Comments
Target: ₹525
CMP: ₹410.10
Rubber and crude derivatives form bulk of raw material costs at tyre companies.
Consequently, domestic tyre industry has largely witnessed volatile margin profile in the past with industry realising healthy margins during periods of benign raw material prices and lower margins during period of elevated raw material costs. Also, high competitive intensity in aftermarket used to limit margin gains at tyre companies. Encouragingly, however, currently the industry is witnessing conscious pricing discipline.
JK Tyre used to possesses one of the most levered balance sheets in the domestic tyre space with net debt as of FY20 pegged at ₹ 5,400 crore with corresponding Net Debt: Equity at about 2.2x. With rise in profitability as well as concentrated efforts on cash flow generation for debt retirement as well as timely equity infusions, its net debt is down to ₹ 3,700 crore as of FY24 with Net Debt: Equity now comfortably placed at 0.8x.
With highest ever Sales, EBITDA and PAT clocked in FY24 and 13.8 per cent operating margin profile, return ratios have turned healthy double digit at JKT with FY24 RoE/RoCE pegged at about 17 per cent.
With steady growth prospects, stable margin profile, improved B/S and healthy return ratios coupled with inexpensive valuations, we assign Buy rating on JK Tyre and value it at ₹ 525 i.e. 7x EV/EBITDA on FY26E.
Comments
Comments
Comments have to be in English, and in full sentences. They cannot be abusive or personal. Please abide by our community guidelines for posting your comments.
We have migrated to a new commenting platform. If you are already a registered user of TheHindu Businessline and logged in, you may continue to engage with our articles. If you do not have an account please register and login to post comments. Users can access their older comments by logging into their accounts on Vuukle.