JK Tyre & Indust

JK Tyre & Industries reported a consolidated revenue of ₹3,694 crores for Q3 FY25, which remained flat on a year-on-year basis. The company's EBITDA margins contracted significantly by 309 basis points quarter-on-quarter to 9.1%, primarily due to rising raw material costs and modest growth in the OEM segment. Profit after tax stood at ₹57 crores, and earnings per share were ₹1.88. Despite the margin pressure, net debt saw a slight reduction to ₹4,319 crores, maintaining a healthy balance sheet with a Net Debt to Equity ratio of 0.89x and Net Debt to EBITDA of 2.4x.

The primary factor impacting operating margins in Q3 FY25 was the increase in raw material costs, particularly natural rubber, which saw the overall raw material basket rise by 2% QoQ. Management noted that strategic stocking of materials in Q1 and Q2 helped mitigate some costs, but this inventory was depleted in Q3, leading to the full impact of higher raw material prices. The company is implementing measures like price revisions, enhancing product mix, and cost optimization to mitigate these pressures. It is anticipated that the raw material basket might increase by another 1-2% in Q4, but the consumption of high-cost inventory from Q3 is expected to lead to some margin improvement.

JK Tornel, Mexico, contributed ₹507 crores (1,282 million pesos) to the consolidated revenue, with a steady EBITDA margin of 7.9%. The revenue decline QoQ was attributed to Christmas holidays and the appreciation of the Indian rupee against the Mexican peso. To counter the 6% depreciation of the Mexican Peso against the US dollar, JK Tornel plans to significantly increase exports to leverage the higher peso earnings. The company is also focusing on supplying higher rim size tyres to advanced markets for better profitability and has launched new premium products. JK Tornel plants were awarded the prestigious 'Sword of Honour' by the British Safety Council.

Consolidated capacity utilization for the quarter was 78%, with radial capacity utilization remaining above 80% and PCR utilization close to 90%. The company has an ongoing capex program of ₹1,400 crores, with over ₹1,000 crores allocated for PCR expansion and approximately ₹400 crores for TBR and all steel light truck radial. These projects are progressing well with state-of-the-art equipment being installed. Management expects that upon completion of these expansions, the quarterly revenue could reach around ₹4,700 crores, up from the current ₹3,650-3,700 crores at 82-83% utilization.

Net debt for the company stood at ₹4,319 crores as of December 31, 2024, a slight reduction from ₹4,340 crores in the previous quarter. The company has tied up a $100 million Sustainability-Linked Loan with the International Finance Corporation (IFC) to fund ongoing expansions and refinance high-cost debt in Cavendish Industries Limited. While short-term working capital borrowings increased due to strategic inventory accumulation, management expects these to normalize in the next one or two quarters, leading to a reduction in finance costs in the next financial year. The year-to-date capex outlay is ₹800 crores, with ₹600 crores already spent.

The Indian economy continues to be a bright spot, with RBI forecasting a real GDP growth of 6.6% for FY24-25. The auto sector is showing signs of recovery, with strong growth in two and three-wheeler sales and continued growth in passenger cars. The replacement market demand remains promising, and the OEM segment is on a recovery path. Management anticipates that increased public and private capex, consumption-boosting measures, and government thrust on infrastructure will drive GDP growth and demand for TBR and PCR segments. The company's focus on premiumization, technological advancements, and digital transformation is expected to support future growth.

JK Tyre & Industries has joined the Global RE100 Club, becoming the first Indian Tyre company to target 100% renewable electricity by 2050. This initiative aligns with the company's vision to be a 'Green and trusted mobility partner' and its focus on sustainable, innovative, and value-added products. The Sustainability-Linked Loan with IFC is another step in this direction, reflecting the company's commitment to environmental, social, and governance (ESG) principles.