Hold JK Tyres and Industries; target of Rs 65: ICICI Direct

ICICI Direct's research report on JK Tyres and Industries

JK Tyres & Industries (JKTIL) reported a dismal performance in Q4FY20. Consolidated revenues fell 33.7% YoY to Rs 1,795 crore (India sales down 32.4%, Mexico sales down 36.2%. India formed 89% of consolidated revenues). Consolidated margins rose 46 bps QoQ, led by 410 bps gross margin expansion. India EBIT margins dropped 132 bps QoQ to 6.8% while Mexico operations recorded mere 0.9% margins. The company posted consolidated loss of Rs 51.2 crore. It booked an exceptional charge of Rs 61.1 crore, largely on account of forex loss of Rs 60.5 crore. JKTIL declared final dividend of Rs 0.7/share for FY20. On a consolidated basis for FY20, the company posted net sales of Rs 8,754 crore (down 15.9% YoY), with PAT at Rs 151 crore (down 14.5% YoY).

Outlook

For JKTIL, demand prospects are expected to be subdued in FY20P-22E in line with wider automotive space. Margins, however, are seen improving amid benign commodity prices and better product mix. However, progress on debt reduction plan will be a key monitorable. We maintain HOLD rating on the stock with a target price of Rs 65 i.e. 5x EV/EBITDA on FY22E numbers.

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