Views on JK Tyre & Industries 3QFY2014 results - Angel Broking

Views of Mr. Yaresh Kothari (Research Analyst - Auto & Auto Ancillary, Angel Broking) on JK Tyre & Industries 3QFY2014 results:

JK Tyre reports in-line results

"JK Tyre & Industries' (JKI) reported in-line results for 3QFY2014 as the company managed to maintain the EBITDA margins in excess of 11% despite the weak demand environment. The standalone top-line posted a strong growth of 11.6% yoy (flat qoq) to Rs. 1,443cr, which was slightly lower than our expectations of Rs. 1,497cr. We believe that strong growth in exports and healthy off take in the replacement segment could have attributed to the top-line performance amid slowdown in the OEM demand. EBITDA margins remained stable sequentially at 11.2%, better than our expectations of 10.6%. However, it surged sharply by 214bp yoy largely due to decline in raw-material costs, especially natural rubber, whose prices declined ~9% yoy. As a result, operating profit increased by 37.9% yoy (2.5% qoq) to Rs. 162cr. Interest and depreciation expense during the quarter increased 20% yoy (11.2% qoq) and 43.5% yoy respectively due to the commissioning of the Chennai facility. Led by a strong operating performance, adjusted net profit stood at Rs. 46cr, up 46% yoy. The Mexican subsidiary, Tornel, however, posted weak results as top-line reported a decline of 25% yoy (22.3% qoq) to Rs. 291cr and EBIT declined by 29.3% yoy (41.9% qoq) to Rs. 26cr with EBIT margins witnessing a sharp contraction of 300bp qoq to 8.8% primarily due to raw-material cost pressures. At the CMP, the stock is trading attractively 2x FY2015E earnings. We maintain our positive view on JKI as we believe that the company will continue to benefit from the healthy growth in the replacement segment which would ensure that the utilization levels at the Chennai plant remain at higher levels. Additionally, an improving product-mix in favor of radial tyres and expected stability in raw-material prices will aid margin expansion going ahead. We maintain our Buy rating on the stock with a target price of Rs. 187."

JK Tyre 3QFY2014 Result Review (CMP: Rs. 148/ TP: Rs. 187/ Recommendation: Buy)

Source : Equity Bulls

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