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http://content.icicidirect.com/mailimages/ICICIdirect_JKTyres_Q3FY12.pdf
T i m e f o r r e v e r s a l i n f o r t u n e s ! ! !
JK Tyres and Industries’ (JKTIL) Q3FY12 performance was in line with our
expectations. The topline came in at | 1422.9 crore reflecting a 20.7%
YoY growth (I-direct estimate: | 1407.4 crore). EBITDA margins surprised
positively at 5.1% (up 297 bps QoQ) reflective of the softening rubber
prices and on account of lower other expenses (down 2.4% QoQ). The
raw material cost as proportion of revenues declined 82 bps sequentially
to 75.3% driven by a moderation in rubber prices from ~| 211/kg (RSS-4)
in Q2FY12 to ~| 205/kg (RSS-4) in the current quarter. There was a forex
loss to the tune of | 38.2 crore arising on account of MTM translation of
forex liabilities. However, given the recent appreciation of the rupee, a
reversal of the same is expected in Q4FY12. The company posted a net
loss of | 21.3 crore (I-direct estimate: loss of | 23.8 crore) with interest
cost at | 45.2 crore dampening profitability further.
Highlights of the quarter
The current fiscal has been a challenging one for JKTIL on account of
issues ranging from commodity pressure, labour unrest, demand
slowdown and adverse currency movement. The profitability is under
serious pressure with margins contracting severely. However, Q3FY12
performance is showing early signs of trend reversal. JKTIL is one of the
largest players in the radial truck and bus segment (TBR) & car radial
segment (PCR). We remain optimistic on the demand outlook as interest
rate sensitive PV & CV segments are likely to witness a rebound given the
possibility of monetary easing by H2CY12 coupled with increasing radial
penetration in TBR segment. We have factored in a reversal of currency
impact in Q4FY12E and expect margins to improve in FY13E to ~7.7% on
the back of softening rubber prices and higher operating leverage.
V a l u a t i o n
We maintain our positive stance on the demand outlook and expect an
enhancement in revenues coupled with margin expansion. However, an
unexpected rise in rubber prices and depreciation of the currency remain
an overhang on margins. At the CMP of | 83, the stock is trading at 3.5x
FY13E EPS. We have valued the stock at 4.0x FY13E EPS of | 24.0 to
arrive at a target price of | 96. We maintain BUY rating on JKTIL.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
http://content.icicidirect.com/mailimages/ICICIdirect_JKTyres_Q3FY12.pdf
T i m e f o r r e v e r s a l i n f o r t u n e s ! ! !
JK Tyres and Industries’ (JKTIL) Q3FY12 performance was in line with our
expectations. The topline came in at | 1422.9 crore reflecting a 20.7%
YoY growth (I-direct estimate: | 1407.4 crore). EBITDA margins surprised
positively at 5.1% (up 297 bps QoQ) reflective of the softening rubber
prices and on account of lower other expenses (down 2.4% QoQ). The
raw material cost as proportion of revenues declined 82 bps sequentially
to 75.3% driven by a moderation in rubber prices from ~| 211/kg (RSS-4)
in Q2FY12 to ~| 205/kg (RSS-4) in the current quarter. There was a forex
loss to the tune of | 38.2 crore arising on account of MTM translation of
forex liabilities. However, given the recent appreciation of the rupee, a
reversal of the same is expected in Q4FY12. The company posted a net
loss of | 21.3 crore (I-direct estimate: loss of | 23.8 crore) with interest
cost at | 45.2 crore dampening profitability further.
Highlights of the quarter
The current fiscal has been a challenging one for JKTIL on account of
issues ranging from commodity pressure, labour unrest, demand
slowdown and adverse currency movement. The profitability is under
serious pressure with margins contracting severely. However, Q3FY12
performance is showing early signs of trend reversal. JKTIL is one of the
largest players in the radial truck and bus segment (TBR) & car radial
segment (PCR). We remain optimistic on the demand outlook as interest
rate sensitive PV & CV segments are likely to witness a rebound given the
possibility of monetary easing by H2CY12 coupled with increasing radial
penetration in TBR segment. We have factored in a reversal of currency
impact in Q4FY12E and expect margins to improve in FY13E to ~7.7% on
the back of softening rubber prices and higher operating leverage.
V a l u a t i o n
We maintain our positive stance on the demand outlook and expect an
enhancement in revenues coupled with margin expansion. However, an
unexpected rise in rubber prices and depreciation of the currency remain
an overhang on margins. At the CMP of | 83, the stock is trading at 3.5x
FY13E EPS. We have valued the stock at 4.0x FY13E EPS of | 24.0 to
arrive at a target price of | 96. We maintain BUY rating on JKTIL.
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