Lower sales hinder performance, maintain BUY

November 2, 2010

Reco Buy CMP Rs 162

Previous Reco Buy Target Price Rs 195

-19/-3 -5 6,118 20,356

Results below est. due to lower tonnage offtake. Tonnage

sales at 64,000 tons (+1.5% YoY and -8% QoQ), despite QoQ increase in utilization rate by 100 bps to 93% hinder rubber prices. High rubber prices (> Rs 190/kg) remains a concern. Price hikes are necessity to protect margins

EBIDTA per ton improve 11% QoQ despite 10% increase in

EPS change FY11E/12E (%) Target Price change (%) Nifty Sensex

Capacity expansion plans on course with total capex of ~ Rs

Price Performance
(%) Absolute Rel. to Nifty
Source: Bloomberg

24 over next four to five years. Capex in first phase is Rs 930 mn funded in the ratio of 2:1 D/E
Lower our FY11E EPS by 19% to Rs 26.9 due to higher rubber

1M (16)

3M (1)

6M 12M (17) 9

(16) (14) (30) (16)

prices. Expect price hike with a lag, fine tune or FY12 EPS to Rs 39.5 (-3%). Retain BUY with a TP of Rs 195

Relative Price Chart

225 Rs % 30 200 20

Sales below estimate due to lower offtake

JK Tyre reported standalone net sales of Rs 114 (est. Rs 12.6bn). This is due to lower tonnage sales (63951 tons 1.5% YoY/-8.5% QoQ) against our est of 71,000 tons. Management did not share financials of Tornel, except that Tornel has reported marginal profits at PAT level

175

10

150

125

-10

100 Nov-09

-20 Dec-09 Feb-10 Apr-10 May-10 Jul-10 Sep-10

EBIDTA EBIDTA per ton improves QoQ

JKT reported standalone EBIDTA of Rs 745mn (est of Rs 911mn). This is largely attributable to lower tonnage sales. RM to sales stood at 71.4% was lower than our est. of 71.7%. Average rubber cost for the quarter stood at Rs 177 per kg (against Rs 160 per kg in 1QFY11). Per ton analysis - standalone
Particulars Tonnage sold Sales RM Staff Other Expenses EBIDTA Q2FY10 63000 149,427 89,483 11,327 26,881 21,737 Q3FY10 51500 155,728 97,907 11,860 27,171 18,790 Q4FY10 66487 157,557 107,865 9,485 28,300 11,908 Q1FY11 69596 167,819 121,934 9,189 26,191 10,505 Q2FY11 63951 178,022 127,079 10,844 28,450 11,650

JK Tyre (LHS)

Rel to Nifty (RHS)

Source: Bloomberg

Stock Details
Sector Bloomberg Equity Capital (Rs mn) Face Value(Rs) No of shares o/s (mn) 52 Week H/L Market Cap (Rs bn/USD mn) Daily Avg Volume (No of sh) Daily Avg Turnover (US$mn)

Auto Ancillaries JKI@IN 411 10 41 236/144 7/157 447734 1.9

Shareholding Pattern (%)

S10 Promoters FII/NRI Institutions Private Corp Public
Source: Capitaline

J10 47.0 9.7 11.4 17.8 14.3

M10 47.0 5.7 10.9 20.0 16.5

Source: Company, Emkay Research

47.0 9.4 8.9 20.0 14.8

Net Profit at Rs 202mn, against expectation of Rs 331mn

Disappointing operating performance and higher interest cost (by RS 100mn) resulted in below expected net profit. Tax rate for the quarter was 35%. Financial Snapshot (Consolidated)
YEMar FY09 FY10P Net Sales 55,227 45,706 58,099 65,848 EBITDA (Core) 2,525 5,024 3,748 4,697 (%) 4.6 11.0 6.5 7.1 APAT -203 2,087 1,105 1,623 EPS (Rs) (4.9) 50.8 26.9 39.5 (47.0) 46.9 EPS % chg RoE (%) (4.4) 32.1 14.0 17.8 P/E (41.4) 4.0 7.6 5.2 EV/ EBITDA 6.0 3.7 3.7 4.0 P/BV 1.3 1.1 1.0 0.9

Chirag Shah chirag.shah@emkayglobal.com +91 22 612 1252

FY11E FY12E

Emkay Global Financial Services Ltd

Result Update

JK Tyres & Industries Ltd

JK Tyres & Industries Ltd.

