Gajah Tunggal, Japan’s IRC Set Up Tyre Plant in Indonesia

Moody's to Revise Gajah Tunggal's Outlook to Negative
The Ground Breaking of IGM Manufacturing Plant in Tangerang (01/08) - Photo by GT-Tires

JAKARTA (TheInsiderStories)–Indonesian tyre producer, PT Gajah Tunggal Tbk (IDX: GJTL) partnering with Inoue Rubber Co., Ltd. (IRC), a subsidiary of Japan’s Inoac Corporation set up tyre plant in Tangerang, said the company on August 1.

Both companies has set up joint venture company namely PT Gajah Tunggal IRC Manufacturing Indonesia, also known as IGM, to operate the motorcycle tires’s manufacturing with the brand IRC Tire.

This groundbreaking event marks the beginning of IGM to become an IRC Tire factory outside of Japan that produces high performance motorcycle tires with the IRC Tire brand for the domestic OEM and replacement markets as well as exports.

President Director of IGM, Hirozo Misuno said, that IGM is a concrete step in more cooperation at a higher level between IRC and Gajah Tunggal, and also becomes a new chapter of cooperation between the two companies that started in 1971.

With the construction of IGM’s factory, which is expected to start operations in September 2019, IRC Tire can maintain the position as the market leader in the domestic market and increase brand equity in the internationally.

In February, Gajah Tunggal has announced to form a cooperation with IRC to to fulfill the motorcycle tyre’s market that is still predicted to be a huge market.

Director of GJTL Kisyuwono said that the establishment of the joint venture company was signed on Jan. 31 with initial investment Rp270 billion (US$18.88 million), in which the company contributed 50 percent of the total investment.

Gajah Tunggal and IRC are the biggest synthetic rubber integrated tyre manufacturer in Indonesia and Southeast Asia. The production capacity of Gajah Tunggal is amounting to 2,000 unit tires per day, with the target for 2018 reaches 3,500 unit tires per day.

In the first half (1H) of this year, the company own by tycoon Sjamsul Nursalim, recorded the net sales declined slightly by 0.9 percent from Rp 7.25 trillion in 1H17 to Rp 7.18 trillion in 1H18. The sales decline was largely due to the unfavorable impact of the timing as well as the duration of the extended holiday, which resulted in less working days during 2Q18.

Even though sales in the domestic market, in particular the bias segment, showed a healthy performance, it could not offset the less number of working days and the continued sluggish performance in thecCompany’s export markets.

The Company’s gross margins declined from 17.4 percent in 1H17 to 17.1 percent in 1H18, mainly due to higher raw material prices, other than rubber, as well as a weaker Indonesian Rupiah versus the U.S Dollar.

Despite the lower gross profit, the company was able to increase its operating profit mainly because of lower transportation expenses and marketing related costs. GJTL’s operating and EBITDA margins increased from respectively 6.9 percent and 12.0 percent in 1H17 to 7.5 percent and 12.2 percent in 1H18.

The Company’s EBITDA increased in Rupiah terms from Rp871 billion in 1H17 to Rp876 billion in 1H18, although in U.S Dollar terms, EBITDA declined slightly from $65.2 million in 1H17 to $64.1 million in 1H18 due to the depreciating Indonesian Rupiah versus the U.S Dollar.

The depreciating Indonesian Rupiah also caused a loss on foreign exchange as a result of the translational adjustment for predominately the U.S Dollar denominated debt of the Company. The foreign exchange loss caused the company to realize a net loss of Rp93.9 Billion in 1H18.

The company’s cash balance amounted Rp1.5 trillion at the end of 1H18. Consequently, the publicly listed firm’s adjusted leverage stood below the maximum adjusted leverage of 3.5x as allowed under the Senior Secured Facilities agreement.