JKTYRE - JK Tyre & Industries Ltd. Share Price

Management Outlook:
JK Tyre anticipates sustained growth driven by India's robust GDP (6.6% forecast) and recovery in auto sectors, especially CVs from infrastructure/capex boosts. Replacement demand remains strong, while OEMs are on a recovery path. Margins are expected to improve as Q3's high-cost raw material (natural rubber) inventory depletes. Expansions in PCR (passenger car radial) and TBR (truck/bus radial) capacities are progressing, aiming to optimize radial utilization (~80% currently). Exports face challenges from currency volatility but are supported by premium product launches (e.g., larger rim sizes).

Key Highlights:

1. Financial Performance:

   • Q3 revenue flat YoY at Rs.3,694 Cr; EBITDA margin contracted to 9.1% (vs. 12.2% in Q2) due to RM cost spikes.
   • Subsidiaries Cavendish (India) and JK Tornel (Mexico) contributed strongly, with Cavendish hitting record quarterly revenue (Rs.1,025 Cr).

2. Cost Pressures & Mitigation:

   • Natural rubber prices surged (~12% QoQ in Mexico); price hikes, product mix improvements, and cost optimization underway.

3. Expansions & Innovations:

   • PCR capacity expansion (Banmore) and TBR upgrades (Laksar) on track. Focus on tech-driven manufacturing and digital transformation (new Analytics CoE).

4. Sustainability:

   • Joined RE100, targeting 100% renewable energy by 2050; secured sustainability-linked loan (first in Indian tyre sector).

5. Mexico Operations (JK Tornel):

   • Revenue dipped to Rs.507 Cr (currency impact), but EBITDA margin held at 7.9%. Exports to benefit from peso depreciation; safety accolades ("Sword of Honour") received.

6. Debt & Liquidity:

   • Net debt at Rs.4,319 Cr (stable QoQ); leverage ratios healthy (Net Debt/EBITDA: 2.4x).

Focus Areas: Premiumization, margin recovery via pricing actions, and calibrated capacity additions to capture demand in replacement and OEM segments.

Question 1: "Sir, in this quarter, we have seen a very significant increase in the RM cost despite a small increase in the overall RM basket. So, I just wanted to understand what is the reason of this much of increase - is there any high cost of inventory which is likely to go down in the coming quarter?"
Answer: The 320 bps margin impact was due to strategic high-cost inventory from Q1/Q2 being fully consumed in Q3, coupled with a 2% QoQ rise in raw material prices (notably natural rubber). Q4 margins may improve as these inventories normalize, barring further RM hikes.

Question 2: "Sir, in Mexico, basically there is a significant depreciation of Mexican Peso versus INR. So, that has gone down to 5 to 3.95. Despite that, very strong revenue growth was not seen on quarter-on-quarter... what is your strategy to overcome this problem?"
Answer: Mexico's Q3 revenue dip stemmed from fewer working days (16-day plant closure) and INR appreciation. Exports are being prioritized to leverage Peso depreciation benefits, with premium product launches (higher rim sizes) targeting the US market. Anti-dumping measures on Chinese tires are expected to aid recovery.

Question 3: "In Cavendish... there is a significant decline in margin? What is the reason for a significant increase in the top line on a quarter-on-quarter basis?"
Answer: Cavendish's record Rs.1,025 crore revenue in Q3 was driven by expanded TBR capacity utilization. Margins were pressured by raw material costs, which are passed on with a lag in the replacement market. No merger-related impacts were noted.

Question 4: "Do we expect Q4 for JK gross margin level to be much better compared to Q3 if we assume raw material prices remain stable?"
Answer: Q3's high-cost inventory has largely normalized, and Q4 margins could improve by 100"“200 bps if RM stabilizes. However, RM basket prices may rise 1-2% in Q4, limiting upside.

Question 5: "From Mexico, how much would be the export to North America right now roughly?"
Answer: Only ~5% of JK Tornel's exports target North America, with focus on Latin America (e.g., Brazil). The 25% US import duty on Mexican tires is under negotiation, with minimal current impact.

Question 6: "How much is the current net debt of the company and what's your debt reduction plan?"
Answer: Net debt stood at Rs.4,317 crore as of December 2024. The IFC loan ($100M) will refinance high-cost debt in Cavendish. Short-term working capital debt will reduce as inventory normalizes, lowering finance costs in FY26.

Question 7: "What kind of margin target do you have for FY26?"
Answer: Margins are projected to normalize to the industry's 12"“15% range with stable RM prices and gradual price hikes. Volatility in natural rubber remains a risk, but FY26 under-recovery from FY25 will be addressed.

Question 8: "How much capex has been done year-to-date, and what is the full-year target?"
Answer: Rs.1,400 crore total capex (PCR expansion: Rs.1,025cr; TBR/ASLTR: Rs.400cr) is underway. Year-to-date spend is Rs.600 crore (of planned Rs.800cr for FY25). Utilization of new capacities will drive revenue growth post-completion.

Question 9: "Could you break down India's 2% growth into volume and pricing?"
Answer: India's Q3 growth included 2% volume and 1% price increase vs. Q2. Growth was led by PCR, TBR, and 2/3-wheelers in replacement markets, offsetting weak TBR-OE demand.

Question 10: "What pricing actions were taken in Q3?"
Answer: Prices were raised by 1% QoQ, with product mix improvement. A 4-5% under-recovery persists, to be addressed via market-driven revisions.