Gajah Tunggal to build proving ground, start TBR production

Along with reporting its latest financial results on 1 August, Indonesian tyre maker PT Gajah Tunggal Tbk shared that in the second quarter of 2012 it completed the acquisition of some 100 hectares of land for around US$108 million. This purchase was financed with internal resources and Gajah Tunggal says acquiring this land, located in a new industrial estate in Karawang, Indonesia, serves two main purposes. Part of the land area will be used to build a tyre proving ground; groundbreaking will start in the coming months and is expected to be completed in two to three years’ time.

Another portion of the land will be used to permit future expansion in order to diversify Gajah Tunggal’s manufacturing location. Company management has decided to start commercially producing TBR tyres; this will be done in stages over the next three years, with the total installed capacity targeted in the range of 1,500-2,000 tyres per day. Total capex of this program is expected to reach around $150 million over the three-year period.

First half results

During the first half of 2012, Gajah Tunggal’s net sales increased 9.4 per cent to Rp 6,366 billion (£427.5 million). The Indonesian tyre maker reports particularly strong growth in the domestic replacement market, where GT Radial gained “significant” market share, and in the four-wheeler OEM business due to increased demand from recent contracts. Less favourable developments include volumes for two-wheeler OEM, the company’s off-take business and exports to Europe; these areas showed “some weakness”, Gajah Tunggal stated.

A declined in natural rubber prices helped the company grow its gross margins from 13.2 per cent in the first half of 2011 to 17.4 per cent in the reporting period. Net income increased 25 per cent to Rp 526 billion (£35.3 million) in the first half of 2012 and was boosted by realised gains on investments and the recovery of past loss provision on an accounts receivable. These items off-set the translational loss on foreign exchange due to the very weak Indonesian rupiah against the US dollar, related to the company’s dollar denominated debt.