JK Tyre & Industries Limited (JKTYRE) Q2 2027 Earnings Call Transcript

Ladies and gentlemen, good day, and welcome to JK Tire and Industries Ltd. Q2 FY27 Conference Call, hosted by MK Global Financial Services Ltd. As a reminder, all participant clients will be in the listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing star then zero on your touchtone phone. Please note that this conference is being recorded. I now hand over to Mr. Chirag Jain from MK Global Financial Services Limited. Thank you and over to you, sir.

Thank you, Anam. Good evening, everyone. On behalf of MK Global Financial Services, I welcome you all to the 2Q FY27 Earnings Conference Call of JK Tyre and 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. Mandar Deo, President India, Mr. A.K. Kinra, Financial Advisor, and Mr. Sanjeev Agarwal, 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.

Yeah, thank you very much. I welcome you all to the JKTIQ to FY27 earning conference call. I would like to take this opportunity to wish you and the family a very happy Vipavali and a festive season. I am glad I am here, and with me, there is Dr. Arun Uyaji, Director and President International, Dr. Mandar Dev, President India, Mr. A.K. Kindra, Financial Advisor, and Mr. Sanjeev Agarwan, CFO. Let me start with the macroeconomic prospect. Despite supply chain disruption, high commodity prices, and geopolitical uncertainties, Indian economy has outperformed the global economic growth, showing a resilience with real GDP growth of 7.8% in Q1, FI27, and expected 7% plus growth in Q2, FI27. This robust growth has been driven by rising domestic consumption, high impetus on infrastructure investment by government, and strong macroeconomic fundamentals. Continued strength in the service sector along with steady manufacturing growth is helping to sustain the growth momentum. However, in recent developments around the surge of West Asia conflict remains a critical factor, given their implication for India's exploration, external balance, and corporate profitability. Overall, India's economic backdrop remains supportive to growth with GDP forecast for the full year F527 revised up to 7.1 from the earthwide projection of 6.7 by IRBI. India's automotive industry is currently passing through a healthy demand cycle with broad-based growth visible across segments and is a good indicator of sustained growth momentum across industries. Policy leverage support from government. We have the introduction of GST 2.0, PLI scheme, Automotive Mission Plan 2026. Vehicle staff policy have played a defining role in accelerating the auto sector's transformation. Indian auto industry delivered a robust performance in the first half of FY27, The growth in this quarter had come on the back of GHD reform, onset of festive season, resilient rural and urban markets, We see that the Indian auto industry has significant long-term growth potential on the back of low vehicle penetration, increasing customer aspiration, rapid traction in premiumization. Coming to J.K. Tire, in Q2, FI27, we have achieved our highest ever turnover of Rs. 4850 crores, up by 20% on a year-in-year basis. This performance was broad-based across markets and product segments. India's business has picked up significantly growth momentum towards the GST 2.0 with an increase in OE sales of 65%, resulting in 32% growth in the overall domestic sale on a year-in-year basis. This has been delivered through a disciplined execution across markets and segments. The steep increase in price of the key raw materials due to West Asia prices and continued volatility have triggered the inflationary pressures, impacting the profitability margins in the near term. During this quarter, as a result of these headwinds, the average raw material cost has increased by 9% over the previous quarter. In addition, 22% increase in shoe-1 FY27. However, these cost pressures are being managed through a combination of improvement in product mix, collaborative price actions, and internal efficiencies. Allegra TCR segment continued to remain a cornerstone for our product strategy with extremely robust double-digit volume growth of 76% and 35% respectfully on a year-and-year basis, There by reinforcing OEM's high confidence and strong interest in JKTire's technology and brand positioning. Premiumization continued to act as a key enabler of sustained earning growth, particularly within the passenger car category. At JKTire, nearly 30% of passenger line volume sold in H1 are towards the premium SKOs. That is 16-inch and above, tires. This segment has maintained a high stagger of nearly 20% over the past 2-3 years, underscoring the shift in the consumer preferences. India's transition to electric mobility is accelerated rapidly on back of strong consumer demand. Our J-Gitar electrification continues to drive a meaningful surge in overall volume stored across the segment. And in time with this, we are proud to share that our EV volume has surged over 24% over the previous quarter. I would like to especially mention our leadership position in the electric truck and bus segment. We are delighted to announce that the recently launched MG sector, Tomahawk, has been introduced on our EV-specific tires, that is, on Ringer XPE, reinforcing the strong trust placed by us by the leading OEMs. I would like to reiterate that with our diverse range of products, Legitire is committed to deliver excellence through its innovation and advanced mobility solution. In order to strengthen our customer reach, we have further added numerous brand shops, 250-plus pit shops, and several mobility fleet accounts during the quarter. Apart from the above, 80-plus new dealers have been on-boarded in Q2, out of which nearly 50% are in rural dealers and distributors. We are proud to announce that J-Guitar has further expanded the OTR range of tyres by introducing premium and application-specific products. The automotive landscape is undergoing a rapid transformation as digital technologies continue to redefine how vehicles and tires are designed, manufactured, and sold. J.K.T.I.R. remains deeply committed to embedding emerging technologies, including IoT, AI and ML, into how we design and manufacture products, optimize supply chain, and serve consumers across geographies. We continue to remain confident about the opportunities ahead, supported by our dedicated R&D and innovation capabilities, a robust product portfolio, sizable Apex plans, and unwavering commitment to creating enduring value for all stakeholders. It is with utmost pride we announce that JITAR has been awarded with the momentous Mahatma Award for Community Initiative 2026 for the fourth time in a row. This receipt of this prestigious award is a strong demonstration of the company's sustained efforts towards community development and social welfare. Now, I would like to take you through some of the key operational highlights for Q2. Kuskic market recorded a healthy volume of 22%, driven by a robust 25% in the OE market, and similarly 20% in the replacement market. TBR volume in the OEM grew by 76%, and in the replacement market by 9% on a Y-on-Y basis. 1. PLR volume witnessed an overall growth of 14% led by OEM market growth of 35% on a year-in-year basis. 2. Farm category volume saw significant growth of 16% in the replacement market and 6% in the OEM market. 3. Further export of farm also saw an increase of 11% on a year-in-year basis. Two-three-wheeler volumes in the replacement market jumped more than 2x, while OEM volume grew by 11%. Overall growth in this segment was 34% on a year-on-year basis. Now, I would like to request Sri Bajoriaji to talk about the performance of J.K. Tondon.

