JK Tyre buys Mexican tyre maker Tornel for Rs270 crore

JK Tyre & Industries has announced its first overseas acquisition with the buy-out of privately-held Mexican tyre manufacturer Tornel for Rs270 crore. With this, JK Tyre leapfrogs into fourth place in the list of large Indian tyremakers, with an annual turnover exceeding $1 billion. This is also the company's second big investment in capacity addition after it took a 51 per cent stake in domestic tyre company Vikrant Tyres in 1997.

JK Tyre plans to raise funds through a special purpose vehicle (SPV) in Mexico and the buyout is expected to close by May-end. Tornel's annual turnover was around Rs800 crore ($202 million in 2007), while JK Tyres turnover was in excess of Rs3,200 crore ($808 million) in the last fiscal, of which Rs500 crore ($125 million) was from exports.

The North and South American market accounted for as much as 48 per cent of these exports, and JK Tyre can further its market there after this acquisition.

Additionally, Mexico has free-trade agreements with several countries in the region, which can be effectively leveraged by JK Tyre for exports. Another potential advantage of the acquisition is that it frees up JK Tyre's domestic capacity to focus on the Indian market.

In fact, Raghupati Singhania, vice-chairman and managing director, JK Tyre, said as much when he remarked: ''There will be re-alignment in our capacity. And with the additional capacity available for the domestic market, we would be able to participate more in the domestic market.''

Tornel has three operating tyre plants with an aggregate capacity of 6.6 million tyres per annum, and has a network of 241 distributors and 282 sales outlets. It produces the entire range, including tyres for trucks, light commercial vehicles and high speed passenger cars, and employs 2000 people. In contrast, JK Tyre's annual capacity is 8.7 million tyres. Post takeover, the company intends to continue with the Tornel brand in its existing markets, alongside its own products.

At the same time, the company has aggressive plans for domestic growth and intends to invest Rs480 crore in its India operations. JK Tyres is increasing its off-the-road (OTR) tyre capacity with an investment of Rs120 crore and augmenting its truck radial tyre capacity to 8 lakh tyres from the existing 3.67 lakh tyres by investing Rs315 crore.