JK Tyre & Industries Limited (530007) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to JK Tyre & Industries Limited Q1 FY '27 Earnings Conference Call hosted by Emkay Global Financial Services. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Chirag Jain. Thank you, and over to you, sir.

Thank you, Atharva. Good afternoon, everyone. On behalf of Emkay Global Financial Services, I welcome you all to the 1Q FY '27 Earnings Conference Call of JK Tyre & Industries Limited. Today from the management team, we have with us 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. I will now hand over the call to the management team for their opening remarks, post which we will open the floor for Q&A. Over to you, sir.

Yes. Thank you. Good evening, everyone, and I again welcome you all to JK Tyre Q1 FY '27 Earnings Con Call. Let me start with the macroeconomic perspective. The Indian economy Q1 FY '27 showed solid growth supported by strong domestic demand. The industry showed resilience, but external uncertainty and higher input cost weighted [ weighed ] on profitability. The real GDP is projected to grow at 6.6% in FY '27. The country's growth outlook continues to be supported by robust domestic consumption, steady service activities, government focus on CapEx and supportive monetary and fiscal conditions. The recent signed FTA with several nations include EU, U.K., et cetera, which argues (sic) [ augurs ] well to strengthen India's export and trade, which will help cushioning the impact of the macroeconomic volatility, while simultaneously penetrating deeper into these markets. In Q1 FY '27, Indian auto industry poised another consecutive quarter of record performance across all sectors, registering high double-digit growth, supported by sustained demand momentum across urban and rural markets on back of benefits of GST reforms, rising infrastructure activities, higher freight movement, new model launches, along with availability of ease in financing, support by lower interest rate. During the quarter, EV segment witnessed a leading growth of 23%. CV grew by 14%. 2/3-wheeler segment grew by 14% on a Y-o-Y basis, continuing with record performance in FY '26, led by demand momentum. Farm segment also performed very well with a robust growth of 22% despite concerns of below normal monsoon. Coming to JK Tyre in Q1 FY '27, we have witnessed a steady performance and recorded consolidated turnover of INR 3,956 crores, supported by strong demand momentum across segments. The performance is driven by focus on customer centricity, product excellence and sharp execution across markets. During the quarter, domestic sales volume grew by 25% year-on-year basis across both replacement and OEM markets, with increasing contribution from higher value-added products. The continuing West Asia crises led to a steep increase in raw material prices approximately by 20% vis-a-vis quarter 4 FY '26, which impacted our gross and operating margins. We are offsetting the same by taking selling price increase in a staggered manner, enriching our product mix, higher share of value-added products, operating leverages and taking efficiency improvement measures. We are hoping that the recent modernization in -- moderation, I beg your pardon, in commodity and crude oil prices are expected to lower the input cost and improve profitability margins going forward. We are optimistic that the demand momentum in the automobile and in tire would remain intact in the medium term, supported by new launches, strong replacement market needs and rapid infrastructure growth and rising vehicle parc. Rural markets continue to gain traction in line with urban markets, driven by rising incomes, improving infrastructure and growing aspiration for quality products, which is translating into increased vehicle ownership and thereby accelerating the tire demand. We are strategically expanding our rural distribution network to cater to this emerging demand. At JK Tyre, our focus remains on sweating our assets fully, improving product mix, leveraging premiumization and EV-oriented portfolios. This, together with enhancing digital and manufacturing excellence, by leveraging IoT, AI and ML and deepening our customer engagement to deliver reliable, relevant and future-ready mobility solutions. Our mobility business continues to register high double-digit growth, driven by connected and intelligent solutions. We are establishing pan-India ecosystem, which is supported by a network of 100-plus truck wheels and 700-plus pit stops, enabling seamless and timely on-road service. India's EV ecosystem is growing rapidly with customers moving from IC to EV on back of surging fuel cost, improving cost of -- economy and wider model availability. We have witnessed a double-digit growth in overall EV volumes over previous quarter. We offer a full stack solution for EV tires and are well prepared to lead this emerging trend. It is my pleasure to bring to your attention that JK Tyre holds the international benchmark in raw water usage and energy consumption, and our aim is to grow responsibly, reducing resource consumption and strengthening long-term resilience. I'm proud to share that our Vikrant and Chennai tire plant have received an International Safety award from the British Safety Council. CII has also recognized several of our plants for sustainability, environment, health and safety practices. Our Global Tech and Innovation Center, RPSCOE, has signed an MOU with National Institute of Engineering, Mysuru, strengthening industry-academia collaboration. This partnership aims to drive innovation in tire engineering through leveraging emerging technologies like AI and data-driven solutions. Keeping our optimistic outlook on tire demand, we stand committed to expand our manufacturing capabilities as already announced in the previous quarter for INR 4,980 crores for PCR and TBR at Chennai tire plant. Now I would like to take you through some of the key operational highlights for Q1. Domestic markets recorded a healthy volume of 25%, led by a robust 42% growth in OEM. TBR volumes in OEM market grew by 18% and in the replacement market by 15% on a Y-o-Y basis. Passenger line volume grew by 10% on a Y-o-Y basis, led by OEM. Farm category volume also saw significant growth of 31% Y-o-Y basis, contributed by 35% growth in OEM and 25% in replacement. 2/3-wheeler category volume in the OE segment registered a high double-digit growth of 17%, while replacement volume grew by 48% on a Y-o-Y basis. Now I would request Dr. Bajoriaji to talk about the performance of Tornel.

