Target: ₹315

CMP: ₹272.35

JK Tyre Industries Ltd (JKI) is the flagship company of JK Organisation and is the country’s third largest and globally among top 25 tyre makers. The company’s product portfolio includes automotive tyres for two-wheelers (2W), three-wheelers (3W), passenger cars, utility vehicles (UVs), trucks & buses and off-the-highway (OHT) vehicles.

Though, we expect a slowdown in the M&HCV industry in FY25, leading to lower OEM sales for the tyre industry, we expect replacement demand to revive H2-FY24 onwards after a muted performance over the past 1.5 years and expect a rebound in the exports markets hereon. JKI has been steadily gaining share during the last 2-3 years. We believe that overall market share improvement of 50-60 bps over the last three years for JKI.

With new product launches, better quality and brand equity improvement, the company has witnessed better pricing and margins over the past three years. Its consolidated EBITDA margins improved from pre-Covid 10.7 per cent in FY19 to current 12.3 per cent in Q1-FY24.

Its improved brand image, better margins, debt reduction-led better balance sheet position and controlled capex are key triggers for valuation expansion.

Therefore, we initiate coverage on JKI with a Buy rating and a target price of ₹315. We value the stock at 10x FY25.