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JK Tyre & Industries 3QFY2014 performance highlights and results update

February 19, 2014, Wednesday, 10:14 GMT | 05:14 EST | 14:44 IST | 17:14 SGT
Contributed by Angel Broking

JK Tyre & Industries’ (JKI) reported in-line results for 3QFY2014 as the company managed to maintain standalone EBITDA margins in excess of 11% despite a challenging demand environment. Consolidated operation were however, slightly muted due to unexpected decline in top-line and profitability at Tornel. We maintain our positive view on the company as we expect the company to benefit from the healthy growth (6-8%) in the replacement segment going ahead. Additionally, improving product-mix in favor of radial tyres and benign raw-material pricing environment is expected to ensure margin sustenance in our view. The expected increase in debt burden to fund the aggressive capacity expansion plans though remains a cause of concern and is expected to pressurize profitability. Nevertheless, due to attractive valuations, we maintain our Buy rating on the stock.

Standalone performance in-line with expectations: The standalone top-line posted a strong growth of 11.6% yoy to Rs.1,443cr, primarily driven by 11.1% yoy growth in volumes. The top-line grew despite the weakness in the OEM segment, led by healthy growth in the replacement demand. Exports too continued with the strong traction, posting a growth of ~36% yoy to Rs.288cr. The consolidated top-line reported a muted growth of 2.1% yoy to Rs.1,703cr as weak Tornel performance (revenues down 25% yoy) impacted the overall results. Standalone EBITDA margins improved 214bp yoy to 11.2% largely due to decline in raw-material costs, especially natural rubber, whose prices declined ~9% yoy. The consolidated EBITDA margins expanded 133bp yoy to 10.8%, led by raw-material cost savings. However, it declined 292bp qoq as profitability at Tornel was under pressure. Led by a strong operating performance, standalone and consolidated adjusted net profit grew 46% and 2% yoy to Rs.46cr and Rs.52cr respectively. The depreciation and interest expense continued to inch upwards due to the commissioning of the Chennai facility, which restricted bottom-line growth.

Outlook and valuation: At the CMP, JKI is trading at an attractive valuation of 2x FY2015W earnings. We retain our Buy rating on the stock with a revised target price of Rs.169.