JK Tyre & Industries Ltd. - HDFC securities

JK Tyre & Industries Ltd.

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Initiating Coverage

JK Tyre & Industries Ltd. 27-October-2020


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Industry LTP Recommendation Base Case Fair Value Bull Case Fair Value Time Horizon

Auto Tyres Rs 72.5 Buy in the band of Rs 64.5-66.5 and add more on dips to Rs 58-60 Rs 74 Rs 83 2 quarters

Our Take JK Tyre & Industries (JKTI) caters to the various user segments including truck & bus (both bias and radial tyres), LCV (bias & radial), Passenger car radial (PCR), farms, off-the-road tyre radials (OTR) with highest revenue contribution from the TBR segment (55% of revenues). JKTI has a widespread distribution network across the country with around 5,000 dealers, 360 distributors and 6,000 touch points. The company also has about 408 exclusive passenger car tyre retail outlets by the name of Steel Wheels and 173 Xpress Wheels for small town and semi-urban markets which also caters to two & three wheelers. It also has 49 fully equipped tyre service centres offering total tyre solutions, called JK Tyre Truck Wheels. Over the years, apart from JK Tyre Truck Wheels service centres, JKTI had taken several initiatives to improve the quality of service such as Fleet Management, and JK Tyre Care centres which offer one-stop solution for truck/bus tyre customers. Company outperformed in both 2-3 Wheelers and OTR segment in India in FY20. It registered 30% growth in 2-3 Wheelers as against ~6% decline in the segment and recorded 20% growth in the OTR as against 2% growth in India. Company registered robust performance in Q2FY21 across all fronts. Focus on working capital management and reduction in fixed costs (~20% down) helped to register better margins during the quarter. Management said that they want to do optimum utilisation of the existing capacities, therefore has cut all capex plans for FY21. Company plans to cut its debt by Rs 1,800cr over the next 3 years. Company has reduced debt by Rs 660cr led by better working capital management in H1FY21. Management said that they target Net Debt/EBITDA < ~3x in the medium term. Company expects better realisations on the back of better product mix and cost efficiency. JKTI has been focusing on TBR segment and witnessed steady pace of radialisation in the past few years. TBR segment commands around 20% premium over bias tyres which has driven steady profitability despite fall in revenues in the past. There has been continued increase in revenue contribution from relatively higher margin radial tyres whose proportion in the overall revenue has increased from 58% in FY16 to 64% in FY20. JKTI has launched a new product called Smart Tyre, which is widely aimed at two, three, four and even 16-wheeled vehicles. Company had acquired Treel Mobility, a connected technology company. They have used sensors made by Treel as part of the tyre pressure as well as temperature monitoring system. Treel keeps the driver continuously informed of the five most important variables: tyre temperature and pressure, road condition, road hazards and tyre wear.

HDFC Scrip Code JKTYREEQNR

BSE Code 530007

NSE Code JKTYRE

Bloomberg Code JKI: IN

CMP Oct 26, 2020 72.5

Equity Capital (Rs cr) 49.3

Face Value (Rs) 2

Equity Share O/S (cr) 24.6

Market Cap (Rs cr) 1785

Book Value (Rs) 95

Avg. 52 Wk Volumes 2528615

52 Week High 87.7

52 Week Low 31.5

Share holding Pattern % (Sep, 2020)

Promoters 56.2

Institutions 10.7

Non Institutions 33.1

Total 100.0

Fundamental Research Analyst Kushal Rughani [email protected]

mailto:[email protected]


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With the imposition of additional import duties along with the earlier anti-dumping duty on Chinese imports of cheaper tyres, domestic players have benefited a lot. Being the cheapest and largest player in India’s truck & bus radial (TBR) tyre replacement market, JKTI is likely to be the biggest beneficiary (as visible in Q2 FY21) of this slowdown in Chinese imports.

