JK Tyre is a leading manufacturer of tyres in India with presence across commercial vehicles (CV’s), passenger vehicles (PV’s) and two-wheeler tyres. It commands a dominant 32% market share in the truck and bus radial (TBR) segment. The company derives ~87%/13% of its revenues from Indian/Mexican markets.
Outlook and Valuation: While FY18 was a tough year for the company due to GST implementation (limited company’s ability to take price increase apart from destocking by the dealers) and increase in raw material cost (natural rubber dented margin in Q1FY18), we expect things to materially improve from FY19E onwards driven by strong demand which will enable the company to take price increase to offset the impact of input cost pressures. We continue to maintain BUY rating on the stock with revised rolled over TP of Rs. 152 based on 6x FY20E EV/EBITDA.
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