Thank you very much, MD, sir. I Will Begin has shown signs that inflation has edged slightly above the Bank of Mexico's target of 3% for the period ending September 2026. The central bank is expected to maintain a hawkish monetary stance to keep inflation expectations anchored going forward. International Monetary Fund, Mexico's real GDP for 2026 is projected to grow by 1.5%, reflecting a modest and gradual recovery following an extended period of fiscal consolidation and tight monetary policy. The Mexican peso has appreciated against U.S. dollar by nearly 10% in the last six months, reflecting confidence in the country's macroeconomic fundamentals. Mexican economy remains positive and continues to be shaped by several global factors, including U.S. trade policies, review of USMCA, growth in domestic manufacturing and services sector. The second quarter of FY27 marked an important phase in the company's recovery journey as it progressively resumed operations with a sharp focus on operational excellence, cost optimization, and quality enhancement initiatives. To share that our financial performance witnessed a significant improvement during the quarter, with total revenues reaching Rs. 479 crores and an EBITDA of Rs. 23 crores, reflecting the positive impact of the measures undertaken by the management. Due to geopolitical disturbances and supply chain constraints, there has been a constant pressure from the increasing raw material prices. However, the company is implementing necessary corrective actions to mitigate this impact. Parallelly, our upgrade and expansion project at J.K. Tornell is now progressing for profitability. A very happy Deepavali. With that, I would now like to invite Mr. Sanjeev Agarwalji to take you through the financial performance of J.K. Tyre for the second quarter FY27. Thank you.

