INDONESIA: Gajah Tunggal looks at Mexico as new tire market

The listed company - which partners with French tiremaker Michelin for its North America distribution - has already entered the market in Brazil, according to Catharina.

Gajah Tunggal, majority controlled by the conglomerate of Indonesian businessman Sjamsul Nursalim, is now looking at the tire market in Mexico, she added. However, Catharina did not divulge any details regarding the company's plans over there.

Gajah Tunggal's exports to the Americas showed the biggest growth in the first three months this year, when export growth in other parts of the world, such as Asia and the Middle East, declined.

Exports to North and South America rose to make up 49 % of the company's total sales in the January-March period, compared with 33 % last year.

In comparison, sales to Europe shrank to 12 % of the total from 13 %, while sales to the Middle East decreased to 17 % from 25 %.

Sales to Asian countries - excluding China - also declined to 14 % from 19 %.

Gajah Tunggal expects revenue growth of between 10 % and 15 % this year, anticipating an increase in sales volume and a possible price hike.

"We may raise our prices by between 5 % and 10 % this year due to rising operational costs, but we have to monitor the competition first,” Catharina said, emphasizing that the country's tire market has become more competitive this year due to the entry of new players.

One of Gajah Tunggal's biggest competitors, according to Catharina, is Hankook Tire Indonesia, a local unit of the South Korean tire manufacturer.

In January, Hankook Tire Indonesia announced an additional investment of USD 350 million to expand its plant in Cikarang, West Java. The plant was launched in September last year with an initial investment of USD 353 million.

Hankook stated that around 30 % of production will be sold to the domestic market, while the remaining 70 % will be exported.

Gajah Tunggal vice president director Budhi Santoso Tanasaleh said an ever more competitive environment has prompted the company to seek alternative strategies to raising prices - such as diversifying its product mix - in an effort to maintain profitability and market share.

The tiremaker has set aside USD 135 million for capital expenditure this year in order to continue the expansion of its research and development unit in Karawang, West Java.

According to Catharina, the company will use approximately USD 50 million for plant maintenance, USD 20 million to develop truck and radial tires, USD 20 million for its plan to increase the production capacity of existing facilities through efficiency modifications, and USD 45 million for research and development.

She said Gajah Tunggal has spent nearly 20 % of its capex so far this year.

Source: Daily "The Jakarta Globe", Jakarta; 6 June 2014
(Syed Rashid Ali, Karachi, Pakistan)