JK Tyre & Industries Limited ($530007)

Ladies and gentlemen, good day, and welcome to the JK Tyre & Industries Limited Q4 and FY '26 Conference Call hosted by Emkay Global Financial Services Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Chirag Jain, Deputy Head of Research from Emkay Global Financial Services Limited. Thank you, and over to you, sir.

Thank you, Githesh. Good afternoon, everyone. On behalf of Emkay Global, I would like to welcome you all to the Q4 FY '26 Earnings Conference Call of JK Tyre & Industries Limited. Today, we have with us from the senior management team, Mr. Anshuman Singhania, Managing Director; Mr. Arun K. Bajoria, Director and President, International; Mr. A.K. Kinra, Financial Adviser; and Mr. Sanjeev Aggarwal, Chief Financial Officer. We will begin the call with opening comments from the management team followed by Q&A session. Over to you, sir.

Yes. A very good evening to everyone. Chiragji has already introduced everybody in the room. I welcome you once again for JK Tyre Quarter 4 and FY '26 Earnings Conference Call. The Indian economy demonstrated a strong sign of resilience in a turbulent global landscape by achieving a GDP growth of 7.5 during FY '26. As strong domestic demand remain the key growth engine, which held the economic momentum high, despite some slowdown towards the end of financial year on account of West Asia crisis, which has led to disruptions in supply chain of crude oil, petrochemicals and other critical commodities leading to an unusual surge in prices thereby creating highly inflationary environment. GDP growth FY '27 is expected to moderate at 6.9%, supported by healthy private consumption. We are hopeful that the peace talks between U.S.-Iran emerge successful, bringing back much awaited normalcy in the energy market and restoring the global supply chain by H2 FY '27. FY '26 has been a remarkable year for the Indian auto industry as it has witnessed a robust double-digit growth and supported by a series of structural policy reforms, including the GST and the personal tax reforms. Softer interest rate scenario improved rural income robust festive season and continued focus on government on infrastructure investment, thereby improving the demand sentiment and consumer confidence. Similarly, export of vehicles from India has also performed extremely well and has registered a growth of 24% on a year-on-year basis. India's electric transition has accelerated in FY '26 as EV retail sales grew by 25% year-on-year basis across all segments, including passenger, commercial and two-, three-wheeler. Quarter 4 FY '26 emerged as one of the best quarters in recent times of auto sector with all major OEMs posting their ever highest sales with robust year-on-year growth across sectors. Currently, the auto and tire sector is going through a rough patch owing to geopolitical instability and economic turbulence on account of West Asia prices. posing challenges in availability and surge in prices of key inputs, thereby significantly increasing manufacturing cost and impacting the operating margins. However, the macro fundamentals of the auto industry remain healthy, and we expect the demand momentum to continue in FY '27. Coming to JK Tyre, I am delighted to share that FY '26 has been a landmark year for JK Tyre. We delivered a record volume across segments attaining the highest ever annual consolidated revenue of INR 16,384 crores, a healthy double-digit growth of 11% and achieved an EBITDA of INR 2,089 crores, an increase of 25% over the previous year. We are glad to share that we have crossed a record INR 1,000 crores PBT in FY '26. This performance reflects the strength of our brands, operational discipline and unwavering focus on value creation. We recorded a consolidated revenue of INR 4,233 crores in quarter 4 FY '26, up by 12% on a Y-on-Y basis. Consolidated EBITDA for quarter 4 stood at INR 546 crores, registered a 42% growth. EBITDA margin was recorded at 12.9%, an expansion of 270 basis points. This growth was driven by higher volumes and improved product mix and sustained cost optimization initiatives. In quarter 4, our average raw material basket witnessed an increase of 1.3% on a Q-on-Q basis, while on a year-on-year basis, raw material costs remained range bound. There has been a pressure on input costs due to ongoing prices and weakening of the rupee. Keeping in view the ongoing situation. The raw material prices are expected to go up by 80% to 20% in Q1 of FY '24 from -- I'm sorry, Q1 of FY '27 from Q4. To mitigate increase in raw material prices and sustained profitability margins, we have started increasing our selling price in a staggered manner. We have already taken a hike of 4% to 5% across products in the replacement market and 5% to 7% in the export market. And the situation is being actively monitored for necessary further price increases to offset the increase in the raw material prices. OEM sizes, price increase will take with a lag effect. During FY '26, we have further strengthened our sales network and enhanced our market reach by adding 50-plus new brand shops. Further, we have secured new approvals from India's leading OEMs, including Tata Motors, Ashok Leyland and Mahindra, Switch Mobility, cetera, for the new vehicle. During FY '24, company has further expanded its premium range of on tire by launching Shresth Plus, reinforcing the company's commitment to advancing innovation for modern agriculture applications to meet the evolving needs of modern farming. JK Tyre remained committed to sustainability and continues to make measurable progress in its next Jio journey. During FY '26, we have been recognized amongst India's most sustainable company, ranking top 5 in the automotive sector and highlighting this responsible manufacturing practices. Our JK Tyre premiumization represents both the market opportunity as well as strategic direction. With evolving customer expectations, there has been a clear shift towards high-performance and technology-led products. And thus, we are constantly investing in R&D to deliver a differentiated offering across segments, including several patent filings. At JK Tyre, we see an [indiscernible] for AI application. We have been implementing the usage of AI in manufacturing, processing towards paperless and connected plants. With end-to-end digitalization across functions, we are expanding the deployment of an agentic AI solution to augment the decision-making and automate work flow. AI-driven for personalization and advanced analytics are enabling deeper engagement across the sales ecosystem. Collectively, these efforts are being pursued as a part of multiyear digital and analytics transformation journey offering scalable and sustainable value creation and positioning JK Tyre as a future-ready organization. Now I would like to take this through some of the key operational highlights for Q4. Domestic Markets recorded volume growth of 21%, led by robust 42% growth in the OEM market. Export demonstrated a resilience despite geopolitical uncertainty. However, on the full year basis, export volume grew by 5%. TBR volume in the replacement grew by 19% and OEM grew by 53% on a Y-on-Y basis. Passenger line volume grew by 16% on a Y-on-Y basis, and contributed a replacement at 10% and OE at 26%. At a full year basis, export of PCR grew by 20%. This growth has been contributed by increase of sales of premium tires, which has grown by 13% in the domestic market. Farm sector volume also saw a significant growth of 58% on a Y-on-Y basis with 30% growth in the replacement market and OEM volume nearly doubled and export also surged 44% on a Y-on-Y basis. Two-, three-wheeler segment volume in the OE segment registered a high growth of 72%, an export jumped by 31% on a Y-on-Y basis. The replacement volume grew by 39% on a Q-on-Q basis. I am pleased to inform you that seeing the momentum in the demand growth, the board in addition to the expansion projects, which was announced earlier or in the tune of INR 1,130 crores under implementation has been undertaken to further brownfield expansion of the PCR and TBR segment and an aggregated cost of INR 4,980 crores in a phased manner until 2029. This will increase our TBR and PCR capacity by 24%. Thank you. And now I will request Dr. Bajoria to talk about the performance of Tornel.