Thank you very much, Dr. Balodian. Let me briefly share the key highlights for Q2. The company has recorded its highest ever consolidated revenue of Rs. 4,850 crore in the quarter, up by 20% on YOY basis, as against Rs. 4,026 crore. Consolidated EBITDA for the quarter was recorded at 343 crores as compared to 268 crores in Q1 of FY27, which is up by 28% sequentially. EBITDA margins on consolidated basis were recorded at 7.1%, which is 6.8% in the previous quarter. Average raw material costs in Q2 were up by 9% of sequential basis, in addition to 22%, which was seen in Q1. Cumulatively, this is 31% increase in raw material prices. Cash profit for the quarter was Rs. 234 crore, as against Rs. 169 crore in the previous quarter, which is up by 39%. Profit after tax for Q2 stood at Rs. 60 crore, up by 40% on sequential basis. Capacity utilization levels in India remain high at above 90% across key segments, including for truck and bus radial, passenger line radial, two-three-wheeler, and other segments. Despite geopolitical uncertainties, exports from India were up by 14% on a sequential basis over the previous quarter. Consolidated EPS in Q2 stood at Rs. 2.29 as against Rs. 1.55 recorded in Q1 of the financial year. Consolidated net debt as on 30th of September is 5,696 crores, which is up by 751 crores on quarter-on-quarter basis. The overall debt of the company has moved primarily on account of increased capex-led long-term borrowing and additional working capital requirements for higher raw material prices and higher volumes. The balance sheet of the company continues to remain healthy with key financial issues remaining in acceptable levels. Net debt to equity was recorded at 0.94x as on 30th of September, 2026. We have already circulated our earnings presentation, Q2 earnings presentation, which is available on our website, as well as on the website of Stock Exchanges. And now we open the forum for question and answer.

Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and 1 on the touchstone telephone. If you wish to remove yourself from the question queue, you may press star and 2. Participants are requested to use handsets while asking questions. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question is from the line of Sarthak Jain from Desvilado Advisory. Please go ahead.

Good afternoon and thank you for the opportunity. So, the management has previously identified...

Can you please, please be louder. We can't hear you. Please come closer to the microphone.

Hello.

Yes, please. Yeah, so the management has previously identified Europe as a long-term export market. Highlighted the development of Europe-specific products. With import duties on Indian tires in the UK now eliminated under the India-UK trade agreement, have you seen any tangible increase in the UK orders or shipment since July?

I'll answer that. Yes, we are also evaluating that UK tariff right now, and as I had mentioned earlier in the call, that we are developing and developed many STUs, Europe-specific. So, that we will be definitely taking advantage of the welcoming FTA, and we are already supplying parts of Europe through our exports.

Okay. Thank you so much.

Thank you. The next question comes from the line of Deepak Malhotra from Cabgro Capital Advisors, LLP. Please go ahead.

My question is regarding the raw material costs. I mean, about 60% basically of the tyres is the raw material cost, and there we have typically 3-4 key items, which is carbon black, natural or synthetic rubber, and steel and tyre cost. Now, my question is basically what kind of inflation you are basically seeing in each of these items and your ability to pass on it to the ultimate customer. Thank you.

Sorry, can you repeat what kind of, what kind of, did you say that what kind of acceleration you are seeing in the raw material prices?

Yeah, I am seeing like carbon black prices have gone up.

Yeah, sure. So, we have seen the raw material whole basket to increase by 9% on a Q&Q basis, which is on a Q1 to Q2 basis. We have seen, obviously, because of the inflationary pressure and supply chain constraint because of the West Asia, cumulatively, we have seen a staggering 30% increase in the last six months. And our guidance going ahead for Q3 would be a further increase of about 4% to 5%. 4% to 5%. Now, coming to your price increase in terms of our next selling realization, we have been able to increase by 7% Q&Q basis in addition to 4% to 5% in Q1. So, in six months, we have been able to increase it by 11 to 12 percent. And going ahead in Q3, we are planning a further increase in our NSR of 4 to 5 percent.