Thank you, MD, sir. I will begin with a brief overview of the operating environment in Mexico. Starting current year 2026, Mexico's macroeconomic position and domestic environment is witnessing an improvement as evident from the appreciation of Mexican peso against U.S. dollar on a year-on-year basis, which signals a rebound in investors' confidence in the economy, its policy framework and echoes greater external stability. As per Mexico's fiscal authorities, the economy is now better placed and is expected to achieve a GDP growth of more than 1.5%, outperforming the IMF's latest projection of 1.2% for 2026. Talking about the Mexico tire market, it is poised for a balanced growth with momentum in OE market, a resilient replacement market and higher export potential with focus on local sourcing. During the quarter, operations at JK Tornel Mexico were impacted due to ongoing geopolitical disruptions, resulting in constrained availability of key inputs. Furthermore, productivity enhancement negotiations with workers resulted in IR issues, which have since been resolved. We would like to assure you that dedicated efforts are underway to continuously enhance sales and profitability going ahead. To cater to the emerging demand for our products, we are currently undertaking an upgradation and modernization project at JK Tornel which will help in further strengthening of our competitive position in local and other markets as well. With that, I would now like to invite Mr. Sanjeev Aggarwal, the CFO, to take you through the financial performance of JK Tyre for the first quarter of FY '27. Thank you.

Thank you very much, Dr. Bajoria. Let me briefly share the key highlights for Q1 of FY '27. Number one, the company recorded a consolidated revenue of INR 3,956 crores, which is up by 2% on Y-o-Y basis as against INR 3,891 crores in the corresponding quarter. Consolidated EBITDA for quarter 1 was recorded at INR 268 crores as compared to INR 424 crores in Q1 of last financial year. EBITDA margins on a consolidated basis in quarter 1 were recorded at 6.8% versus 10.9% in Q1 of FY '26. Average raw material cost in Q1 was up by 20% on a sequential basis. Cash profit for Q1 stood at INR 169 crores vis-a-vis INR 309 crores in the corresponding quarter. Profit after tax for the quarter stood at INR 43 crores. Installed capacities in India were fully utilized across segments, including for TBR, PCR, 2- and 3-wheeler segments. In quarter 1, export volumes from India remained steady despite geopolitical uncertainties and were up by 2% on a sequential basis over quarter 4 of last financial year. Consolidated earnings per share in quarter 1 stood at INR 1.55 per share, which was high at 6.03% -- INR 6.03 per share (sic) [ INR 5.7 ] In quarter 1 of last year. Return ratios continues to remain robust and healthy. Consolidated net debt as on 30th of June '26 stood at INR 4,945 crores, which is up by INR 500 crores on sequential basis. The overall debt of the company has moved primarily on account of increase in CapEx-led long-term loans disbursements and additional working capital required due to increased raw material and selling prices and the volumes -- and the operational -- operating volumes of the company. The balance sheet of the company continues to remain healthy and leverage ratios are in comfortable zone. Net debt to equity and net debt to EBITDA remains 0.81x and 2.56x as on 30th of June 2026. We have already circulated our earnings presentation, which is available on our website as well as on stock exchange website. And we open the forum for question and answer. Thank you.