Thank you, MD, sir. I will begin with a brief overview on the operating environment in Mexico. For current year 2026, Mexico GDP growth is projected in the range of 1.5% to 1.8%, driven by steady domestic consumption and a revival in investments. Additionally, the reaffirmation of Mexico's sovereign credit rating at BBB+ by S&P underscores confidence in the country's macroeconomic stability and long-term growth prospects. On the monetary front, the Bank of Mexico is expected to resume its rate cut cycle with policy rates slightly trending towards 6.5%, which should further support economic activity and liquidity in the system. Manufacturing activity in Mexico continues to demonstrate notable resilience despite the ongoing geopolitical uncertainties. We expect a gradual recovery going forward supported by increasing investments in technology and infrastructure sectors. JK Tornel delivered a resilient performance in FY '26, making a meaningful contribution to JK Tire's consolidated results. This was driven by a favorable product mix, robust domestic demand and improving customer sentiment across key segments. For FY '26, revenue remained stable at INR 2,138 crores compared to INR 2,147 crores in FY '25, reflecting business resilience in a challenging environment. Our wide product portfolio continues to strengthen customer preference and market positioning. JK Tornel continues to enjoy the highest market share in mass merchandise business. EBITDA stood at INR 141 crores, and PBT grew by 63% to INR 61 crores while PAT grew by 91% to INR 42 crores over the previous year. In the first quarter of FY '26, revenue stood at INR 378 crores with EBITDA of INR 24 crores, marking a 36% year-on-year increase, highlighting improved operational efficiency. We are developing a new passenger line tire tailored for both Mexican and U.S. markets, which will strengthen our product portfolio and market reach. Additionally, we have identified a new growth opportunity in our trading business through potential sourcing from Southeast Asia and we have already initiated concrete steps in this direction. In line with our commitment to digital transformation, we are implementing a cloud-based AI-enabled platform, which will streamline processes, enhance automation and significantly improve productivity and decision-making capabilities. Looking ahead, trade ties with the United States remains strong, and we are optimistic about a favorable extension of the U.S. MCA agreement which is due for review in July 2026. With that, I would like to invite Mr. Sanjeev Aggarwal to take you through the financial performance of JK Tyre for the fourth quarter and full year of FY '26. Thank you.