Thank you. Just looking more granularity in terms of the raw material, because I see the inflation running through all balance sheets, all companies. So, I mean, if you could provide a little granulity in terms of like carbon black, I mean, where you're sourcing from or natural synthetic rubber, how the scenario is looking over, you mentioned already about 5%, but since, I mean, nobody really has it here when the war is going to end. I mean, how is it really looking in terms of the availability and its consequent effect on the prices? Sorry for for being this further. Thanks.

No, no. Okay. But as you know, that crude oil-based raw material is almost in the tune of about 65% to 70%. And there are definitely carbon black, synthetic rubber, butyl, steel cord. They have all increased on a Y&Y basis and even on a Q&Q basis. As the crude oil prices will get softened, these will get softened. So, at a very conservative, we have taken as a basket, a 4% to 5% further increase in Q3. And we see that that price range would remain, hopefully, in the Q4 as well. And in terms of the availability, there is no scarcity or availability issue right now.

Okay. One follow-up in terms of when we see the general automobile numbers for the industry, they have been quite upbeat in spite of this challenging background. So, how do you see the demand situation developing both in India and global? Thank you.

Yeah, well, the demand is quite healthy, and the growth momentum is maintained as we go along in the Q3 as well. In the Q2, because of several reasons, which I stated in the speech, GST infrastructure festive season, We see the demand being steady in Q3 and Q4. As we know, that will be the year-end closing for most of the OEMs. Also, there will be good demand coming in. So I don't see much of a disruption or any problem coming in terms of the demand.

Thank you so much. Wish you all the very best.

Thank you.

Thank you. The next question comes from the line of Vijay Pandey from Axis Capital. Please go ahead.

Thank you for taking my question. If I see standalone revenues, our standalone revenues increased 14% quarter on quarter. You said that realization was up 7% quarter on quarter in Q1. So that means that volume increase was around 7.5%, right? Or is it the right way to look?

Well, the volume increase in the domestic volume increased by 22% year-on-year basis. And OE increased by 25% and 20% we had a growth in the replacement market. And the volume increased of 7% in the export on a Q&Q basis.

At quarter-on-quarter in the domestic market, how was the volume?

On quarter-on-quarter basis, there is overall growth of about 13%, and out of that, the volume growth is equal, so 50% is coming in from volume, and 50% is coming in from the NSR increase. Okay.

Secondly, sir, one thing I want to see was what is the deviation, where is the deviation coming from between the standalone and consolidated? Because for consolidated, the expenses has increased quarter-on-quarter by around 100 crores, but at the standalone, it's broadly flat. And in the standalone business, our RM market has increased in percentage of sales by around 270 pesos, but at console level, it's broadly flat. Can you help us understand what is, are we manufacturing something for the Mexico and then selling it to the Mexico and how is the billing being done? Is it at like arm's length or what is the profitability?

There has been, of course, some manufacturing is done in India for some of the products like TBR and all, which are exported to Mexico, and the billing is done from Mexico only for the exports into the LATEM exports and into the domestic market requirements. But the overall volume growth and the NSR increase, which we have told you, this is volume increases in terms of the percentages, tons increase. So, you might be looking at maybe the numbers and all, but this is basically volume growth in tons, as we have told you.

No, no, sir. I'm not talking about the volume growth. I'm talking about the other expenses. Is it that we manufacture for the Mexico business and then directly sell it to the customers and the billing is done by Mexico? Am I right in this case or we sell it to the Mexico subsidiary and then Mexico sell it to the customers?

To Mexico subsidiary. It is being sent to the Mexico subsidiary, and subsequently, Mexico subsidiary is selling in the market.

