JKTYRE - JK Tyre & Industries Ltd. Share Price

Management provided an optimistic outlook during the Q1FY26 earnings call, highlighting the resilience of the Indian economy, which recorded a GDP growth of 7.4% in Q4FY25 and a projected growth of 6.5% for FY26, in line with the RBI's forecast. The Indian tyre industry is expected to achieve a growth rate of 7% to 8% for FY26, driven by strong domestic replacement demand, despite challenges in original equipment (OE) offtake.

Key forward-looking points include:

1. Consumer sentiment is expected to improve due to upcoming festive seasons and recent repo rate cuts.
2. The company's domestic revenue reached Rs.3,475 crores in Q1, marking a 9% year-over-year increase, while overall consolidated revenues stood at Rs.3,891 crores, a 6% rise compared to the previous year.
3. The volume of passenger radial tyres in the replacement market surged by 32% year-on-year, and the farm category also showed strong growth with a 26% increase.
4. The company is focusing on premiumization, which has improved realizations, particularly in the passenger car segment where 16-inch and above premium products currently comprise 26% of sales, with a target to reach 40%.
5. Despite facing flat commercial vehicle volumes, exports grew by 23% year-on-year, showcasing potential for further international growth.
6. Projects worth Rs.1,400 crores are progressing as planned, with an annual capex targeted between Rs.900-1000 crores.
7. JK Tyre achieved a significant 70% reduction in GHG emissions ahead of schedule, positioning it favorably in sustainability initiatives.

Overall, management expressed confidence in sustained profitable growth across all business segments.

Major Questions and Answers from Q&A Section

Question 1: "How will the margin trajectory improve in the coming quarter given that there is a fall in rubber prices in the last couple of months?"

Answer: Yes, we've seen margin improvement this quarter thanks to our innovative products gaining market traction and new OEM approvals. Higher rim sizes in the passenger radial category have also driven good margin expansion. We achieved 32% growth in the passenger replacement market and high single-digit growth in the Truck & Bus radial segment. With favorable market conditions, including repo rate cuts, we expect strong demand moving forward.

Question 2: "How will gross margin numbers reflect from the second quarter onwards, considering the anticipated benefits from falling rubber prices?"

Answer: The raw material price scenario seems favorable. If this continues, we believe that increasing demand will allow us to raise prices, which should support margin growth. We've implemented margin-accretive projects, and if raw material prices remain stable, we expect to meet our previously communicated EBITDA margin guidance.

Question 3: "How do you see the impact of the depreciation of the Mexican peso on your revenues and margins?"

Answer: The depreciation will benefit us when converting pesos to rupees in our financial statements. This, combined with the nil tariff imposed on our exports from Mexico to the U.S., positions us well for increased exports and volume, especially as the market stabilizes.

Question 4: "What was the revenue and EBIT of Cavendish in the first quarter?"

Answer: Cavendish revenues were weaker due to lower demand from OEMs, but replacement markets helped us boost volumes. We are optimistic about returning to average revenues of Rs.1,000 to Rs.1,100 crores per quarter, which should improve margins significantly as we scale, as seen with JK Tyres.

Question 5: "What areas do you identify as having potential for improvement in the Mexico business?"

Answer: We anticipate benefits from stable raw material prices and expanded markets in Mexico, Brazil, and LATAM. Our introduction of all-terrain vehicle (ATV) tyres and ongoing operational efficiency will also support margin expansion and sales growth. Moreover, our capex investment is on track to enhance capacity, particularly for premium products.

Question 6: "Is there an expected growth for the full year in the replacement and OEM markets?"

Answer: We expect to see double-digit growth across the board, driven primarily by a stronger replacement market. The upcoming festive season, coupled with new model launches, is expected to bolster sales in the passenger car segment, although the OE market remains flat. Overall, positive economic conditions are encouraging.

Question 7: "Can you provide guidance on the anticipated margins for the Mexican operations in the coming quarters?"

Answer: Yes, we expect EBIT margins in our Mexican operations to normalize, reaching the previous levels of 7% to 8% in the coming quarters as the market stabilizes and we leverage improved demand.

Each answer summarizes key information without omitting important financial metrics or outlook, ensuring clarity regarding future expectations.