Valuation & View We forecast Revenue/EBITDA/PAT CAGR of ~6%/9%/35% over FY20-22E, backed by strong replacement demand and improvement in OEM sales. We project 70bps margin expansion led by change in product mix and operational efficiencies over FY20-22E. Healthy revenues, better operating performance and lower interest expenses would drive 35% PAT CAGR over the same period. Company has adequate capacity in place to serve demand for the medium term, therefore incremental capex needs appear limited. Company had recorded capacity utilization levels of around 70% in FY20. Deleveraging progress would be very important for the company as it has a highly levered B/S (debt/equity > 2x as of FY20). Factoring in the current situation and high leverage on books, we value the stock at ~40% discount to its peers. We feel that investors can buy the stock on dips to Rs 64.5-66.5 band (6x FY22E EPS) and add more on dips to Rs 58-60 band (5.3x FY22E EPS) for base case fair value of Rs 74 (6.7x FY22E EPS) and bull case fair value of Rs 83 (7.5x FY22E EPS) over the next two quarters.

Financial Summary (Consolidated) Particulars (Rs cr) Q2 FY21 Q2 FY20 YoY (%) Q1 FY21 QoQ (%) FY19 FY20 FY21E FY22E

Total Revenues 2275 2155 5.6 1131 101.1 10,368 8,725 8,249 9,751

EBITDA 355 296.3 19.8 -4 -8975.0 1112 988 975 1168

Depreciation 96.5 91.6 5.3 96.7 -0.2 316 378 393 412

Other Income 11.7 6.7 74.6 7.3 60.3 84 28 34 41

Interest Cost 123.5 139.6 -11.5 130.6 -5.4 521 549 479 427

Tax 58.4 -140 -141.7 -54.5 -207.2 100 -167 36 96

APAT 105 170 -38.2 -199 -152.8 260 151 104 274

EPS (Rs) 7.2 6.1 4.2 11.1

RoE (%) 8.3 6.5 4.4 10.8

P/E (x) 10.1 11.8 17 6.5

EV/EBITDA (x) 5.3 5.9 6.0 5.0 (Source: Company, HDFC sec)


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Q2FY21 result highlights Revenues for the quarter grew 5.5% yoy at Rs 2275cr despite weak OEM demand in Commercial Vehicles during the quarter. India business registered ~11% yoy rise in revenues at Rs 2041cr. Mexico revenues declined by 18% yoy at Rs 278cr. Company reported operating margin at almost four years high at 15.6% (+190bps yoy) led by lower employee costs and other expenses. PBT surged to Rs 167cr as against Rs 22cr a year ago. Reported PAT for the quarter dipped 38% yoy at Rs 105cr. Company had tax write back of Rs 140cr in Q2FY20. Short term borrowings reduced by around Rs 660cr on the back of better working capital management. Management said that margins can sustain around these levels in the coming quarters. Import restriction on Truck Bus Radial and Passenger Vehicle tyres also helped company to register strong growth. Domestic business grew 11% yoy while replacement business increased 22% in the second quarter. Truck & Bus replacement business grew strong at 27% while Farm business registered 57% yoy growth. Rural market has witnessed strong growth in the quarter. As per the management the company has added 900 dealors in Apr- Sept and has a total of 6000 touch points. All the segments except CV has seen sharp improvement on QoQ basis. Company said that pick up in commercial vehicle (CV) sales would further lead to better revenues. Focus on working capital management and reduction in fixed costs (~20% down) helped to register better margins during the quarter. Company had cut expenses for top executives 50%, next level at 40% and third level at 30% for Apr-Sep 2020 period. Despite strict lock down in Mexico, the company has registered healthy growth from Mexican operations. The facilities in Mexico are operating at almost 100% capacity. Company exports to North America and South America from the facilities. Company is taking full advantage of anti-dumping duty posed by US on China. Management said that they want to do optimum utilisations of the existing capacities, therefore no capex is planned in the medium term. Company plans to cut its debt by Rs 1800cr over the next 3 years. Company has reduced debt by Rs 660cr led by better working capital in H1FY21. Management commented that they target Net Debt/EBITDA < ~3x in the medium term. Company expects better realisations on the back of better product mix and cost efficiency. The tyre industry witnessed pent up demand in the quarter, however now it is getting normalized. Management said that if there is bigger and steady rise in raw materials prices, then they may look at price hike.


