JK Tyre & Industries Ltd.
EBIDTA margins surprise positively
BUY
CMP: Rs 170 Target Price: Rs 200
JK Tyre (JKT) reported a strong operating performance in 3QFY10. Standalone EBIDTA margins at 12.1% against expectation of 11.2% despite sales being 16% lower than expectation of Rs 9.4bn. This was due to strike at one of its plants during the quarter. More importantly, the plant produces truck and bus bias tyres, the most profitable business segment. We underestimated the loss of revenue due to strike. Net profits at Rs 365mn was 5% lower than our expectation. Consolidated debt was lower by Rs 3.3bn to Rs 10.5bn as compared to FY09.
We are upgrading our FY10 and FY11 consolidated earnings by 4% to Rs 56 per share and Rs 40.1 (YOY decline of 29%) per share respectively. We are upgrading our target price by 4% to Rs 200 per share. We are conservative in our estimates considering the high rubber prices as well as the fact that MRF has not raised prices in the month of January 2010. We are factoring in 200 bps QoQ decline in EBIDTA margins in 4QFY10 due to rising rubber prices.
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