"JK Tyre and Industries' (JKTIL) Q1FY14 performance was much ahead of estimates on the margins and profitability front. The standalone topline at ~Rs 1484 crore (3 percent YoY higher) was in-line with estimates. However, the margins shot up (~220 bps, ~340 bps QoQ, YoY) to 12.1 percent as raw material prices continued to be favourable. Subsequently, reported PAT came at Rs 34.5 crore. Adjusted for forex fluctuation, PAT came at ~Rs 58 crore. From this quarter, JK has also started giving consolidated results, which include the Mexican subsidiary JK Tornel. On a consolidated basis, the topline came at Rs 1876 crore (3 percent YoY), margins came at 12.5 percent (180 bps QoQ) and PAT adjusted for forex came at ~Rs 85 crore. Performance of the Mexican subsidiary Tornel has continued on its strong growth run with increase in market share."
"Tornel's margin performance also has improved, with EBIT margins at 14.8 percent for the quarter (160 bps QoQ increase) as lower raw material prices and operating leverage benefits helped. We maintain BUY with a target price of Rs 137. Attractive valuations; earnings growth; improving ratios; maintain BUY We feel cautiously optimistic about the replacement market growth in the domestic market and expect JK Tyres to continue to deliver solid results. The subsidiary performance is a joker in the pack and can provide significant de-risking to the India business ahead. At <2x, 1x P/E for FY13, FY15E with a decent RoE profile, the market is excessively under-estimating JKTIL. We maintain BUY on JKTIL with a target price of Rs 137," says ICICIdirect.com research report.
Also Read: JK Tyre Q1 net surges over three-fold to Rs 55cr
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