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The subsidiary of the company (Cavendish Industries) provided Q2FY21 results and it was strong considering the situation. Cavendish lndustries has recorded net sales of Rs.667 crores for the second quarter. EBIDTA was at Rs.114 crores reflected in an operating margin of 17% and PBT came in at Rs.53 crores. It recorded its highest ever performance on back of higher capacity utilization of 84% with significant increase in Truck/Bus Radial and 2-3 Wheeler tyre sales. Aggressive focus on cost reduction particularly fixed costs and overall operating parameters helped improve its cash flows. Going forward, JKTI has planned to increase its revenue share from replacement market and export market. The company has entered new geographies which has led to increased replacement sales. Company has started focusing on increasing channel partners and distributors. In the last financial year company has added 250 new channel partners and also added new OEM customers such as Hyundai (Creta), KIA motors and Maruti Suzuki (Swift).

Key Triggers Cheap Chinese imports not a concern now China’s tyre industry is the largest in the world and exports by them into India was a big cause of concern for the domestic tyre manufacturers. Chinese radial tyres were 25-30% cheaper than those manufactured in India and have thus captured a large chunk of the replacement market. Massive surplus capacities and export subsidies in China led to tyres being dumped in the Indian replacement market. Chinese TBRs were priced at around Rs 14,000; Indian TBRs started at a much higher at Rs 18,000. Thus, despite a growing market, domestic players struggled to gain volume share in the TBR replacement market. In Sep-19, the Indian government imposed additional countervailing duties on Chinese tyre imports for a period of five years, over and above the existing anti-dumping duty and consequently, this price differential has narrowed to less than 10%, creating a more level playing field for Indian tyre manufacturers. JK Tyres being one of the largest player in the TBR space with dominant presence in the replacement market is likely to benefit with lower Chinease imports in India. Domestic demand to remain firm Following 5% demand growth during FY15-20, we now expect domestic tyre demand to log 5-7% revenue CAGR through FY20-23E aided by steady replacement market growth, rebound in OEM demand post FY21 and continued lower imports of cheap Chinese truck & bus radials (TBR) due to duty imposition. We believe truck, bus and passenger vehicle tyres would lead growth, with added support from the


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two- and three-wheeler segments. In our view, demand will be relatively immune to Covid-19 headwinds due to the large replacement market for tyres (around 70% of industry sales). Established brand with diversified product portfolio and wide distribution network JK Tyre caters to the various user segments including truck & bus (bias and radial tyres), LCV, PCR, farms, off-the-road tyre radials (OTR) with highest revenue contribution from the TBR segment. JKTI has a widespread distribution network across the country with around 4,600 dealers and 360 distributors. The company also has over 408 exclusive passenger car tyre retail outlets by the name of Steel Wheels and 173 Xpress Wheels for small town and semi-urban markets which also caters to two-three wheelers. It also has 49 fully equipped tyre service centres offering total tyre solutions, called JK Tyre Truck Wheels. Over the years, apart from JK Tyre Truck Wheels service centres, JKIL had taken several initiatives to improve the quality of service such as Fleet Management, ‘and JK Tyre Care centres which offer one-stop solution for truck/bus tyre customers. Company derived ~17% of its standalone revenues from export business. JKTI has been focusing on TBR segment and witnessed steady pace of radialisation in the past few years. TBR segment commands around 20% premium over bias tyres which has driven steady profitability despite fall in revenues in the past. There has been continued increase in revenue contribution from relatively higher margin radial tyres whose proportion in the overall revenue has increased from 58% in FY16 to 64% in FY20. Company’s clientele in TBR include Tata Motors, Ashok Leyland, Bharat Benz, Volvo, Scania, JBM and Mahindra. In the Passenger Cars segment, JKTI has clients such as Maruti Suzuki, Hyundai, Mahindra and Honda. In the tractors segment, the company has partnership with Mahindra & Mahindra (M&M), TAFE, Escorts, John Deere, Sonalika and Eicher. Smart Tyre – unique fusion of IoT, AI and Machine Learning JK Tyres has launched a new product which is widely aimed at two, three, four and even 16-wheeled vehicles. It is called the Smart Tyre. JK Tyre had acquired Treel Mobility, a connected technology company. They have used sensors made by Treel as part of the tyre pressure as well as temperature monitoring system. Treel keeps the driver continuously informed of the five most important variables: tyre temperature and pressure, road condition, road hazards and tyre wear. Tyres are the most ignored part of the vehicle will not have to be monitored by physically checking the condition. Instead, one can rely on the app’s pop-up alerts as well as timely interventions.


