JK Tyre share price: Walking the talk, ticking all the right boxes II ICICI Securities raises target price to Rs 180
JK Tyre reported a robust Q3 FY21 performance with highest ever quarterly sales and PAT. JK Tyre net sales for the quarter were at Rs 2769 cr, up 25.4% YoY. EBITDA in Q3 FY21 was at Rs 500 cr with corresponding EBITDA margins at 18.1%, up 250 bps QoQ. PAT in Q3 FY21 came in at Rs 224 cr vs. Rs 11 cr in Q3 FY20 (impacted by low margins in base quarter) and Rs 105 cr in Q2 FY21.
JK Tyre reported a robust Q3 FY21 performance with highest ever quarterly sales and PAT. JK Tyre net sales for the quarter were at Rs 2769 cr, up 25.4% YoY. EBITDA in Q3 FY21 was at Rs 500 cr with corresponding EBITDA margins at 18.1%, up 250 bps QoQ. PAT in Q3 FY21 came in at Rs 224 cr vs. Rs 11 cr in Q3 FY20 (impacted by low margins in base quarter) and Rs 105 cr in Q2 FY21. Sequential improvement in JK Tyre gross margins (140 bps) was a key highlight for the quarter. Encouragingly, interest costs continued in downward trajectory.
JK Tyre’s Demand picture looking strong, margin commentary positive:
JK Tyre channel mix changed to 45% replacement, 40% OEMs and 15% exports and STUs as domestic OEM channels posted substantial volume increase YoY in the quarter. The Indian CV industry is on the cusp of a cyclical recovery in our opinion, with the vast majority of usual about two year down cycles now behind us and key players posting encouraging volume numbers recently.
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The same is set to benefit JK Tyre courtesy its large presence in the CV market as well as high dependence on the segment (realises 60-65% revenues from CVs and farm segment). Amid topline support, however, gross margins are set to come under some pressure in the near to medium term given the steep increase in prices of key raw materials i.e. natural rubber and other crude oil derivatives. JK Tyre is confident of sustaining much of the operational margin improvement witnessed this quarter. However, ICICI Securities build 14% EBITDA margins by FY23E, in their estimates, on a conservative basis.
JK Tyre Q3FY21 conference call, Highlights & key takeaways:
JK Tyre management said that:
(1) JK Tyre demand prospects remain healthy across segments, channels and geographies
(2) JK Tyre present utilisation levels are at 90-95% across facilities (with two of three plants at Cavendish running at >100%) but expansion plans are on hold amid focus on sweating assets first
(3) JK Tyre gross debt as of December was at Rs 4536 cr. Long term debt would be reduced by 40-45% over next two to three years
(4) JK Tyre has also worked upon reducing its blended rate of interest on borrowings
(5) JK TYre has also worked on optimising its working capital cycle
(6) JK TYre undertook limited price hikes in December but 2-3% further hikes would be undertaken in coming months if deemed necessary
JK Tyre Valuation & Outlook:
Amid general positivity on both demand, margin front, solid progress delivered on B/S deleveraging is what continues to enthuse us the most. JK Tyre has reduced gross debt by Rs 1000 cr in the last nine months, and future commentary gives confidence. ICICI Securities builds 13% sales, 49% PAT CAGR for JK Tyre in FY21E-23E. Based on estimates, JK Tyre trades at inexpensive valuations. Accordingly, ICICI Securities remains positive on JK Tyre and retain their BUY rating with target price revised to Rs 180 (earlier | 100). ICICI Securities value JK Tyre at 5.25x EV/EBITDA on FY23E basis for their target calculation.
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