Update: JK Tyre & Industries :: Business Line

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JK Tyre (JKT) has gained over 20 per cent in the week leading to its 1: 5 stock split on December 19. This brisk run-up is a continuation of the trend seen in the last few months. Several factors favour the company in the current scenario. JKT is experiencing the double benefit of low prices of natural rubber — the key raw material for tyres — and falling crude prices, from which other inputs such as carbon black, synthetic rubber and nylon tyre cord are derived. Besides, even as the pick up in sales of cars and two-wheelers has not been as quick as expected, commercial vehicle (CV) sales have shown a decisive turnaround in the first eight months of this fiscal. In addition, radialisation among CVs (about 25 per cent currently) is also rapidly increasing.

JKT is best placed to latch on to these trends as the company is the market leader in CV radials and has a 35 per cent share. Radial tyres also enrich the product mix as they are sold at higher price points than cross-ply tyres. Hence, greater share of radials along with cheaper raw materials gives room for further expansion in operating margins, from the current 12 per cent levels.

The stock, similar to many other tyre stocks has been re-rated from single digit valuations in the past. It now trades at 11 times trailing 12-month earnings.