The first question comes from the line of Vijay Kumar from Axis Capital.

A couple of questions. First one is India business. So can you help us understand what was the volume growth for the quarter 1? Because when you say 25% growth in volume, so I just want to understand whether you're referring it to broader industry growth or is it like growth for us because our revenue growth was around 14% for India business. So just want to like collate both volume growth and revenue growth for India business?

Yes. So our domestic volume growth was 25% on a year-on-year basis from the corresponding quarter. So the volume growth in numbers, which includes replacement and OE, so domestic sales.

Yes, sir, then that implies that pricing was down Y-o-Y because revenue growth in India business is 14%, right? Can you help us absorb this gap?

So there has been an increase in price and the net effective price is coming to roughly around 5%. And -- we are talking about on the stand-alone basis, right?

Yes, yes, stand-alone basis.

On sequential basis from the previous quarter, the 5% increase in NSR is roughly around same.

And we are -- just to add to that, the OEM growth was in volumes, 42%. And in terms of price, which they pass on is always a lag. So it doesn't really sit on the first quarter. It will come in the subsequent quarters.

Okay. And sir, there was -- can you also help us about the Mexico business because that has been quite volatile in the Mexico business. And fourth quarter was also weak and first quarter had also declined significantly on Y-o-Y basis, should we expect it to improve from here? Or what is the normal level? What is the expectation for FY '27 regarding the Mexico business?

Yes, Mr. Vijay. The thing is, as I said, that during this quarter, the operations were impacted due to the ongoing geopolitical disruptions and resulting in constrained availability of key inputs, which also obviously affected the output. And -- but the productivity enhancement negotiations also came in the way this time, particularly this quarter. But now everything is resolved, and we have again started getting the normal production. And I can only assure you that this year, remaining 3 quarters, we will be definitely showing you better results than what you have seen in Q1.

Okay. So in terms of Mexico business, the input like the supply chain issue was related to -- can you provide the specific which part it was, which component it was?

See, mainly, we are getting the raw material from 2 sources. And because of the shipping disruptions and also because the container, as you would have known by now, the prices have absolutely shot through the roof. So all those things have affected us, and we have been getting a lot of our bead wire from China. So that has also affected us. The natural rubber prices, as you've just heard, it is a similar story in Mexico as well, where almost about 18% increase has already taken place. And we are now getting back to the normalcy because certain shipments which were delayed are now reaching one by one. So I can only tell you that, yes, this was a little softer quarter. But going forward from here, you will see a better production, better sales and therefore, better bottom line.

Okay. So concern was that China bead part, that geopolitical issue between U.S. and China will still continue. But -- and sir, how much price increase we have taken in the first quarter? And what is expected for the second quarter?

Yes. So the first quarter, we took a price increase of nearly about 5%. And further, we are going to be taking in the range of about 8% to 9%.

And this -- some of this is already taken of 8% to 9% or all of it will come in the later part? Like 5% was in Q1 only, right?

Yes. But till now, we have already taken about 11%.

Cumulatively.

Cumulatively. And further, we have 5% to 6% going forward.

[Operator Instructions] The next question comes from the line of Bharat Bhagnani from Living Root Analytics.