And the transaction is that the pricing will be similar for the Mexico business as well as to other customers. Like, consider if we sell the same product to Euro, and we sell the same product to Mexico, the pricing will be fidelized, or...

The pricing is done on an arm's length basis. There are transfer pricing formulas which are actually guiding the prices to be decided for both the prices.

Okay. And so, lastly, our net debt level has increased, and our SCF was pretty negative in the first half. Do you expect it to come down, or will it remain elevated? Any particular reason for the negative SCF, and also, how should we look at the KPEX and the net debt going forward?

Two things, one is to be very clear about this. Why the net debt is going up is because of the 30% increase in the raw metal sizes and therefore the value of the raw metal inventory and the final product inventory has gone up. So, in order to finance that kind of increase in innovative prices, the requirement for working capital has gone up, one. Second is the operating leverages because the volumes have also gone up significantly in the last six months. And I am talking about whether it is quarter one or quarter two. The overall increase has gone up because of the increased volumes. And the third one, because we have been implementing projects, and we have taken up projects for 1130 crore now, again, in TBR and PCR expansions, in addition to what we have completed recently for 1400 crore projects. So, there has been some increase on account of the capex. The large capex which we have undertaken either or is now again under implementation. So, that is the reason. These are the reasons for the increase. But the major increase has happened because of the levels of inventory. And if we can, let's just see in the future if the prices are stabilizing, the chances of anything going up on the working capital requirement rather is remote, and it should come down, because I think the operating efficiencies will creep in, and we will be able to manage the working capital better in terms of the pricing or maybe in terms of the workings.

And the CAPEX guidance, I think last quarter we guided for around 1,200 crores for full year. We have already done 800 crores. So, can you help us? The remaining will be 400 crores or this will increase?

Yeah, this is going to be roughly around 500 crores for the BAMIS period.

Okay.

Thank you. The next question comes from the line of Tanish Nahar from Nahar Finance and Investments. Please go ahead.

Hello. Am I audible? Yes, sir. My question is regarding, like, can you give us a future volume guidance after the CAPEX and also have the price escalation speed for non-crude raw materials?

So the volume growth on account of the capex would be roughly around 1 is to 1 the asset term which we are expecting. Rather 1.1 is to 1, you can consider, because we are now taking up expansions immediately for 11 and 30 crore which is going on, and then thereafter increases roughly around 5,000 crore piece of capex. So, if it is 1 to 1.1 multiple, then that much of turnover will get added to the future revenues. And the second point which you mentioned, sorry, if you can repeat.

Have the non-crude raw material prices peed or do you further see any escalation in them?

So, overall, we give guidance broadly what we see in every quarter, 4 to 5 percent increase in the basket. And this is mainly on account of the increase in crude-based raw material, and also, of course, the natural rubber, which has also, to some extent, moved in to end up with what the synthetic rubber prices are going up, or maybe the carbon flag. Thank you.

Thank you. The next question comes from the line of Aman K, an individual investor. Please go ahead.

Inventory has gone up for two reasons. One is that we have, as we discussed just now, there has been an increase in the raw metal prices to the extent of about 30% in the last six months since the West Asia prices started. And also because of volume increase, and we have also kept some strategic inventory in dormitory. Got it.

And since you mentioned that in the last six months, R&D prices are up by 30%, so is that a correct forecast to account for the rest of the year?

For the rest of the year, I think we are expecting further increase by 4% to 5%. That kind of steep rise hike is not expected, but we can only see maybe in the third quarter we can talk about. We cannot comment much on the further increase.

Got it. And last question was on the farm and tractor segment, sir. I think from this month onwards, we have started seeing some pressure in terms of tractor sales and agri machinery sales. So, is there any outlook that you are seeing in this particular sector that the volumes are going to be under pressure because we also have a higher base for the second half of the year?

