JK Tyre stock may rise 30% in 9 months

India is the fourth largest tyre market in the world after China, Europe, and the United States. The India tyre market is primarily driven by a significant increase in the radialization of tyres of buses and trucks that aid in boosting mileage significantly, resulting in saving on fuel bills. Apart from this, growth of the automotive sector is another factor escalating the demand for tyres. It is also one of the vital components used in automobiles to transfer the load of the vehicle from the axle to the ground. Several companies are producing high-performance tyres for a wide range of vehicles, including heavy-duty trucks and buses, light commercial vehicles, earthmovers, forklifts, tractors, trailers, cars, motorcycles and scooters as well as auto-rickshaws. Some of the key players operating in the domestic market are MRF, CEAT, JK Tyre & Industries Ltd and Apollo Tyres. The Indian tyre industry has faced a serious downturn in the current pandemic posing unprecedented challenges. The situation has further aggravated during the last few months because sales of both the commercial vehicle and passenger vehicle segments have been severely impacted. JK Tyre & Industries Ltd is one company which has well negotiated the headwinds faced by the Covid pandemic and lockdowns by taking measured steps to attain sustainable growth and improved profitability. The company has evaluated and factored in the likely impact of this terrible pandemic which has caused serious disruptions on the global economic and business environment. The net operating revenue of JK Tyre & Industries stood at Rs.1803.09 crore in Q42020 and Rs.8,753 crore in FY2020 compared to Rs 2715.95 crore in the same quarter the previous year (31 March 2019) and the annual revenue of Rs 10367.76 crore (FY2019) respectively . This included segment revenue from India at Rs 1634.75 crore for Q42020 and Rs 7,649.11 crore for FY2020. Mexico contributed Rs 199.50 crore for Q42020 and Rs 1191.07 crore for FY2020. The company registered a profit/loss after tax of negative Rs 46.95 crore in Q42020 compared to Rs 35.88 crore registered in the Q42019. For FY2020, the company registered a profit of Rs 149.01 crore compared to Rs 176.29 crore recorded in FY2019. The management pointed at attention to the headwinds encountered on the currency front with the Indian rupee weakening significantly towards the end of the FY2020. They commented that the US Dollar liability of the company along with its subsidiaries Cavendish and JK Mexico had to be recorded at the exchange rates prevailing on the last day of the Financial Year, which though exceptional and notional in nature, impacted the Profit Before Tax.

Stocks of many auto companies and their ancillaries are down since March 2020 due to the disruption and lockdown and hence tyre company stocks have also taken a beating on the bourses. The stock price of JK Tyre is around Rs 65 and analysts tracking the global tyre industry expect a revival in export demand in the next few months. The stock can deliver a 30% price appreciation in the next nine months’ time frame.

Rajiv Kapoor is a share broker, certified mutual fund expert and MDRT insurance agent.