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November 2, 2010

Reco

Buy

Previous Reco

BuyCMP

Rs 162 

Target Price

Rs 195

EPS change FY11E/12E (%) -19/-3

Target Price change (%) -5

Nifty 6,118

Sensex 20,356

Price Performance

(%) 1M 3M 6M 12M

Absolute (16) (1) (17) 9

Rel. to Nifty (16) (14) (30) (16)

Source: Bloomberg 

Relative Price Chart

100

125

150

175

200

225

Nov-09 Dec-09 Feb-10 Apr-10 May-10 Jul-10 Sep-10

Rs

-20

-10

0

10

20

30%

JK Tyre (LHS) Rel to Ni fty (RHS)

Source: Bloomberg 

Stock DetailsSector Auto Ancillaries

Bloomberg JKI@IN

Equity Capital (Rs mn) 411

Face Value(Rs) 10

No of shares o/s (mn) 41

52 Week H/L 236/144

Market Cap (Rs bn/USD mn) 7/157

Daily Avg Volume (No of sh) 447734

Daily Avg Turnover (US$mn) 1.9

Shareholding Pattern (%)

S’10 J’10 M’10

Promoters 47.0 47.0 47.0

FII/NRI 9.4 9.7 5.7

Institutions 8.9 11.4 10.9

Private Corp 20.0 17.8 20.0

Public 14.8 14.3 16.5

Source: Capitaline 

Chirag Shah

chirag.shah@emkayglobal.com

+91 22 612 1252

   R  e

  s  u   l   t   U  p   d  a   t  e

 

JK Tyres & Industries Ltd

Lower sales hinder performance, maintain BUY

¾ 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 

¾ 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

¾ 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

¾ 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 160per kg in 1QFY11).

Per ton analysis - standalone

Particulars Q2FY10 Q3FY10 Q4FY10 Q1FY11 Q2FY11

Tonnage sold 63000 51500 66487 69596 63951

Sales 149,427 155,728 157,557 167,819 178,022

RM 89,483 97,907 107,865 121,934 127,079

Staff 11,327 11,860 9,485 9,189 10,844

Other Expenses 26,881 27,171 28,300 26,191 28,450

EBIDTA 21,737 18,790 11,908 10,505 11,650

Source: Company, Emkay Research 

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%.

Financial Snapshot (Consolidated) 

YE- Net EBITDA EPS EPS RoE EV/

Mar Sales (Core) (%) APAT (Rs)%

chg(%) P/E EBITDA P/BV

FY09 55,227 2,525 4.6 -203 (4.9) (4.4) (41.4) 6.0 1.3

FY10P 45,706 5,024 11.0 2,087 50.8 32.1 4.0 3.7 1.1

FY11E 58,099 3,748 6.5 1,105 26.9 (47.0) 14.0 7.6 3.7 1.0

FY12E 65,848 4,697 7.1 1,623 39.5 46.9 17.8 5.2 4.0 0.9

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  JK Tyres & Industries Ltd. Result Update

Emkay Research 2 November 2010 2

 

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. 

FY11E FY12E

Particulars Earlier Revised % change Earlier Revised % change

Net Sales (Rs mn) 58,988 58,099 (1.5) 63,742 65,848 3.3

EBIDTA (Rs mn) 4,117 3,748 (9.0) 4,613 4,697 1.8

EBIDTA margins (%) 7.0 6.5 7.2 7.1

Net profits (Rs mn) 1,367 1,105 (19.2) 1,671 1,623 (2.9)

Quarterly Result Summary - Standalone

Rs mn Q2FY10 Q3FY10 Q4FY10 Q1FY11 Q2FY11 YoY (%) QoQ (%) YTD’11 YTD’10 YoY (%)

Revenue 9,414 8,020 10,476 11,680 11,385 20.9 (2.5) 23,064 18,421 25.2

Expenditure 8,045 7,052 9,684 10,948 10,640 32.3 (2.8) 21,588 15,985 35.1as % of sales 85.5 87.9 92.4 93.7 93.5 93.6 86.8 

Consumption of RM 5,637 5,042 7,172 8,486 8,127 44.2 (4.2) 16,613 11,483 44.7

as % of sales 59.9 62.9 68.5 72.7 71.4 72.0 62.3 

Employee Cost 714 611 631 640 694 (2.8) 8.4 1,333 1,298 2.7

as % of sales 7.6 7.6 6.0 5.5 6.1 5.8 7.0 

Other expenditure 1,694 1,399 1,882 1,823 1,819 7.4 (0.2) 3,642 3,204 13.7

as % of sales 18.0 17.4 18.0 15.6 16.0 15.8 17.4 

EBITDA 1,369 968 792 731 745 (45.6) 1.9 1,476 2,436 (39.4)

Depreciation 222 223 223 223 227 2.3 1.8 451 414 8.9

EBIT 1,147 745 569 508 518 (54.9) 1.9 1,025 2,022 (49.3)

Other Income 2 1 1 2 1 (13.3) (13.3) 3 7 (57.6)

Interest 234 208 187 208 207 415 492 (15.6)

PBT 915 538 383 301 312 (65.9) 3.5 613 1,537 (60.1)

Total Tax 320 173 115 106 110 (65.6) 3.5 216 534 (59.5)

Adjusted PAT 595 365 267 195 202 (66.1) 3.5 397 1,003 (60.4)

(Profit)/loss from JV's/Ass/MI - - - - - - -

Adjusted PAT after MI 595 365 267 195 202 (66.1) 3.5 397 1,003 (60.4)

Extra ordinary items - - - - - - - -

Reported PAT 595 365 267 195 202 (66.1) 3.5 397 1,003 (60.4)

Reported EPS 14.5 8.9 6.5 4.7 4.9 (66.1) 3.5 9.7 24.4 (60.4)

Margins (%) (bps) (bps) (bps)

EBIDTA 14.5 12.1 7.6 6.3 6.5 (800.3) 28 6.4 13.2 690

EBIT 12.2 9.3 5.4 4.3 4.5 (763.9) 20 4.4 11.0 680

EBT 9.7 6.7 3.7 2.6 2.7 (698.1) 16 2.7 8.3 760

PAT 6.3 4.5 2.6 1.7 1.8 (454.8) 10 1.7 5.4 520

Effective Tax rate 35.0 32.2 30.1 35.2 35.2 28.5 (0) 35.2 34.8 1790

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  JK Tyre & Industries Result Update

Emkay Research 2 November 2010

Recommendation History: JK Tyre & Industries – JKI IN

Date Reports Reco CMP Target

18/08/2010 JK Tyre & Industries 1QFY11 Result Update  Buy 169 205

26/05/2010 JK Tyre Industries 4QFY10 Result Update  Buy 179 225

21/01/2010 JK Tyre & Industries Q3FY10 Result Update  Buy 170 200

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Date Reports Reco CMP Target

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29/10/2010 Hero Honda Q2FY11 Result Update  Reduce 1,866 1,720

25/10/2010 TVS Motor Q2FY11 Result Update  Reduce 74 72

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