The Tyres & Rubber Products industry in India, valued at $12 billion, is growing at a 7% CAGR. Dominated by players like MRF, Apollo Tyres, and JK Tyre, it produces over 180 million units annually. The sector benefits from rising automotive demand and government initiatives, bolstering exports and domestic sales.
With a market capitalization of Rs 10,963.43 crore, the shares of JK Tyre & Industries Ltd closed at Rs 422.25 per share, increasing around 1.13 percent as compared to the previous closing price of Rs 415.80 apiece.
Looking into JK Tyre & Industries’s financial performance, revenue increased by 2 percent from Rs 3,632.47 crore in Q3 FY23 to Rs 3,698.45 crore in Q3 FY24. During the same period, net profit increased by 55 percent, from Rs 112.52 crore to Rs 174.9 crore.
ICICI Direct, one of the well-known brokerages in India, gave a ‘Buy’ call on the tyre stock with a target price of Rs 525 apiece, indicating a potential upside of 24 percent from Monday’s closing price of Rs 422.25 per share.
The reasoning for the bullish potential upside of 24% is as follows:
● Stable Margins Through Pricing Discipline: The tyre industry, historically impacted by volatile raw material costs, is now exhibiting pricing discipline. In Q4FY24, most tyre companies reported stable gross margins and planned price hikes to counter rising rubber prices and EPR provisions, promoting sustainable double-digit margins.
● JK Tyre’s Beneficial Position: JK Tyre, a leader in the TBR segment and expanding in the PCR space, is poised to benefit from this trend. The company is expected to maintain stable margins of around 14% from FY24 to FY26, leveraging the industry’s conscious pricing strategies.
● Significant Debt Reduction: JK Tyre has significantly reduced its net debt from ~₹5,400 crore in FY20 to ~₹3,700 crore in FY24 through increased profitability, focused cash flow generation, and equity infusions. This lowered the Net Debt: Equity ratio from 2.2x to 0.8x, enhancing the company’s financial stability.
● Future Financial Outlook: With the continuation of healthy double-digit margins and controlled capital expenditures, JK Tyre aims to further reduce its net debt to ~₹2,800 crore by FY26, improving the Net Debt: Equity ratio to 0.4x. This anticipated financial improvement could lead to a positive re-rating for the company.
JK tyre is the first company in India with OE fitment of tubeless passenger radials. Also, 1st in India to launch high performance H, V and Z-rated passenger radial tyres and globally among top 3 tyre manufacturers in terms of lowest energy consumption.
JK Tyre & Industries Limited is an India-based tyre manufacturer. The Company and its subsidiaries are engaged in developing, manufacturing, marketing and distributing automotive tyres, tubes, flaps and retreads. The Company’s segments include India, Mexico and Others.
Written by:- Abhishek Singh
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