Thank you. Dr. Bajoria. Let me briefly share the key highlights for quarter 4 and full year of financial year of '26. For the first is the company recorded a consolidated revenue of INR 4,233 crores in quarter 4 of FY '26, which is up by 12% on a Y-o-Y basis as against INR 3,780 crore in the corresponding quarter. For the full year of FY '26, the highest turnover was achieved on consolidated basis, and this is INR 16,394 crore, marking an increase of 11% over to last year. Consolidated EBITDA for quarter 4 was reported at INR 546 crore as compared to the INR 384 crore, an increase of 42% on a Y-o-Y basis. And similarly, for full year the EBITDA stood at INR 2,089 crore, which is up by 25%. EBITDA margin in Q4 was recorded at 12.9% versus 10.2% in Q4 by '25, representing an expansion of 270 basis points. And for the full year, the EBITDA margin stood at 12.8%. Raw material cost in Q4 was up by 1.3% on a sequential basis. However, for the full year, it remained benign on y-o-y basis. Cash profit for Q4 FY '26, first by 69% and has stood at INR 446 crores as against INR 264 crore in the corresponding quarter. For the full year, the cash profit was INR 1,661 crore, which is up by 38%. Profit before tax for the financial year was up by 46% and stood at INR 1,043 crore as against INR 713 crore in FY '25. And profit after tax for Q4 jumped 83% and stood at INR 188 crore as against INR 102 crore in Q4 of last year. And for the full year, the profit after tax stood at INR 774 crore, which is up by 50%. Installed capacities were fully utilized across segments and for the full year. At India level, the utilization was recorded at above 90%. In Q4, export volumes were -- export volumes from India remained steady despite geopolitical uncertainties, including the ongoing West Asia crisis. However, in FY '26, exports volumes were up by 5% vis-a-vis last year. JK Tornel Mexico contributed significantly to the financial -- consolidated financials of the company. Consolidated earnings per share in Q4 stood at inr 6.65 per share as against INR 3.47 per share last year. Return ratios, ROCE and ROE continues to remain robust and stood at 16.8%, 14%, respectively. Consolidated debt as on 31st of March '26 stood at INR 4,445 crore vis-a-vis INR 4,081 crore as on 31st of March, up by INR 364 crore as the availed term loans for expansion projects under implementation. Out of the total debt, working capital borrowings reduced from INR 2,378 crore to INR 1,808 crore, which is a reduction -- significant reduction highlighting efficient working capital management. And further, I would like to bring to your retention that the cash balance of INR 711 crore which was there as on 31st of March '26, has mostly been utilized for the expansion project and the cash balance as of 31st of March '26 was INR 301 crore. And this reduction of the cash balance was for the projects and basically based against the QIP funds which we did in December 2023. The balance sheet of the company continues to remain healthy, with robust key financial ratios, leverage ratios, net debt to equity and net debt to EBITDA has improved compared to last year to 0.73x and 2.13x as on 31st of March '26. We have already populated our earnings presentation and which is available on our website as well as on the stock exchange website, you can now please continue with your question and answers. Thank you.

[Operator Instructions] The first question is from line of Aditi Prajapati from Shah Capital.

Congratulations a quick set of numbers. I want to understand the market mix for Q4 and category mix for Q4.

Yes. So we are in the market mix in terms of the replacement. In the Q4, we are at 63% and in the OE, 30% and rest about 10% for the export.

Okay. And in terms of category mix?

Truck and bus for Q4 consolidated around 56%. PLR is about 30%, and the non-truck bias is about 13% and 4-wheeler -- 2-, 3-wheeler is about 4%.

This is the basis of consolidated revenue?

Yes. Yes.

And on stand-alone terms?

Stand-alone terms, we are -- truck and buses at 60% and PLR is at 25% and non-truck bias is about 12%. And 2, 3-wheeler would be about 5%.

And on the stand-alone basis on the replacement 53%?

61%.

And OE is 30%?

Yes.

[Operator Instructions] The next question is from the line of Vijay Pande from Axis Capital.

