JK Tyre's Rating Upgraded by CARE Ratings

Key Highlights

• CARE Ratings upgraded JK Tyre to CARE AA- Stable.
• Improved PBILDT margin from 9% to 14% in FY24.
• 15% CAGR in revenue since 2020.
• ₹1,400 crore capex planned for TBR, PCR, and ASLTR by FY26.
• Focus on sustainability with significant energy and emissions reductions.

CARE Ratings has upgraded JK Tyre and Industries Limited's long-term rating from CARE A+ to CARE AA- with a stable outlook. The short-term rating of CARE A1+ was reaffirmed. This significant upgrade comes as a result of the company's improved operational and financial performance in the fiscal year 2024 (FY24).

Rating Details

• Long-term bank facilities: Increased from ₹3,183.44 crore to ₹3,208.44 crore.
• Long-term/Short-term bank facilities: Reduced from ₹855.00 crore to ₹830.00 crore.
• Short-term bank facilities: ₹1,170.00 crore, reaffirmed at CARE A1+.
• Long-term/Short-term instrument: ₹140.00 crore.

Reasons for Upgrade

The upgrade reflects JK Tyre's improved operational and financial performance in FY24. The company's consolidated revenue has increased at a compounded annual growth rate (CAGR) of over 15% since 2020. Profitability margins also improved significantly, with the profit before interest, lease rentals, depreciation, and taxation (PBILDT) margin rising from 9% in FY23 to 14% in FY24.

Financial Improvements

• Debt Reduction: The net total debt to PBILDT ratio improved to 2.27x in FY24 from 4.21x in FY23, indicating better debt management and higher profitability.
• Gearing Ratio: The overall gearing ratio (including LC acceptances and dealer deposits) improved from 1.81x in FY23 to 1.28x in FY24.
• Interest Coverage: The company's interest coverage ratio, which measures its ability to pay interest on outstanding debt, increased from 2.94x in FY23 to 4.75x in FY24.

Operational Highlights

• Revenue Growth: The consolidated revenue increased by over 15% CAGR since 2020. In FY24 alone, the revenue saw a year-on-year jump of 2%.
• Capacity Utilization: Overall capacity utilization was around 86% on a consolidated level, with specific utilization rates of 88% for India operations, 93% for JK Tyre standalone, and 78% for Cavendish Industries Limited (CIL).
• Product Mix: The contribution of premium tyres increased from 12% in FY19 to 25% in FY24 and is expected to improve to 30-35% over the next two years.

Future Expectations

Despite an expected rise in raw material costs in the near term, JK Tyre is focusing on increasing its premium product portfolio, which is expected to contribute more to profitability. The company is also planning a capacity expansion in truck and bus radial (TBR), passenger car radial (PCR), and all-steel light truck radial (ASLTR) segments by FY26.

Market Position

JK Tyre holds a strong market position in the domestic tyre industry, particularly in the truck and bus tyre segments. The company also has a growing presence in the passenger tyre segment. Its wide marketing and distribution network supports its market position. JK Tyre ranks among the top four domestic tyre manufacturers based on overall revenue share and has a significant presence across various tyre segments.

Challenges

JK Tyre faces several challenges, including:

• Raw Material Price Volatility: Fluctuations in raw material prices, especially rubber and crude oil, can impact operating margins.
• Foreign Currency Fluctuation Risks: Exposure to foreign currency exchange rates due to significant export income and import payments for raw materials.
• Competitive Market: Intense competition from domestic players and Chinese tyre manufacturers. The company mitigates this through strong relationships with original equipment manufacturers (OEMs).

Expansion Plans

The company announced a capital expenditure (capex) plan of approximately ₹1,400 crore in Q3FY24, focusing on TBR, PCR, and ASLTR segments. This expansion is expected to be completed by FY26, with a targeted debt-to-equity ratio of 1:1. The proceeds from the Qualified Institutional Placement (QIP) of ₹500 crore in December 2023 will be utilized for this expansion.

Liquidity Position

JK Tyre's liquidity remains adequate, with a consolidated cash and bank balance of ₹755 crore as of March 31, 2024. The company has managed its working capital effectively, with maximum and average utilization of working capital limits standing at 60% and 51%, respectively, for the 12 months ended March 2024.

Environmental, Social, and Governance (ESG) Initiatives

JK Tyre is committed to sustainability and has adopted the 6 “R” strategy: Reduce, Reuse, Recycle, Renew, Redesign, and Remanufacture. In FY24, the company achieved an energy benchmark level of 8.70 GJ/Ton of production and reduced greenhouse gas emissions. It is also involved in various social projects in health, education, and rural development.

CMV360 Says

The stable outlook for JK Tyre reflects its ability to maintain its market position, operational performance, and financial health. The company's focus on operational efficiencies, premium product offerings, and strategic expansions is expected to support its continued growth and profitability in the coming years.