JK Tyre rallies 13% after stock split; volume soars

MUMBAI: Shares of JK Tyre & Industries jumped as much as 13 per cent in trade on Friday. At IST 1 pm, the scrip was quoting at Rs 157.45 on BSE, up 12.79 per cent over its previous close of Rs 139.60. Huge demand was seen for the stock after it was split to face value of Rs 2 from Rs 10 in the Thursday's trading session.

Volume soared after the stock split. So far, over 17.70 lakh shares have exchanged hands on BSE, compared with a two-week average of 3.77 lakh shares.

One of the key factors for the recent sharp rise in tyre stocks has been a sharp fall in crude oil prices. The oil prices are down 44 per cent year-to-date and further decline is expected in coming months.

According to a report by Macquarie, changes in raw material cost show 80 per cent correlation with changes in crude oil prices. A 40 per cent drop in oil prices could expand Ebitda margins of companies by nearly 240 basis points.

Crude derivatives are the key raw material for tyre companies; the industry has already benefited from lower rubber prices earlier.

The upward momentum is expected to continue as earnings and margins are expected to pick in next couple of quarters, say analysts.

According to Mayuresh Joshi, vice-president for institution at Angel Broking, earnings of tyre companies such as JK Tyre will rise substantially in the coming quarters.

“Once the inventory of the earlier rubber prices is over probably in fourth quarter, the companies will exhibit stronger earnings momentum and margin expansion Q1 onwards. We remain extremely optimistic on tyre stocks,” Joshi said.

According to the management, the company is witnessing gradual improvement in demand on ground and it may grow at 15-20 per cent going forward.

In an interview to ET Now, Raghupati Singhania, CMD, JK Tyre said raw material pressures are expected to ease in the medium term. JK Tyre is working at 85 per cent capacity utilisation and it is expected to improve to 95 per cent, if demand sustains.