

JK Tyre is diligently working towards ensuring inclusive growth and in this regard, has also published a comprehensive sustainability report, highlighting some of the key facets of Company’s various contributions.

Outlook

With the emphasis rightly being placed on the development of infrastructure including the highways’ development, the automotive sector is poised for a healthy growth. This augurs well for the tyre industry.

JK Tyre has equipped itself well, by creating and acquiring capacities in all critical areas of growth i.e., truck/bus radials, passenger segment as also in the 2-3 wheelers segment.

Good monsoon in India will help revive demand not only for rural farm equipment but also for tyres.

Although, raw material prices are showing rising trends, JK Tire with its various initiatives of product re-engineering & positioning in various price segments, backed by energy conservation and other cost compression measures, is well poised to participate in this growth.

The message, I wish to convey is, that we are future ready, and are engaged in building an enduring Company that will continue to enhance value in a sustainable way for all the stakeholders.

Acknowledgements

I would like to take this opportunity to acknowledge and thank our valued customers, dealers, suppliers, banks, governments and other stakeholders, who are our partners in this journey, for their continued support. I would also like to convey my appreciation for the valuable guidance provided by my fellow Directors on the Board. I would particularly like to acknowledge the dedication and commitment of the Team JK Tyre, towards the growth of your Company.

Before I conclude, I on my own and on behalf of the Board, once again thank each one of you, our valued shareholders, for your unstinted faith and support in our endeavors.

Note: These excerpts do not purport to be a report of the proceedings of the 63rd Annual General Meeting of the Company held on 2nd September, 2016.