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More often it happens that we forget to check their vehicle tyre pressure regularly. This leads to incorrect tyre pressure and hence bursts at higher speed. This was one thought which led to build and market the Treel. At any point of time, on the app (Android and iOS), one can check the tyre pressure as well as temperature. The app is connected to the vehicle sensors through GPS as well as Bluetooth. When one is closer to the car, say around 20-30 metres, the Bluetooth connection takes precedence. Every 60 seconds, the data is sent to the server and back. One gets the tyre related information on a real time basis.

International Business With a presence in 105 countries, the Company’s export performance has continued its strong growth despite intensified global competition in major international markets including North America, Brazil, Europe and countries from the MENA regions. Inspite of challenges on account of growing geopolitical and economic uncertainty in Africa, Latin America and the Middle East, and intense competition from Chinese brands made in China and South East Asia JK Tyre maintained profitable growth in exports with 36% higher revenues during FY20. The demand for JK Tyre brand truck and passenger radials across markets increased substantially. JK Tornel JK Tyre acquired tyre company in Mexico in 2008. It has three manufacturing facilities in Mexico with aggregate capacity to manufacture 7.9 mn tyres annually. JK Tornel has wide products range of Passenger car radial, Truck Bias, Farm & Indutrial Tyres. JK Tornel, Mexico recorded revenues of Rs 1191cr in FY20. However, the profitability was impacted due to lower volumes and depreciated Mexican Peso. As per the management, JK Tornel has turned around post covid, all plants in Mexico are operating at 100% output. Lot of exports are routed to North and South America and the company is fully geared to meet additional demand from USA. It has been taking full advantage of anti-dumping duty from imports through China. Cavendish Industries Cavendish Industries was acquired by JK Tyres in Apr ’16 from Kesoram Industries for Rs. 2195Cr. The company has manufacturing facilities in Haridwar and Balasore. This acquisition enabled JK Tyre to enter in the 2-3 wheeler tyre market. The operations of the company improved quarter on quarter except in the last quarter which was affected due to market disruption on account of Coronavirus. Despite slowdown in the automobile industry, the company achieved turnover of Rs 2221cr, a marginal reduction of 4.1%. However, operating margin remained at 11.7%. The Company achieved significant growth of over 27% in 2/3 Wheeler segment. Cavendish lndustries recorded net sales of Rs.667 crores for the second quarter. EBIDTA was at Rs.114 crores and PBT came in at Rs.53 crores. It recorded its highest ever


