JK Tyre stock up 5% on robust March quarter earnings

Analysts caution that given the steep rise in costs of key inputs such as natural rubber and carbon black, margins are likely to remain under pressure. (Photo: Mint)Premium
Analysts caution that given the steep rise in costs of key inputs such as natural rubber and carbon black, margins are likely to remain under pressure. (Photo: Mint)
 1 min read . Updated: 20 May 2021, 10:24 AM IST Harsha Jethmalani

MUMBAI: Investors are quite impressed with the March quarter earnings of JK Tyre & Industries Ltd. Reacting to its results, the stock surged around 5% on the National Stock Exchange in opening deals on Thursday. The sharp up move in the stock is despite continued cost pressure impacting its margin. On a consolidated basis, it swung to profit in Q4FY21 with net profit at Rs189 crore compared to a net loss of Rs47 crore in the same quarter last year. Recovery in the automobile sales to pre-Covid levels aided this recovery in earnings.

"A heartening development was the sharp improvement in balance sheet health as gross borrowings declined by around Rs900 crore on a year-on-year (y-o-y) basis. Also, the associated absolute interest outgo declined by around 15% y-o-y in FY21," said an analyst with a domestic brokerage house requesting anonymity.

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As for the company's international business, its Mexico operations outperformed India, with revenues rising 103% y-o-y. Revenue from India business rose 61% y-o-y in the March quarter. The operating performance of Mexico business was also better than that of India.

On the flipside, its Q4 consolidated margins took a sequential hit of around 250 basis point (bps) at 15.5%. One basis point is one hundredeth of a percentage point. Gross margins slipped by nearly 370bps. Analysts caution that given the steep rise in costs of key inputs such as natural rubber and carbon black, margins are likely to remain under pressure. It should be noted that larger peers MRF Ltd Apollo Tyres Ltd have taken prices hike of around 4.5% in recent months. These companies have guided for a further increase in prices in the coming months.

Meanwhile, the demand outlook for the entire sector remains uncertain given the Covid-led restrictions in various states.

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