Target: ₹491.7
CMP: ₹426.15
JK Tire & Industries has a significant presence in the Truck & Bus Radial (TBR) and Passenger Car Radial (PCR) tyres. It has a strong relationship with all major OEMs like Maruti, Kia, Tata, Hyundai, JBM, Force Motors, L&T, ACE, TVS, Bajaj and Hero MotoCorp. It has nine manufacturing facilities across India and three in Mexico. Its total capacity stands at 35 million tires per annum.
JK Tire derives about 60 per cent of revenue from the replacement segment where margins are relatively higher than the OEM segment. It saw strong double-digit volume growth in the export market in the replacement segment. Going forward, it expects the domestic volume growth to also recover in H2FY25.
The company undertook price hikes in Q1FY25 and in July 2024 to offset the higher raw material costs. Natural rubber prices have risen sharply in the last few months, but the prices of other raw materials are stable. Recent decline in crude oil prices bodes well for the company’s total raw material cost.
Higher share of premium radial tires in the TBR and PCR segments is expected to drive margin improvement for the company. About 92-95 per cent of the TBR tires sold by JK Tire is from the premium segment. Additionally, the industry is shifting towards higher-inch size tires helping to improve realizations.
The company’s Mexican subsidiary had a subdued Q1FY25, with the appreciation of the Mexican Peso against the US Dollar also impacting export realizations. The management expects H2FY25 to be better for the Mexican operations.
At CMP, the stock trades at 12.1x/10.4x FY25E/FY26E P/E based on consensus Bloomberg earnings which is at a 25-30 per cent discount to its peers. Healthy margin profile, better pricing power, capacity addition, improvement in Mexican operations and deleveraged balance sheet are expected to drive earnings growth.
