Target: ₹150

CMP: ₹123.05

JK Tyre has delivered a subdued performance in Q4-FY22, with EBITDA margin coming in at 6.9 per cent (down 865 bps y-o-y and 201 bps q-o-q), vs our estimate of 9 per cent, primarily impacted by higher commodity cost. Lower margin performance in India and Mexico business impacted profitability.

Its consolidated revenue grew by 13 per cent y-o-y and 8 per cent q-o-q to ₹3,310 crore, broadly in line with our estimate of ₹3,290 crore, while EBITDA fell by 50 per cent y-o-y and 17 per cent q-o-q to ₹230 crore as against our estimate of ₹290 crore due to higher raw material cost.

Looking ahead, the management has guided for near-term margin pressure for India business, while its Mexico operation would see a better traction and healthy margins. We expect JK Tyre’s consolidated revenue to grow in double digit in FY23E due to better volumes and regular price hikes.

In view of the strong product basket, regular price hikes, likely revival in replacement demand, healthy export potential, margin expansion in India as well as Mexico operations and attractive valuation at 6.9x FY24, we reiterate our Buy rating on JK Tyres with a revised target price of ₹150 (vs earlier ₹191), valuing the stock at a revised P/E multiple of 8.5x.