Result Update

Valuation & view

We have lowered our consolidated FY11E and FY12E EPS by 19% and 3% to Rs 26.9 and Rs 39.5 per share respectively. We have lowered our target price to Rs 195 (earlier Rs 205). We maintain our BUY rating on the stock.
FY11E Particulars Net Sales (Rs mn) EBIDTA (Rs mn) EBIDTA margins (%) Net profits (Rs mn) Earlier 58,988 4,117 7.0 1,367 Revised 58,099 3,748 6.5 1,105 (19.2) % change (1.5) (9.0) Earlier 63,742 4,613 7.2 1,671 FY12E Revised 65,848 4,697 7.1 1,623 (2.9) % change 3.3 1.8

Quarterly Result Summary - Standalone

Rs mn Revenue Expenditure as % of sales Consumption of RM as % of sales Employee Cost as % of sales Other expenditure as % of sales EBITDA Depreciation EBIT Other Income Interest PBT Total Tax Adjusted PAT (Profit)/loss from JV's/Ass/MI Adjusted PAT after MI Extra ordinary items Reported PAT Reported EPS Q2FY10 9,414 8,045 85.5 5,637 59.9 714 7.6 1,694 18.0 1,369 222 1,147 2 234 915 320 595 595 595 14.5 Q3FY10 8,020 7,052 87.9 5,042 62.9 611 7.6 1,399 17.4 968 223 745 1 208 538 173 365 365 365 8.9 Q4FY10 10,476 9,684 92.4 7,172 68.5 631 6.0 1,882 18.0 792 223 569 1 187 383 115 267 267 267 6.5 Q1FY11 11,680 10,948 93.7 8,486 72.7 640 5.5 1,823 15.6 731 223 508 2 208 301 106 195 195 195 4.7 Q2FY11 11,385 10,640 93.5 8,127 71.4 694 6.1 1,819 16.0 745 227 518 1 207 312 110 202 202 202 4.9 (66.1) (66.1) 3.5 3.5 (66.1) 3.5 (65.9) (65.6) (66.1) 3.5 3.5 3.5 (45.6) 2.3 (54.9) (13.3) 1.9 1.8 1.9 (13.3) 7.4 (0.2) (2.8) 8.4 44.2 (4.2) YoY (%) 20.9 32.3 QoQ (%) (2.5) (2.8) YTD11 23,064 21,588 93.6 16,613 72.0 1,333 5.8 3,642 15.8 1,476 451 1,025 3 415 613 216 397 397 397 9.7 YTD10 18,421 15,985 86.8 11,483 62.3 1,298 7.0 3,204 17.4 2,436 414 2,022 7 492 1,537 534 1,003 1,003 1,003 24.4 (60.4) (60.4) (60.4) (39.4) 8.9 (49.3) (57.6) (15.6) (60.1) (59.5) (60.4) 13.7 2.7 44.7 YoY (%) 25.2 35.1

Margins (%) EBIDTA EBIT EBT PAT Effective Tax rate 14.5 12.2 9.7 6.3 35.0 12.1 9.3 6.7 4.5 32.2 7.6 5.4 3.7 2.6 30.1 6.3 4.3 2.6 1.7 35.2 6.5 4.5 2.7 1.8 35.2

(bps) (800.3) (763.9) (698.1) (454.8) 28.5

(bps) 28 20 16 10 (0) 6.4 4.4 2.7 1.7 35.2 13.2 11.0 8.3 5.4 34.8

(bps) 690 680 760 520 1790

Emkay Research

2 November 2010

JK Tyres & Industries Ltd.