Yeah, so there we are seeing some traction coming in from the farm sector, and there definitely some increase in terms of rural income has also seen some positive offshoots. But also there on the simultaneously, there has been some deficit in terms of rain in some agriculture sector. So that might put a little bit of pressure on farm season, which go on. But we are very ready with our products, and we are also supplying to OEMs at large.

Got it. And sir, just a last question for the JK Turner business. Since we recorded the turnaround dish water, is there any particular timeline when we can see the OEM volumes then ramping up, let's say for the supplies to U.S.?

Sorry, sorry, please go ahead, sir.

Please go ahead, please go ahead.

So, you see, you will observe in Q3 and then again in Q4, we are hoping that we will come back to the normal sales, which would be comparable to last year's sales.

And we have, just to add, that from Mexico, US, which we call an export from Mexico, there we've had a triple-digit growth in terms of volume push. So, definitely, as we go along, we will definitely see that traction coming in. So, this is on a wire-by basis?

Yes. Quarter and quarter basis.

Quarter and quarter basis.

Okay. Thank you. Thank you so much, sir, for your time. Thanks.

Thank you. Before we take the next question, we would like to remind participants that you may press star and 1 to ask a question. The next question comes from the line of Abhishek Maheshwari from Sky Ridge Fund Managers, LLP. Please go ahead.

Thank you for taking my question. Sir, I wanted to talk about your EBITDA margins. We have seen it improve from 6.8% In Q1 to 7.1% in Q2, and as you rightly said, there will be more inflation in Q3, and you'll be taking price corrective measures also. So, can we see some gradual improvement, let's say from 7.1% to 8.5%, and 8.5% to 10%, Q3, Q4, can we expect gradual improvement there, or there will be pressure every time, Ajit?

You see that, as I told you, that there is also an unabsorbed cost, which has bleeding from increase in raw material and the ability to pass through. So there is a delta, which has been unabsorbed. And we are seeing another hike of raw material prices in Q3, as we talk about, 4 to 5 percent. And we do have plans to increase our selling price, but there we have two elements. One is the OEM element, which is an index led, which has come in Q2, and some of coming in Q3, there is always a lag effect. But in the replacement, there has been a challenge in terms of the whole pass-through, and we have to be competitive. So, as we are seeing cost pressures, but the good part is that our demand has been quite good, underlining demand, and our utilization has been very healthy in terms of the radial utilization across the plants. So, and plus, we are trading also a very focused manner in terms of the cost efficiency and cost improvements. So, I see that some basic points in going forward in Q3, definitely there would be some improvement in terms of the margins.

Thank you, sir.

Thank you. Thank you. The next question comes from the line of Disha Shah from Shah Capitals. Please go ahead. Good afternoon, sir. I have two questions. One is on QP demand outlook for replacement market. And second is on what is your view and category mix on a standalone basis for Q2?

So, replacement market, we are seeing a healthy growth momentum which would continue, and Q2 has definitely shown that. We are seeing category-wise, we are seeing a high single-digit coming in the TBR. We are seeing a mid-single-digit in the passenger car coming in, in the next, for the medium-term outlook. And what was the other question, please?

Your B-O-N category makes on a standalone basis.

I did not follow. Sanjeevji, would you like to B and U? I didn't understand.

No, it's the same here. I have not understood. What is B-O-N, you said?

The category mix and market mix.

Market mix, okay. Market mix is remaining like almost the same as it was in quarter one, and the replacement market mix is 60% of the total revenue on a standalone basis, and then the OEM is 30%, export is 10%.

Thank you. And category mix?

And category-wise, truck and bus is around 56%, BLR is 28%, 6% is two-wheeler, three-wheeler, and 10% is non-truck-buyer.

Thank you, sir. Thank you. Thank you. Ladies and gentlemen, we will take this as the last question for today. I now hand over to the management for closing comments. Over to you, sir.

Thank you very much for joining this call. And I hope that we were able to provide necessary clarifications on your questions. And thank you once again, and have a good and festive Diwali. Happy and prosperous Diwali and festive.

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