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performance on back of higher capacity utilization of 84% with significant increase in Truck/Bus Radial and 2-3 Wheeler tyre sales. JK Tyre along with its subsidiaries hold 85% stake in Cavendish while the balance is held by Valiant. Natural rubber prices continues to rise Natural rubber continued to trade above Rs 150 per kg in Oct-2020, close to the highest level since Jul-2019, bolstered by rising demand for protective rubber gloves used in the medical and health sector and constrained supply due to the coronavirus outbreak. The price of rubber reached at an all-time low of around Rs 95 per kg back in Apr-2020 when several countries across the globe were under strict lockdown measures. Looking ahead, the International Tripartite Rubber Council expects production of natural rubber to drop for the rest of 2020 and into early 2021, due to erratic weather, declining tapping activities. At the same time, consumption is expected to increase further as China, the biggest consumer of natural rubber, accelerates its economic activities post Covid-19 lockdown. Exposure to volatility in the raw material prices and exchange rate movement Raw materials constitute around 60% of the total operating costs. Natural rubber (NR) is the major raw material for manufacturing tyres, constituting 60% of the total raw material costs. Rubber and crude oil are global commodities and prices vary across all international markets. The tyre business is highly sensitive to movement in rubber & crude oil prices. The average price of natural rubber (NR) in FY20 stood at Rs. 124.7 per kg (Rs 127.3 per kg in FY19 and Rs 137.2 per kg in FY18). Rubber prices in India has started to rise from lows of Rs 102 per kg in Apr/May-2020 to Rs 125-130 per kg in Sep-2020 and continues to rise further. While JKTI procures NR primarily from the domestic market, it imports the balance depending on prices in the international market. Other components like carbon black, steel cord and chemicals are both procured domestically and imported. JKTI imports nearly 40-50% of its raw material requirements. JKTI is exposed to exchange rate fluctuation risks as it has significant export income and import payments for raw material requirements, besides having foreign currency loans. During FY20, JKTI’s exports stood at around Rs 1,085 crore and imported raw materials stood at around Rs 1,048 crore. While the natural hedge in its business enables it to partially mitigate the risk, it remains exposed to foreign exchange fluctuation risks on its foreign currency loans, which are not hedged. Its impact is likely to be limited in FY21, given a benign raw material price environment, any rupee depreciation could partly offset the benefit as JKTI imports a significant part of its raw material requirement.


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Industry Outlook India is one of the largest automobile markets in the world, which makes the country one of the leading markets for tyres. The tyre industry is directly affected by the performance of the automobile industry, In FY20, the industry sales witnessed a sharp decline of 14.8% yoy vs. growth of about 7% witnessed during FY19 led by factors such as increased insurance costs, uneven monsoon, high ownership costs, curtailed lending by the NBFC segment, weak festival demand, weak consumer sentiments and the spread of Covid-19. Overall, auto production witnessed a decline of about 15% yoy during FY20 period vs. growth of about 6% during the corresponding period previous year. Commercial vehicles sales declined sharply by about 30% during the year with Medium and Heavy Commercial Vehicles (M&HCVs) sales declining by ~43% and Light Commercial Vehicles (LCVs) sales by around 21% yoy. The nationwide lockdown has also impacted freight demand leaving the transporters with a significant drop in revenues. Passenger vehicles segment witnessed a decline of 15% yoy in sales during FY20. Multi-Utility Vehicles (MUV) segment sales on the other hand, witnessed a marginal growth of 3% yoy during the period led by various new model launches along with additional deals and discounts offered by the dealers and players. Consumer sentiments have remained low since the past 4-5 quarters now, which is evident in the falling automobile sales numbers of commercial vehicles, passenger vehicles and 2 & 3 wheelers. Short term outlook for the overall automobile sector remains gloomy. In FY21, tractors, two-wheelers and passenger vehicles segments are expected to witness faster recovery in demand compared with three-wheelers and commercial vehicles. Key risks Raw material price volatility The prices of raw material consumed by the tyre companies like natural rubber, carbon black, synthetic rubber, etc. are extremely volatile and could impact its margins if the company is not able to pass on the increase in RM costs. JKTI’s raw material costs to sales is the highest among peers. Slowdown in automobile growth The last couple of years have witnessed healthy growth in the automobile industry leading to strong replacement demand for tyres. Any slowdown in the industry (due to covid-19 or other reasons) could result in lower growth for JKTI. Specially, Slower growth in M&HCV tyres may impact revenues.


