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We hosted the management of JK Tyre (JKI), represented by Anuj Kathuria, President (India) and Sanjeev Aggarwal, CFO, for a series of investor meetings. JKI is accelerating focus on high-growth, high-margin PCR via well-timed capex (operating at ~95% utilization now), largely in high-margin SUV tyres, even as overall capex remains calibrated, thus driving further deleveraging. Consumers in both, commercial & passenger tyres, are increasingly looking at features besides only price (like mileage, comfort, safety, performance); in turn, this is driving gradual de-linking of margins to underlying commodities. We retain BUY on JKI, with unchanged TP of Rs700 at 15x FY26E PER; JKI remains undervalued despite the ongoing sharp improvement in performance across P&L/balance sheet/return ratios (trades at ~10x FY26E PER vs. ~14-15x peer average).

Premiumization focus to spur higher share of margin-accretive SUV tyres

JKI is intensifying efforts towards improving its positioning in PCR, where it is #4 as against being the leader in TBR (PCR share in revenue can rise to ~38% going ahead vs. 29% now, as per our workings); of the ~Rs25bn capex (completed & on-going), Rs18bn is for PCR – mostly for high-margin SUV tyres; concerted efforts here would help raise share of the above-16-inch tyres in PCR to over 35% in the next 2-3 years vs. ~25% now/18% 3 years ago. PCR positioning improvement would be further aided by its efforts in branding/marketing spends, further distribution expansion, and focus on exports.

Capex to remain under control; margins, debt reduction to sustain

Capacity expansion would remain calibrated (currently over 95% utilization in radials and 80-85% in bias); JKI would continue to focus on profitability and cashflows – it reiterated its long-term margin guidance of 13-15%. RM outlook remains benign/range-bound. Strong profitability focus, cash-flow generation, and calibrated capex towards highgrowth/-margin segments to accelerate deleveraging (~0.8x in Dec-23 vs 2.3x in FY19).

Shift, away from commodity perception of tyres, to aid growth, pricing

Tyres are seeing a structural shift in buying preferences; customer mindset of brand recognition for tyres is improving, accompanied by their willingness to spend more for differentiated products, as against the earlier perception of tyres being a commodity product. JKI expects such developments, along with initiatives like fleet management solutions (5-year head-start vs. competition), to act as an incremental growth lever, apart from further improving the pricing environment/profitability.

Sustained margins and accelerated deleveraging to drive re-rating

We maintain our belief that JKI’s timely PCR expansion amid further tightening of the industry demand-supply dynamics (as players focus on return ratios/cashflows vs. only chasing growth) would ensure sustained growth/margin improvement, effecting faster deleveraging (net debt/equity at ~0.4x FY26E vs. 1.4x Mar-23) and driving a consistent 20% RoE, leading to further re-rating (trades at ~10x FY26E PER vs. ~14-15x peer avg.).

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