My question was on the remaining 3 quarters of this year, like somebody was saying that we are expecting better sales, better volumes and better pricing, better profits. So could you help us understand -- could you help us quantify what exactly are we aiming for this year, this financial year?

Are you talking about India domestic market or you're talking about the Tornel? Because Tornel, we have, I think, very clearly explained. So Mr. Bhagnani, if this is about India, then I can tell you and Anshumanji will elaborate. Because now the intensity of war and therefore, the supply side problems on account of the raw material have, to a large extent, been resolved. And we are hoping that these raw material prices, barring maybe some increase of between 8% to 10% as we have been noticing because of the inventory, which is at a higher price we ever accumulated actually even now. So that is there in the inventory. But otherwise, things are normalizing. And once these are stabilized, then we will be able to see a good margin improvement from at least second half of this financial year, right? So we are expecting all the 3 quarters now onwards should be on a progressive basis, improving in terms of margins.

Okay. Are you concerned at all about the natural rubber prices?

Natural rubber prices, we have seen some -- in fact, some softening, which has happened. And so we see that probably going to be in that range-bound fashion.

Okay. Okay. So -- but you feel that once you take a price hike, it should be able to cover that, right?

Yes. So we are expecting that the price increase, which we have already taken till date plus what we are contemplating going forward. So this should cover the entire increase in raw material prices, barring maybe -- I'm not talking about maybe 1% or 2%. But that, of course, we are trying to offset through the cost reduction measures, higher operating leverage and so many other things like, as Anshumanji mentioned earlier about the product mix and higher premiumization. So those kind of measures will also improve the margins. And we will -- we should be able to come back to the normal range of -- broadly the normal range of 11% to 13% in the second half.

Okay. And what kind of revenue growth, Sanjeevji, are we expecting this year on an overall basis? Because I think there's some new capacity, which has come online as well, right?

Yes, this was already there. And somewhat still some ramp-up is happening in the case of passenger car radial tires. So we are expecting that everything will get, let's say, up and steam running. So by the second -- sorry, third quarter of this financial year fully. And we are expecting more than double-digit rather growth in the revenue because of the price increase and the volume increase, everything put together should give us a good double-digit growth.

Double-digit. So similar to what we did in -- until March '26, about somewhere about 10%, 11%?

Yes.

Okay. And what should be the guidance for -- I know you don't provide much guidance, but just trying to understand, since the first quarter was a little bit on the lower side in terms of the operating margin, what can we expect for the whole year?

For the whole year, this will all be dependent on the raw material prices, of course, but we are trying to, let's say, maximizing it. But yes, may not be to the extent of what we have seen in the last financial year because of the first quarter. But yes, in the range of maybe about 10% to 11% or something like that, if I have to make a guess.

Got it. And sir, final question on the balance sheet. Are we planning to increase any debt this year?

There will be somewhat increase in the debt because we are implementing projects and the funds which we had earlier in cash that have already been utilized. So we are now generating internal accruals that is funding the projects. And also somewhat loans we will have to take in a progressive manner again. So to that extent, but again, we are repaying also a large amount of debt every year. So it will not be a big jump. But yes, because of certain operational requirements, the working capital increase has happened because of higher raw material and selling prices. So to that extent, I think some increase will be happening and some CapEx-led kind of disbursements. So broadly, I'm expecting that INR 500 crores to INR 700 crores overall in this financial year increase should be there. But this will provide a lot of the increased operating, let's say, the EBITDA going forward in absolute terms. So that will help in growing the business.

The next question comes from the line of Krish Jain from NAFA. Asset Managers.

Could you please point out what is the capacity utilization across your TBR, passenger line radial, 2/3-wheelers and in the Mexico business, please?

Our utilization has been around 95% in the JK Tyre's stand-alone and consolidated around about 80%. And we have been able to utilize -- nearly full capacity utilization for truck radial tires and 95% of passenger cars and 2/3-wheeler was also nearly full utilization. And non-truck bias, which we -- LCVs and farm, and that has been also a very sharp utilization towards 95% plus.