Due to some Chinese competitors' low price strategies in Thailand, the company saw a 37.15% decline in sales volume there during Q4FY23 from highs of 10,025 MT in Q4FY22 to 6301 MT. The ongoing Ukraine-Russia war and recessionary pressures in the US have exacerbated the situation. The development thus took a toll on the company's overall financials, leading to a 45.26% drop in net profit to Rs 20.27 crore during Q4FY23 as against Rs 37.03 crore in Q4FY22.
28 Apr 2023 | 7190 Views | By Shahkar Abidi
Indore-based Rajratan Global Wire, arguably the world's second-largest producer of beads used for the manufacturing of tyres, faces a common dilemma for business owners: whether to maintain product prices and risk losing customers to fierce competition from China or to lower prices and compromise profitability.
After suffering a drop ...
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Indore-based Rajratan Global Wire, arguably the world's second-largest producer of beads used for the manufacturing of tyres, faces a common dilemma for business owners: whether to maintain product prices and risk losing customers to fierce competition from China or to lower prices and compromise profitability.
After suffering a drop in sales for the past two quarters, the company has now chosen to take fire to the competition's camp by choosing to lower its prices, wherever applicable, and thus maintain its market share.
Data sourced from Rajratan's investor presentation suggests a 37.15% drop in its sales volume in Thailand during Q4FY23 to 6301 MT from the highs of 10,025 MT in Q4FY22 on account of aggressive pricing policies adopted by some of its Chinese rivals. The Ukraine-Russian war, which decreased exports to Europe and also to America, which is ostensibly experiencing recessionary pressure, has made the situation worse. Due to this, tyre manufacturers were compelled to reduce their operating capacity to between 50 and 60 percent and indulge in inventory correction, which indicated a decline in demand.
The development also marked a drop in the company's market share in Thailand, which went down to about 16–17% from about 24–25% previously. As against this, the company's Indian market grew by 13.67% to 16,715 MT from 14,705 MT during the corresponding period last year. The development, thus took a toll on the company's overall financials, leading to a 45.26% drop in net profit to Rs 20.27 crore during Q4FY23 as against Rs 37.03 crore in Q4FY22.
Crucially, the change in business strategy has become more nuanced for Rajratan, which has increased its production capacity in Thailand to about 60,000 tons per annum (TPA). The bead wire is a product where the cost of production decreases if the factory is run continuously, so the overall profitability of the business depends on both volume and price. Therefore, it becomes important to balance the two aspects and stick with market share in the long run. The goal therefore remains to reach sales of at least 40,000 tons, even if that means lowering the price it once demanded from some of the clients, the company stated during a post-result conference call.
“Taking a lesson from there, this year our strategy will be to use the capacity." It is not wise to not use the capacity and focus only on the price. So this year, we have decided to go full blast wherever we are getting contributions. "We will continue producing and selling to capture a bigger market share,” said a company executive during the call.
While Rajratan has decided to take on the Chinese rivals on price, they are seemingly also delighted at the fact that the Chinese economy is opening in a staggered manner, leading to increased domestic demand in the country.