Sir, a couple of questions. First...

Sorry to interrupt, sir. Vijay sir, I would request you to speak a little bit louder, please?

Am I audible now?

Yes, sir. You can go ahead.

Yes, I wanted to check about the Mexico business. So if I see some quarter-on-quarter there was a significant decline in the EBIT number. So I just want to understand what is the driving factor because EBIT you said in the opening remarks that it was going good. So was there any impairment or anything that led to a decline in EBIT? If you can comment about Mexico...

Yes. So yes, Mexico did witnessed a little sluggish growth. This was because due to the heightened geopolitical volatility and trade uncertainty which was owing to the U.S. tariffs, which remained. But however, the revenue FY '26 remained steady and stood at INR 2,138 crores versus INR 2,147 crores in FY '25.

Okay. Second, sir, for the domestic Indian business, was there any price hike, any price increase taken in the fourth quarter? Or it mainly came only from April onwards, the 4% to 6%.

Yes. So we have already taken a price hike of about 4% to 5% across the segment in the replacement market and 5% to 7% in the export market. And OEM, we have actually price increase comes at a lag effect. And further, we have planned another 5% to 6% price increase. But...

But all of this come in first quarter...

Sorry.

All of this came in the first quarter or what part of it also in the fourth quarter as well?

Mainly in the first quarter.

Okay. Okay. Sir, about the CapEx plan. So what is your expectation for the the next 2 years because this [ 50 billion ] CapEx, and there was -- this will be including the 11.3 billion CapEx already announced in Q3, and also, if you can give a guidance about FY '27 CapEx guidance and how you plan to like fund the call? Will it be totally debt funded? Or how do you plan to do?

So I can guide you overall. See, we had declared last quarter INR 1,130 crore of expansion plans for TBR mainly and PCR. And this was done because we are running almost at full capacity utilization, as we mentioned earlier. And now we have also taken up -- seeing the momentum and the growth in the demand growth, we have announced for another $50 million -- 30 million -- sorry, INR 50 billion of the expansion plan to be completed in 3 phases over the next 3 to 4 years. So the total expansion of INR 6,000 crore will be, let's say -- will be completed by financial year '29. And the total outlay -- cash outlay on a yearly basis would be roughly around INR 1,200 crore. And therefore, this will not make any dent on the cash availability with the company, which is going to be much more stronger. And in any case, we are also going to take debt, which you just mentioned, but this debt is also being supported by a higher amount of the EBITDA, which we are expecting to generate over the next 3 to 4 years. So still position, the leverage situation in the company will remain quite comfortable. And also the leverage ratios will remain as what we have seen in the last 2, 3 years time.

Okay. Okay.

Is that okay?

Sir, just last one if I may. Just wanted to check on other income, it was slightly down...

Sorry, can you speak slightly louder?

Just wanted to check on the other income. So other income was down for the fourth quarter. So just want to understand any...

Yes. So this is down because we had, as I mentioned earlier, INR 700 crore in our city earlier, which were invested and this fund we had raised from QIP in December '23, which were marked only for the purpose of expansion. So we have invested that fund, and we have withdrawn that fund from the fixed deposits and we have used that fund for the purpose for which it So that is the reason why this is not showing this year as much as the, let's say, the other income, interest income as it was last year.

[Operator Instructions] The next question is from the line of Nandan Pradhan from Emkay Global.

So just...

Sorry to interrupt, sir, I would request you speak a little bit louder.

Is this better? Does this help?

Yes.

Congratulations on a good set of performance. So this first question from my side would be on the demand front. So if you could shed some color on how the demand is trending in the underlying markets across CVs, PVs, what are you hearing from the fleet operators? How is the order book coming through for the OEM? So that would be the first question.

Yes. So the demand in the tire industry growth is expected to remain buoyant for FY '27. On the back of healthy demand in the replacement and OE market, we have not seen any order books getting cut from any of the OEM, whether it be CV, passenger or any other line. On the account of geopolitical uncertainty, there has been a little bit of uncertainty in the market. Some supply chains have disrupted. But however, the underlying structural demand remains intact, and we continue to be optimistic about FY '27 in that fashion. Though the auto industries had a double-digit growth overall, in FY '27, we see a strong and a mid-single digit in some categories coming in for FY '27. I think more or less is going to be in a good moment.

And the second question would be on the CapEx. I mean, as you mentioned, about INR 1,200 crores of outlay every year. So this INR 5,000 crores essentially also involved the INR 1,130 crores that we had already announced and would be under way at the momentum.

