Emkay Global Financial's research report on JK Tyre
JKI’s Q3FY25 performance was significantly impacted by high-cost inventory (major hit in Q3; guided to partial reversal in Q4) along with subdued demand from CV OEMs; this resulted in a largely flattish consolidated revenue performance. Further, consolidated EBITDA margin declined by ~300bps sequentially to 8.6% due to sustained rise in cost of RMs (particularly, natural rubber) and an additional impact of a strategic inventory build-up seen in Q3. The underlying demand is seen gradually improving from Q4FY25. This, coupled with partial reversal of RM costs, would aid performance in Q4FY25. To reflect the high RM costs as well as gradual recovery in demand (particularly in CVs), we sharply cut FY25E/26E/27E consolidated EPS by 19%/15%/11%, respectively. At FY26E/FY27E PER of 9.8x/8x, valuations appear reasonable and, hence, we maintain BUY
Outlook
while slashing our TP by 13% to Rs500, at 14x Dec-26E PER (vs 15x earlier). Fall in RM costs and/or major improvement in underlying CV demand would be key stock-price catalysts.
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