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High competition from peer companies There is huge competition among the major players in the market and JKTI needs to make continuous efforts for network expansion, consumer tie ups and new product launches. Delay in expanding network could result in loss of market share.

High debt on books and poor return ratios Company had gross debt on books at Rs 5124cr or D/E of 2.2x as on Mar-2020. Company has been able to reduce its short term debt led by better working capital cycle management. It is to be seen whether it continues to remain at similar levels. It pays interest expenses of around Rs 500cr annually. Return ratios for JKTI have been low due to low PAT margin (High depreciation and interest expenses) and low sales to fixed assets ratio.

Company Background JK Tyre & Industries has been engaged in tyre manufacturing since 1975 and is among the leading tyre manufacturers in India. After pioneering passenger car radialization (PCR) in 1977, the company accelerated the pace of radialisation in India and remains a market leader in the TBR segment. JKTI established its first tyre manufacturing facility in Kankroli, Rajasthan, in 1975 with an installed capacity of 5 lakh tyres per annum (p.a.). JK Tyre is one of India’s leading tyre manufacturers and also among the top 25 tyre manufacturers in the world. The Company is also respected as one of ‘greenest’ tyre companies in the world, especially in the area of raw water consumption per unit of production, green-house gas emissions and energy consumption. Company spends around 1% of its revenues on R&D expenditure. In Apr-2016, JK Tyre said that it has completed acquisition of Cavendish Industries (Kesoram Industries unit) for an EV of Rs 2200cr. The facilities are located at Laksar (Haridwar), which manufactures a range of tyre, tubes and flaps. The acquisition had been funded through a combination of internal accruals and debt. Its brands include JK Tyre, Vikrant, Tornel, Challenger and Blaze. The company is engaged in the manufacture and marketing of automotive tyres, tubes and flaps. Its products comprise Truck/Bus Radial & Bias, Passenger car radials, 2/3 wheeler tyres, LCV & SCV Bias & Radial, Off-Highway Tyres (OTR and Farm), as well as speciality tyres for Racing, Military/Defence, Industrial and Farm applications. JK Tyre’s manufacturing operations comprise 12 manufacturing facilities. The company has nine facilities in India (three plants in Mysuru, three plants in Haridwar and one plant each in Banmore, Kankroli and Chennai) with capacity of 24.4mn tyres annually and three plants in Mexico (~7.9mn tyres p.a.) - an aggregate production capacity of ~32 million tyres per annum. The Company markets products through a nationwide network of 4600 dealers and 600 dedicated brand shops known as Steel Wheels, Xpress Wheels and Truck Wheels, providing complete solutions to customers. About 61% of sales come from


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M&HCV, 24% from PCR, 6% from 2/3w and rest from others. JKTI has ~22% market share in M&HCV and LCV in India, 9% in PCR. 63% of its sales come from Replacement market, 19% from OEM and balance from Exports. Peer Comparison (FY20)

Company CMP Mcap

(Rs cr) Revenues

(Rs cr) Operating

Profit (Rs cr) OPM

(%) PAT (Rs

cr) RoE (%)

RoCE (%)

D/E (x)

EV/EBITDA (x)

P/E (x)

Ceat 1127 4561 6779 723 10.7 231 8.8 10.5 0.7 9.1 19.6

JK Tyre & Industries 73 1794 8725 988 11.3 151 6.5 7.2 2.2 5.9 11.8

Apollo Tyres 148 8469 16327 1935 11.9 476 5.3 5.0 0.7 7.9 18.0

MRF 63223 26814 16237 2382 14.7 1423 12 12.8 0.2 11.5 19.0 Source: Company, HDFC sec Research