This is in addition to that.

This is an addition. So then that if you go over or -- so the INR 1,130 crores gets completed this year.

No, INR 1,130 crore will get completed by quarter 3 or FY '28.

Okay. And...

Only recently we started working on it.

Understood. Got it, sir. And sir, lastly, on like you mentioned on commodities, we do see some pressure. So how are we looking at in terms of, say, Q1, Q2 to give some context, I think PR had highlighted that there could be some demand moderation because of the price hikes that are being taken. So if you could share your thoughts on the same in Q2 or H2.

No. On the raw material prices, we are seeing an increase. In Q1 alone, we are seeing nearly about 18% to 19% price increase, and going forward, actually, that will all be depending on the wall, but we are seeing some softening to an extent of the crude oil prices. This may have a positive impact on bringing down the raw material prices as we go forward from Q2 -- beyond Q2 onwards.

[Operator Instructions] The next question is from the line of Chirag Jain from Emkay Global.

I just wanted to understand the pricing action. You mentioned about close to 5% price hike we have taken in the domestic market, how the overall industry has responded? Have the other players also taken sort of similar price hike? Any thoughts on the competitive scenario on the ground?

Yes, sure. The competition also has in tune with the price hike. And I would say they are also in the same range as what we have said.

Understood. And we have seen 1 or 2 large players looking to enter the industry, one of the off-highway player has announced big plans over the next few years with respect to TBR, PCR and two-wheeler. So how do we defend our competitive positioning over the next 3 to 5 years. Can you share some thoughts over here?

Look, in the commercial tires in the CV, we are serving the largest OEM players in India, and we are a very strong share of business with them, plus we are commanding a lot of premium positioning and innovative products, which we have given to the market. And into the aftermarket, we are also quite entrenched all India. We are very successfully having a fleet management program. And within that selling miles, which is the mobility solution business, that is a star product and offering to the consumer. And there we have definitely created a lot of strong boundaries and walls for other players to duplicate that. And we are actually accelerating that offering in the market with lots of digital interventions. So I think this is the piece of the CV. And in the passenger car, we are also entrenched in serving the larger OEMs, and there's who meet their norms is quite stringent. You have to invest in technology across the products, actually to sort of come to their norms. There, we have also given the market a lot of innovative products like then smart tires and even our premium offering in Levitas. So -- and we are well increased in the domestic market. So -- and we are continuously investing in our brand as well. So I guess these are some of the areas in which we are definitely having a leadership position.

Understood. And just lastly, our expansion plan for the next 5 years, as you highlighted yesterday, has been largely centered around TBR and PCR which is obviously our core areas. But any thoughts on the 2-wheeler space or on the off-highway space, do we have any major plans to ramp up that part of the business?

Yes, sure. We are growing steadily in the 2-, 3-wheeler space. We have -- we are right now, increasing our productivity in our given space. And also, we are outsourcing tires in the 2-, 3-wheeler and we'll -- we intend to increase our outsourcing to increase our presence for 2-, 3-wheeler in the coming quarters.

The next question is from the line of Vijay Pande from Axis Capital.

Just want to clarify, you mentioned cash outlook for this year will be around INR 1,200 crores. But like the CapEx plan for the next 3 years comes out to be around INR 6,000 crores. I just want to understand what is -- how do you plan to do? There will be...

Sorry, you please complete your question.

No, no, that's it.

So INR 1,200 crore I mentioned for the financial year '27. And of course, if there is a requirement to spend more, that is definitely possible. As you can where you will see the kind of cash generation we have today. And even in FY '26, we had cash generation of more than INR 1,600 crore. I've seen all that, we expect that this cash generation over the years will increase further. And the total amount of outlay includes also the loans which we will take. So the total amount of INR 6,000 crores of projects will have the debt to equity for the second project, which we have announced yesterday of about 2 is to 1, right? So we have to take the funds from the bank and also including our internal accruals, the total amount of the cash outlay of about INR 6,000 crore is definitely possible in next 3 to 4 years.

[Operator Instructions] As there are no further questions from the participants, I now hand the conference over to the management for closing comments.

Yes. Thank you. I think we have been able to resolve and address all your queries and this has been a very good interaction as usual. And I would like to thank you once again for all these questions. And you can get back to us in case of any further clarity required through which is already in the public domain. Thank you so much, and I would now close the call. Thank you.

Thank you. On behalf of Emkay Global Financial Services Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.