Result Update

Key Financials - Consolidated

Income Statement
Y/E, Mar (Rs. mn) Net Sales Growth (%) Expenditure Materials Consumed Employee Cost Other Exp EBITDA Growth (%) EBITDA margin (%) Depreciation EBIT EBIT margin (%) Other Income Interest expenses PBT Tax Effective tax rate (%) Adjusted PAT Growth (%) Net Margin (%) (Profit)/loss from JV's/Ass/MI Adjusted PAT after MI E/O items Reported PAT Growth (%) FY09 55,227 96.1 52,702 39,254 3,820 9,628 2,525 (0.8) 4.6 1,225 1,300 2.4 203 1,377 126 329 260.8 -203 (0.4) 0 -203 -203 FY10 45,706 (17.2) 40,682 28,409 4,321 7,952 5,024 98.9 11.0 996 4,028 8.8 149 1,157 3,020 933 30.9 2,087 4.6 0 2,087 115 2,202 FY11E 58,099 27.1 54,351 41,566 3,910 8,874 3,748 (25.4) 6.5 1,117 2,632 4.5 258 1,131 1,758 653 37.2 1,105 (47.0) 1.9 0 1,105 1,105 (49.8) FY12E 65,848 13.3 61,151 47,070 4,357 9,725 4,697 25.3 7.1 1,273 3,424 5.2 298 1,198 2,524 901 35.7 1,623 46.9 2.5 0 1,623 1,623 46.9 Gross Block Less: Depreciation Net block Capital work in progress Investment Current Assets Inventories Sundry debtors Cash & bank balance Loans & advances Other current assets Current lia & Prov Current liabilities Provisions Net current assets Misc. exp Total Assets 28,405 12,284 16,120 2,905 759 13,336 4,838 5,490 513 2,495 11,312 10,268 1,044 2,024 0 21,809 31,325 13,686 17,640 1,882 805 15,204 5,557 6,279 910 2,458 14,050 12,385 1,666 1,154 0 21,480 33,625 14,802 18,823 7,500 805 16,177 6,215 6,824 275 2,863 18,575 18,427 148 -2,399 0 24,728 38,425 16,075 22,350 5,000 805 18,532 7,043 7,710 535 3,245 21,021 20,705 316 -2,489 0 25,666

Balance Sheet
Y/E, Mar (Rs. mn) Equity share capital Reserves & surplus Net worth Secured Loans Unsecured Loans Loan Funds Net deferred tax liability Total Liabilities FY09 411 6454 6,865 11,071 2,753 13,824 1,120 21,809 FY10 411 8089 8,500 7,135 4,455 11,589 1,391 21,480 FY11E 411 9051 9,462 10,675 3,201 13,875 1,391 24,728 FY12E 411 10489 10,899 10,175 3,201 13,375 1,391 25,666

(130.5) (1,127.4)

(130.5) (1,184.1)

Cash Flow
Y/E, Mar (Rs. mn) PBT (Ex-Other income) Depreciation Interest Provided Other Non-Cash items Chg in working cap Tax paid Operating Cashflow Capital expenditure Free Cash Flow Other income Investments Investing Cashflow Equity Capital Raised Loans Taken / (Repaid) Interest Paid Dividend paid (incl tax) Income from investments Others Financing Cashflow Net chg in cash Opening cash position Closing cash position (1,561) 1,709 213 300 513 60 (3,500) 396 513 910 1,012 -635 910 275 -1,884 259 275 535 FY09 -77 1,225 1,377 (73) 845 -329 2968 (9,546) -6,578 5,127 -45 (4,464) 103 4,675 -1,377 (130) FY10 2,871 996 1,157 292 1,267 -933 5650 (1,897) 3,753 189 -46 (1,753) 0 -2,235 -1,157 (168) FY11E 1,500 1,117 1,131 0 2,918 -653 6,013 (7,918) -1,905 258 0 -7,660 0 2,286 -1,131 (143) FY12E 2,226 1,273 1,198 0 349 -901 4,145 (2,300) 1,845 298 0 -2,002 0 -500 -1,198 (186)

Key ratios
Y/E, Mar Profitability (%) EBITDA Margin Net Margin ROCE ROE RoIC Per Share Data (Rs) EPS CEPS BVPS DPS Valuations (x) PER P/CEPS P/BV EV / Sales EV / EBITDA Dividend Yield (%) Gearing Ratio (x) Net Debt/ Equity Net Debt/EBIDTA Working Cap Cycle (days) 1.8 5.0 0.4 1.2 2.0 (4.4) 1.4 3.4 (33.9) 1.1 2.6 (33.0) (32.8) 6.5 1.2 0.3 5.0 1.7 3.2 2.2 0.9 0.4 2.0 2.2 6.0 3.0 0.8 0.3 3.4 1.8 4.1 2.3 0.7 0.3 2.6 2.4 (4.9) 24.9 135.3 2.7 50.8 75.1 180.9 3.5 26.9 54.1 204.3 3.0 39.5 70.5 239.3 3.9 4.6 (0.4) 8.7 (4.4) 8.1 11.0 4.6 20.4 32.1 22.7 6.5 1.9 13.1 14.0 15.5 7.1 2.5 15.4 17.8 19.3 FY09 FY10 FY11E FY12E

Emkay Research

2 November 2010

JK Tyre & Industries

Result Update

Recommendation History: JK Tyre & Industries JKI IN

Date 18/08/2010 26/05/2010 21/01/2010 Reports JK Tyre & Industries 1QFY11 Result Update JK Tyre Industries 4QFY10 Result Update JK Tyre & Industries Q3FY10 Result Update Reco Buy Buy Buy CMP 169 179 170 Target 205 225 200

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