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K Tyres & Industries Ltd |
Lower sales hinder performance, maintain BUY |
BUY
CMP: Rs 162 Target Price: Rs 195
n Results below est. due to lower tonnage offtake. Tonnage sales at 64,000 tons (+1.5% YoY and -8% QoQ), despite QoQ increase in utilization rate by 100 bps to 93% hinder
n EBIDTA per ton improve 11% QoQ despite 10% increase in rubber prices. High rubber prices (> Rs 190/kg) remains a concern. Price hikes are necessity to protect margins
n Capacity expansion plans on course with total capex of ~ Rs 24 over next four to five years. Capex in first phase is Rs 930 mn funded in the ratio of 2:1 D/E
n Lower our FY11E EPS by 19% to Rs 26.9 due to higher rubber prices. Expect price hike with a lag, fine tune or FY12 EPS to Rs 39.5 (-3%). Retain BUY with a TP of Rs 195
Sales – below estimate due to lower offtake
JK Tyre reported standalone net sales of Rs 114 (est. Rs 12.6bn). This is due to lower
tonnage sales (63951 tons – 1.5% YoY/-8.5% QoQ) against our est of 71,000 tons.
Management did not share financials of Tornel, except that Tornel has reported
marginal profits at PAT level
EBIDTA – EBIDTA per ton improves QoQ
JKT reported standalone EBIDTA of Rs 745mn (est of Rs 911mn). This is largely
attributable to lower tonnage sales. RM to sales stood at 71.4% was lower than our est.
of 71.7%. Average rubber cost for the quarter stood at Rs 177 per kg (against Rs 160
per kg in 1QFY11).
Net Profit at Rs 202mn, against expectation of Rs 331mn
Disappointing operating performance and higher interest cost (by RS 100mn) resulted in
below expected net profit. Tax rate for the quarter was 35%.
Valuation & view
We have lowered our consolidated FY11E and FY12E EPS by 19% and 3% to Rs 26.9 and
Rs 39.5 per share respectively. We have lowered our target price to Rs 195 (earlier
Rs 205). We maintain our BUY rating on the stock.
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