Buy JK Tyre & Ind; target of Rs 166: Angel Broking

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Buy JK Tyre & Ind; target of Rs 166: Angel Broking

Angel Broking is bullish on JK Tyre & Ind and has recommended buy rating on the stock with a target of Rs 166 in its January 25, 2011 research report.

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RELATED NEWS Buy Bharat Bijlee; target of Rs 1350: Emkay Buy Asian Paints; target of Rs 3000: Prabhudas Lilladher Buy ICICI Bank; target of Rs 1325: KRChoksey ALSO READ See previous views by Angel Broking See what other Experts & Brokerages are saying about JK Industries See messages about JK Industries JK Tyre & Ind BSE | NSE 30/05/12 Are Mutual Funds betting on JK Tyre & Ind?

Angel Broking is bullish on JK Tyre & Ind and has recommended buy rating on the stock with a target of Rs 166 in its January 25, 2011 research report.

"JK Tyre reported robust 46.9% yoy growth in its top line to Rs 1,179 crore (Rs 802 crore) during 3QFY2011. On a sequential basis, the company's revenue grew by 3.5%. In tonnage terms, JK Tyre registered ~27% yoy growth in volume, while net sales realisation grew by ~17% during the quarter. During 3QFY2011, the company hiked its product prices by 2-3% to pass on the increase in raw-material costs. On the utilisation front, JK Tyre operated at higher utilisation levels of ~93%."

"During 3QFY2011, operating profit declined by 36% yoy to Rs 61.9 crore (Rs 96.8 crore) on account of contraction in operating margin. The company's operating margin dipped substantially by 681bp yoy and 89bp qoq, primarily due to the unabated and unprecedented spurt in rubber prices, leading to a significant 901bp yoy increase in raw-material costs at 71.3% (62.3%) of sales in 3QFY2011. However, margin erosion was arrested by a 175bp and 40bp yoy reduction in staff cost and other expenditure, respectively. The average procurement price of rubber for the company stood at Rs 194/kg during the quarter, compared to Rs 177/kg in 2QFY2011 and Rs 119/kg in 3QFY2010. Since 2QFY2010, JK Tyre has hiked its product prices by ~23% and has guided subsequent price hikes as rubber prices continue to inch upwards."

"KK Tyre recorded a 74.9% yoy and 54.7% qoq decrease in net profit to Rs 9.1 crore (Rs 36.5 crore) during the quarter, primarily on account of operating margin contraction. Further, higher interest expense during the quarter led to a decline in net profit. As a result, net profit margin contracted by 379bp yoy and 100bp qoq to 0.8% (4.5%).  We estimate JK Tyre to post EPS of Rs 22.1 for FY2011E and Rs 34.5 for FY2012E. At Rs 118, the stock is available at attractive valuations of 5.3x and 3.4x FY2011E and FY2012E earnings, respectively. Due to the recent correction in the stock price, we recommend Buy on the stock with a target price of Rs 166, valuing the company at 4.8x (40% discount to market leader Apollo Tyres' multiple of 8x) FY2012E earnings. At our target price, JK Tyre will trade at 0.6x and 4.2x FY2012E P/B and EV/EBIDA, respectively," says Angel Broking research report. 

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To read the full report click on the attachment