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M a r g i n s s l i d e , a s r u b b e r p r i c e s t e s t p a t i e n c e
JK Tyres and Industries (JKTIL) reported a muted Q1FY12 performance
with margin shrinkages due to higher RM costs. The topline was in line
with our estimates coming in at | 1401.7 crore (I-direct estimate: | 1392.4
crore). It grew 20.5% YoY and 4.7% QoQ due to reasonable growth in the
TBR and PV segment. The EBITDA margin continued to slide at 4.6% (Idirect estimate 5.8%), a 169 bps YoY decline due to high rubber prices
(average cost of ~| 228/kg. However, declining margins were supported
by a lower than anticipated employee expense (4.8% of net sales) coming
in at | 67.7 crore. The bottomline shrunk to | 0.96 crore (I-direct estimate:
| 16.2 crore) owing to higher tax rates.
Highlights of the quarter
JKTIL is the market leader in the radial truck and bus segment (TBR) along
with the car radial segment (PVR). The quarter saw low up-tick in volume
demand from the OEM side. However, with radial demand continuing to
be on the upswing and with the TBR segment increasing, radial
penetration is incrementally expanding its capacities. The ascending input
prices for tyre companies have led to severe margin pressures with
JKTIL’s margin shrinking by 169 bps YoY. Rubber prices (RSS-4), which
had begun the surge in prices since Q2FY11 have remained at elevated
levels with average prices up ~38% YoY at ~| 230/kg. The sluggish
tapping process has led to a rise in rubber costs but prices are expected
to moderate with fresh supply kicking in.
V a l u a t i o n
We remain positive on the long-term growth prospects of the automotive
industry. However, in the near term, sticky rubber prices remain a
concern. We remain cautiously optimistic on the decline of rubber prices
from the peak prices of |230 though would await a confirmation for the
same before an earnings upgrade of the stock. At the CMP of | 98, the
stock is trading at 7.5x FY12E EPS and 3.8x FY13E EPS. We have valued
the stock at 4.6x FY13E EPS of | 25.9 to arrive at a target price of | 118.
Our target price implies an upside of 20%. We have maintained our BUY
rating on the stock.
Visit http://indiaer.blogspot.com/ for complete details �� ��
M a r g i n s s l i d e , a s r u b b e r p r i c e s t e s t p a t i e n c e
JK Tyres and Industries (JKTIL) reported a muted Q1FY12 performance
with margin shrinkages due to higher RM costs. The topline was in line
with our estimates coming in at | 1401.7 crore (I-direct estimate: | 1392.4
crore). It grew 20.5% YoY and 4.7% QoQ due to reasonable growth in the
TBR and PV segment. The EBITDA margin continued to slide at 4.6% (Idirect estimate 5.8%), a 169 bps YoY decline due to high rubber prices
(average cost of ~| 228/kg. However, declining margins were supported
by a lower than anticipated employee expense (4.8% of net sales) coming
in at | 67.7 crore. The bottomline shrunk to | 0.96 crore (I-direct estimate:
| 16.2 crore) owing to higher tax rates.
Highlights of the quarter
JKTIL is the market leader in the radial truck and bus segment (TBR) along
with the car radial segment (PVR). The quarter saw low up-tick in volume
demand from the OEM side. However, with radial demand continuing to
be on the upswing and with the TBR segment increasing, radial
penetration is incrementally expanding its capacities. The ascending input
prices for tyre companies have led to severe margin pressures with
JKTIL’s margin shrinking by 169 bps YoY. Rubber prices (RSS-4), which
had begun the surge in prices since Q2FY11 have remained at elevated
levels with average prices up ~38% YoY at ~| 230/kg. The sluggish
tapping process has led to a rise in rubber costs but prices are expected
to moderate with fresh supply kicking in.
V a l u a t i o n
We remain positive on the long-term growth prospects of the automotive
industry. However, in the near term, sticky rubber prices remain a
concern. We remain cautiously optimistic on the decline of rubber prices
from the peak prices of |230 though would await a confirmation for the
same before an earnings upgrade of the stock. At the CMP of | 98, the
stock is trading at 7.5x FY12E EPS and 3.8x FY13E EPS. We have valued
the stock at 4.6x FY13E EPS of | 25.9 to arrive at a target price of | 118.
Our target price implies an upside of 20%. We have maintained our BUY
rating on the stock.
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