Tyre sector company: JK tyre

Company name: JK tyre
About: JK Tyre is present in more than 100 countries, along with 12 globally benchmarked ‘sustainable’ manufacturing plants, 9 of which are in India and 3 in Mexico.

The flagship company of the JK group, JKTI is headed by Dr R P Singhania as its chairman and managing director.
It is one of the leading tyre manufacturers in India and among the top 20 manufacturers in the world with a wide range of products catering to diverse business segments, including, truck/bus, light commercial vehicles (LCV), passenger cars, multi-utility vehicles (MUV), and tractors.
As on December 31, 2024, JKTI total consolidated capacity of 35 million tyres per annum.
JKTI ranks among the first four domestic tyre manufacturing companies based on overall revenue share and has presence across majority tyre segments.
CARE Ratings notes that JKTI is a market leader in the truck and bus tyre segment and is gaining market share in PCR tyre segment.
JKTI has a widespread distribution network across the country with 6000+ dealers and 800+ brand shops.

The company is targeting 6500+ dealers and 850+ brand shops in next two years from the present level.
It has over 800 exclusive passenger car tyre retail outlets under ‘Steel Wheels & Xpress Wheels’ for small town and semi-urban markets, catering to two-three wheelers as well.
It also has 81 JK Tyre truck wheels (fully equipped tyre service centres offering total tyre solutions).

Expansion: In order to meet the robust demand for Passenger Car Radials and further strengthen its market presence, the Company has undertaken an Expansion at an estimated cost of ` 1,000 crores. This will also help in improving profitability in the years ahead.

Announced the completion of the first phase of its ambitious capacity expansion at the Banmore manufacturing facility in Madhya Pradesh.
The first phase of the expansion project, achieved with an investment of ₹ 312 crores, boosts the plant’s annual output capacity by 31%, from 39 lakhs to an 51 lakhs units.
The enhancement of the Banmore facility is part of a larger, two-phased expansion initiative valued at approximately ₹ 1,000 crores.
The second phase, currently underway, is set to further elevate production capacity by another 31% by April 2024, supported by an additional investment of ₹ 617 crores.
This continued investment will ensure that JK Tyre can sustain its market leadership and cater to the increasing consumer demand with enhanced efficiency and output.

Mexico business: JK Tornel has the highest share in PCR Tyres in the Mexican Replacement market and is the leader in online sales in Mexico.
Goal for reducing debt: In FY24, JK Tyre & Industries Ltd. continued its commitment to deleveraging the balance sheet, successfully reducing debt from ₹ 4,518 crore in FY23 to ₹ 3,704 crore in FY24.

Underscoring commitments, net debt has reduced by 34% in last 5 years
Furthermore, JK Tyre significantly improved its leverage ratios with the net debt to equity ratio improving to 0.80x compared to 1.29x in the previous year, and the net debt to EBITDA ratio improving to 1.75x compared to 3.39x in the previous year.
Moving forward, remain focused on reducing borrowings and better working capital management to further strengthen financial position.
Remain committed to further deleverage the balance sheet.
Total repayments due in FY25 and FY26 are ~₹400 crore in each year. Against this, cash accruals are expected to remain between ₹1,000-1,200 crore.
Debt levels are expected to peak in FY26, as the planned truck and bus radial (TBR), passenger car radial (PCR), and all steel light truck radial (ASLTR) capacity expansion is expected to be completed by FY26-end.

The tyre industry is expected to grow at a healthy pace, as the Indian automotive sector is expected to reach a size of US$300 billion by FY 2026-27.
High competition prevalent in the tyre market: The group faces competition from domestic players and Chinese tyre manufacturers. In the past, due to imposition of antidumping duty till December 2022 and further imposition of (countervailing duty) anti-subsidy duty in June 2019, competition from Chinese players is mitigated to an extent.

In June 2020, the government-imposed curbs on imports of certain new pneumatic tyres used in motor cars, buses, lorries, and motorcycles, in a move to promote domestic manufacturing. Putting goods under restricted category means an importer would require a licence or permission from the directorate general of foreign trade (DGFT) for imports. Earlier, import of these tyres was allowed without restrictions.

To capitalise on this opportunity, JK Tyre has focused on deleveraging and strengthening its balance sheet throughout the year, positioning the Company for a high-growth trajectory

JK Tyre has achieved significant milestones by enhancing overall efficiencies through digital technologies and prioritising premiumisation of product range
Going forward, we can expect 20% growth in profits
The company’s focus on increasing share in the PCR tyre market and strong demand experienced in the PCR segment is also reflected in sales mix, with PCR segment experiencing significant increase in sales mix.
The contribution of premium tyres increased from 12% in FY19 to 25% in FY24 and is expected to improve to 30-35% over next two years.

DII have increased stake from 1% to 6%
FII have increased stake from 8% to 16%
Successful QIP Boosts Investor Confidence: JK Tyre successfully raised ₹ 500 crore through a Qualified Institutional Placement (QIP), priced at ₹ 345 per share. The QIP received an overwhelming response from prominent investors, including Indian mutual funds, insurance companies, and foreign institutional investors, reflecting strong market confidence in the Company

Rounaq Bakshi notes