JK Tyres & Industries Ltd Price hikes the key, ACCUMULATE : Emkay

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JK Tyres & Industries Ltd

Price hikes the key, lower rating to ACCUMULATE

ACCUMULATE 

CMP: Rs 108                                       Target Price: Rs 118

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n     Results below est. due to lower tonnage off take and higher other expenditure and interest cost. Tonnage sales at 64350 MT (+25% YoY and 1% QoQ) vs est. of 66950 MT

n     EBIDTA per ton at Rs 9,619 (-49%/-17% YoY/QoQ) was below est of 11,251. High rubber prices (> Rs 220/kg) remains a concern.  Price hikes are necessity to protect margins

n     Capacity expansion plans on course with total capex of ~ Rs 11bn in FY11 and FY12. Tornel reported Sales of USD 250mn and PAT of USD 2.5mn in CY10

n     Lower our FY11E/FY12E standalone EPS by 44%/36% to Rs 14.7/22.1. Lower our rating to ACCUMULATE due to higher rubber prices and limited price hike

Sales – below estimate due to lower off take

JK Tyre reported standalone net sales of Rs 11.7 (est. Rs 12.2bn). This is due to lower

tonnage sales 64350 MT (+25% YoY and 1% QoQ) vs est. of 66950 MT. Tornel has

reported Sales of USD 250mn and a profit if USD 2.5mn in CY10

EBIDTA – EBIDTA per ton dissappoints due to higher other expenses

JKT reported standalone EBIDTA of Rs 619mn (est of Rs 753mn). This is due to higher

than expected other expenses. RM to sales stood at 71.8% was lower in line with our

est.. Average rubber cost for the quarter stood at Rs 194per kg (against Rs 177 per kg

in 2QFY11).

Net Profit at Rs 92mn, against expectation of Rs 212mn

Disappointing operating performance and higher interest cost (Rs 241mn) resulted in

below expected net profit. Tax rate for the quarter was 39.4%.

Valuation & view

We have lowered our standalone FY11E/FY12E EPS by 44% and 36% to Rs 14.7 and

Rs 22.1 per share respectively due to higher rubber prices and lower pricing power of the

industry. We have lowered our rating on the stock to ACCUMULATE with a TP of Rs 118

(-36%)