Revenues Mix (%) Revenues Split (%) Debt and D/E to see steady decline

Source: Bloomberg, HDFC sec Research

55

25

5

15

Truck & Bus PV & LCV 2/3 W Others

68

17

15

Replacement OEM Exports

5376

4989

52225124

4509

4182

2.7 2.5

2 2.2

1.91.6

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3500

4000

4500

5000

5500

FY17 FY18 FY19 FY20 FY21EFY22E

Rs

cr

Gross Debt D/E (x)


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Natural Rubber prices on rise Production & Capacity Utilisation

RSS 4 (Kottayam) Rubber Price Trend Synthetic Rubber Korea Price Trend China Carbon Black Price Trend

Source: Bloomberg, HDFC sec Research

100

125

150

175

200

225

250

275

Oct

-16

Jan

-17

Ap

r-1

7

Jul-

17

Oct

-17

Jan

-18

Ap

r-1

8

Jul-

18

Oct

-18

Jan

-19

Ap

r-1

9

Jul-

19

Oct

-19

Jan

-20

Ap

r-2

0

Jul-

20

Oct

-20

Rubber (JPY/kg)

275853

289677300093

255439

80

82

85

70

20

40

60

80

100

200000

220000

240000

260000

280000

300000

320000

FY17 FY18 FY19 FY20

MT

Production Capacity Utilisation (%)

8000

10000

12000

14000

16000

18000

23

-Oct

-15

23

-Ap

r-1

6

23

-Oct

-16

23

-Ap

r-1

7

23

-Oct

-17

23

-Ap

r-1

8

23

-Oct

-18

23

-Ap

r-1

9

23

-Oct

-19

23

-Ap

r-2

0

23

-Oct

-20

RSS4 (Kottayam) (Per 100 kg)

50

100

150

200

250

23

-Oct

-15

23

-Ap

r-1

6

23

-Oct

-16

23

-Ap

r-1

7

23

-Oct

-17

23

-Ap

r-1

8

23

-Oct

-18

23

-Ap

r-1

9

23

-Oct

-19

23

-Ap

r-2

0

23

-Oct

-20

Synthetic Rubber Korea (Rs./Kg)

4000

5000

6000

7000

8000

9000

10000

23

-Oct

-15

23

-Ap

r-1

6

23

-Oct

-16

23

-Ap

r-1

7

23

-Oct

-17

23

-Ap

r-1

8

23

-Oct

-18

23

-Ap

r-1

9

23

-Oct

-19

23

-Ap

r-2

0

23

-Oct

-20

China Carbon Black CNY/MT


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Financials Income Statement (Consolidated)

