Buy JK Tyre Ltd for the Target Rs 600 by Emkay Global Financial Services Ltd
JKI posted a weak 1QFY27, with consolidated revenue up 2% yoy as the 14% yoy growth in India was largely offset by an 82% yoy decline in JK Tornel (Mexico). Consolidated EBITDAM fell sharply to 6.5% (4QFY26/1QFY26: 12.7%/10.4%) due to ~20% qoq spike in RM cost amid West Asia related disruptions and shipping constraints. India EBITM declined by 590bps qoq to 4.8%, while Mexico EBITM (-51.3%) was impacted by geopolitical disruptions, input shortages, and labor issues (now resolved). Domestic volume grew ~25% yoy (OEM volume up ~42% yoy); demand outlook is healthy, expected across segments, with JKI confident of sustaining double-digit growth through FY27. Cumulative price hikes of ~11% have been taken to date (in FY27TD; ~5% in 1Q), with plans of another 5-6%; this alongside softer natural rubber prices and cost efficiencies is likely to help margin recover to 11-13% in 2HFY27 (~10- 11% for FY27). Mexico production has resumed, with FY27 topline expected to be flat. We maintain a positive stance on the tyre space, given evolving industry dynamics (pricing power for tyre players aided by tight industry demand-supply scenario). We cut FY27E/28E EPS by ~27%/15% to largely factor in the RM pressure and labor issues in Mexico (now resolved). We maintain BUY; we cut our TP by ~8% to Rs600 from Rs650, at 14x Jun-28 PER.
Flattish consolidated topline; margin under pressure
Consolidated revenue grew 2% yoy to Rs39.5bn, led by 14% yoy growth in India, offset by 82% yoy decline in JK Tornel (Mexico). Consolidated EBITDA declined 36% yoy, with EBITDAM down by 617bps qoq to 6.5%, owing to a 806bps qoq GM contraction. India EBITM fell by 590bps qoq to 4.8%; Mexico EBITM fell sharply to -51.3%. Consolidated PAT declined 78% yoy to Rs332mn.
Earnings call KTAs
1) Domestic volumes grew ~25% yoy (OEM volume grew ~42%), with healthy demand outlook, given JKI is confident of sustaining double-digit growth through FY27.
2) Cumulative price hikes of ~11% taken so far (~5% in 1Q), with another 5-6% hikes planned in monthly tranches; OEM pass-through typically lags by a quarter.
3) Input costs rose ~20% sequentially in 1Q, though Management highlighted that natural rubber has started to soften and is expected to decline from 2Q.
4) Consolidated EBITDA margin declined to 6.5% (vs 10.4% in 1QFY26); Management targets 11-13% in 2HFY27 and ~10-11% for FY27.
5) Mexico’s decline was temporary, caused by geopolitical disruption, input shortage, and the now-resolved labor talks; production has resumed and full-year topline is expected to be broadly flat; USMCA's 10Y renewal seen as positive for MexicoUSA trade relations.
6) Rs50bn capex over the next 4Y is expected to increase overall capacity by ~24%, including ~7% total capacity in FY27.
7) Net debt guided to increase by Rs5bn-7bn in FY27, on capex and working capital requirements, partly offset by ongoing repayments.
8) EV tyre volume grew in double digits qoq; full-stack EV tyre offering, though EV tyre life ~5-10% shorter than that for ICE; MoU signed with NIE Mysore for AI-led tyre R&D.
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