JK Tyre & Industries Ltd (NSE:JKTYRE) (BSE:530007)

[SMR]

JK Tyre & Industries Ltd is an India-based company engaged in the business of manufacturing of automotive tires, tubes and flaps. Business segments consists of only one segment namely Tyre, Tubes & Flaps. The Company’s product range include tyres for passenger cars, farm tyres, commercial tyres for trucks, buses, light commercial vehicles (LCV), small commercial vehicles (SCV) and off the road tyres. The Company has 6 manufacturing plants are located at five centers, which include Kankroli, Rajasthan, Banmore, Madhya Pradesh, Mysore Plant I , Karnataka, Mysore Plant II, Karnataka, Mysore Plant III, Karnataka and Chennai, Tamil Nadu. The Company’s subsidiaries consist of: JK Tornel, Mexico, J. K. International Ltd., the United Kingdom, J. K. Asia Pacific Ltd., Hong Kong and Lankros Holdings Ltd., Cyprus.

Official Website: www.jktyre.com

[SMR]

Results ahead of estimates: JK Tyre & Industries (JKT)’ 1QFY2016 results have come in better than our estimates on account of a robust operating performance. Revenues dipped 5% yoy to Rs1,777cr. Domestic operations (constituting about 84% of the top-line) declined 4% yoy due to price cuts and increased competition from Chinese imports. The Mexican subsidiary’s revenues dipped 5% yoy, mainly on account of subdued industry and due to the impact of currency depreciation. However, JKT reported a multi-year high operating margin of 16.7%, which is better than our estimate of 14.6%, due to a better product mix (higher proportion of radial tyres in the mix) and benefits of decline in raw material prices. The margins improved 640bp and 280bp on a yoy and qoq basis respectively. Bouyed by the strong operating performance, the net profit at Rs118cr, more than doubled yoy and was ahead of our estimate of Rs111cr. Outlook and valuation: JKT’s revenues are likely to pick up from 2HFY2016 on account of pick up in replacement demand and capacity expansion in the truck and bus radial segment. Also, JKT is likely to sustain higher margins on account of softness in raw material prices (both rubber and crude based). Further improving product mix on account of higher proportion of radial prices would also boost margins. Also, we expect JKT’s debt to taper off from FY2017 due to peaking out of the capex programme. Lower debt is likely to improve the return and the interest coverage ratio for the company. JKT is our preferred pick in the tyre space. Given the margin outperformance, we have increased our earnings assumptions for both FY2016 and FY2017. We reiterate our Buy rating on the stock with a revised price target of Rs147 (based on 7x FY2017 earnings).

Source: http://www.angelbroking.com/