Balance Sheet

(Rs Cr) FY18 FY19 FY20 FY21E FY22E

As at March FY18 FY19 FY20 FY21E FY22E

Total Income 8272 10368 8725 8249 9751

SOURCE OF FUNDS

Growth (%) 8 25.3 -15.8 -5.5 18.2

Share Capital 45.4 49.3 49.3 49.3 49.3

Operating Expenses 7535 9256 7737 7275 8582

Reserves 1916 2235 2282 2373 2608

EBITDA 737 1112 988 975 1168

Shareholders' Funds 1961 2284 2331 2422 2657

Growth (%) -35 50.7 -11.1 -1.4 19.9

Long Term Debt 3127 3317 3150 2930 2730

EBITDA Margin (%) 9 10.7 11.3 11.8 12

Net Deferred Liabilities 381 410 203 203 203

Depreciation 300 316 378 393 412

Long Term Provisions & Others 443 482 700 743 786

EBIT 438 797 611 582 756

Minority Interest 142 136 95 95 95

Other Income 146 84 28 34 41

Total Source of Funds 6053 6630 6479 6393 6470

Exceptional Items -11 -89 -106 - -

APPLICATION OF FUNDS

Interest 466 521 549 479 427

Net Block 6184 6245 6455 6243 6180

PBT 118 360 -16 137 370

Intangibles 261 247 205 205 205

Tax 44 100 -167 36 96

Long Term Loans & Advances 316 332 348 296 212

RPAT 74 260 151 104 274

Total Non-Current Assets 6760 6823 7008 6743 6597

Growth (%) -83 167 -12 -31 164

Inventories 1449 1689 1618 1469 1683

EPS 2.9 7.2 6.1 4.2 11.1

Trade Receivables 1545 1945 1848 1684 1918

Cash & Equivalents 131 170 137 82 91

Other Current Assets 650 642 603 633 582

Total Current Assets 3774 4446 4205 3868 4274

Short-Term Borrowings 1862 1904 1974 1579 1453

Trade Payables 1166 1599 1688 1489 1695

Other Current Liab & Provisions 1435 1116 1047 1120 1221

Short-Term Provisions 20 20 25 30 33

Total Current Liabilities 4482 4639 4734 4218 4401

Net Current Assets -708 -193 -529 -350 -127

Total Application of Funds 6053 6630 6479 6393 6470

Source: Company, HDFC sec Research


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Cash Flow Statement

Key Ratios (Rs Cr) FY18 FY19 FY20 FY21E FY22E

FY18 FY19 FY20 FY21E FY22E

Reported PBT 108 270 -17 140 370

PROFITABLITY

Non-operating & EO items -417 -386 -28 -34 -41

EBITDA Margin 8.9 10.7 11.3 11.8 12

Interest Expenses 466 521 549 479 427

EBIT Margin 5.3 7.7 7 7.1 7.8

Depreciation 300 316 378 393 412

APAT Margin 0.8 1.6 1.7 1.3 2.8

Working Capital Change 734 -475 302 -233 -215

RoE 3.4 8.3 6.5 4.4 10.8

Tax Paid -44 -100 167 -36 -96

RoCE 5.5 9.3 7.2 7.2 9.5

OPERATING CASH FLOW ( a ) 1146 146 1350 708 857

Solvency Ratio

Capex -597 -339 -465 -180 -350

Net Debt/EBITDA (x) 6.6 4.5 5 4.5 3.5

Free Cash Flow 549 -193 885 528 507

D/E 2.5 2.3 2.2 1.9 1.6

Investments -85 -31 -46 52 84

Interest Coverage 0.9 1.5 1.1 1.2 1.8

Non-operating income 146 84 28 34 41

PER SHARE DATA

INVESTING CASH FLOW ( b ) -536 -286 -482 -94 -225

EPS 2.9 7.2 6.1 4.2 11.1

Debt Issuance / (Repaid) -476 274 -126 -177 -157

CEPS 16.1 20 21.5 20.2 27.9

Interest Expenses -466 -521 -549 -479 -427

BV 86.5 92.8 94.7 98.3 107.9

FCFE -392 -441 210 -127 -77

Dividend 1.5 1.5 0.7 0.5 1.5

Share Capital Issuance/MI -3 -2 -42 0 0

Turnover Ratios (days)

Dividend -42 -45 -20 -13 -39

Debtor days 68 68 77 75 72

FINANCING CASH FLOW ( c ) -987 -294 -737 -669 -623

Inventory days 61 55 69 65 63

NET CASH FLOW (a+b+c) -377 -434 131 -55 9

Creditors days 63 68 90 84 81

VALUATION

P/E 24.6 10.1 11.8 17 6.5

P/BV 0.8 0.8 0.8 0.7 0.7

EV/EBITDA 7.9 5.3 5.9 6 5

EV / Revenues 0.7 0.6 0.7 0.7 0.6

Dividend Payout (%) 51.3 21 11.4 11.9 13.5

Dividend Yield (%) 2.1 2.1 1 0.7 2.1

Source: Company, HDFC sec Research

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Disclosure:

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JK Tyre & Industries Ltd. - HDFC securities

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