JK Tyre surges 10% on completion of first phase of capacity expansion.

Shares of JK Tyre rallied 10 per cent to hit a 52-week high of Rs. 228 in recent's intra-day trade, amid heavy volumes. This upsurge came after the company announced completion of first phase of capacity expansion of its radial tyre (PCR segment) manufacturing facility at Madhya Pradesh. The phase one expansion involved an investment of Rs. 312 crore.

This expansion, therefore, will increase the annual production capacity of the plant by 31 per cent, from 3.9 million to 5.1 million units per annum, the company said.With an investment of about Rs. 1,000 crore, JK Tyre planned a two-phased expansion at its existing Banmore facility to cater to the increasing demand for passenger car radial (PCR) tyres. The company is now in the second phase of expansion, with an additional investment of Rs. 617 crore that will increase the capacity by an additional 31 per cent by April 2024.

On Friday, June 30, the stock surpassed its previous high of Rs. 213.50, touched on December 9, 2022. At 1:26 pm; it quoted 9 per cent higher at Rs.. 225.80, as compared to 1 per cent rise in the S&P BSE Sensex. The trading volumes on the counter jumped nearly five-fold as around 8.1 million shares changed hands on the NSE and BSE.

Meanwhile, on June 16, 2023, analysts at India Ratings and Research (Ind-Ra) upgraded JK Tyre & Industries (JKTIL’s) long-term issuer rating to ‘IND A+’ from ‘IND A’ with a stable outlook.

JKTIL’s 'negative' outlook in the prior year reflected Ind-Ra’s concerns about the net working capital cycle of the company staying higher than peers and Ind-Ra’s expectation of the company's limited ability to pass through costs, pressuring its margins.

Additionally, JKTIL was aiming for volume growth to achieve higher capacity utilisation.  A combination of the above three factors (higher growth, elevated working capital cycle and lower Ebitda) would have led to a higher reliance on debt to support growth, resulting in the credit metrics remaining weak, said analysts.

In its current note, analysts said that the above concerns were addressed with the working capital cycle being largely in line with peers, aided by tighter control on inventory, and well-managed receivables.

"JKTIL has also demonstrated an ability to pass-through costs resulting in largely stable Ebitda/tonne despite the raw material price volatility. The ability to pass through costs and manage working capital, despite healthy growth in revenues (brownfield capacities coming onstream and increased capacity utilisation), is likely to result in positive free cash generation even going forward," the ratings agency added.

BS