JK Tyre rating upgraded 'CARE A+' by CARE Ratings

CARE Ratings has upgraded JK Tyre's Long-Term Issuer Rating to CARE A+ from 'CARE A'. The rating takes into account the improved operational and financial performances of the company in FY23, as characterised by increasing scale of operations, better working capital management and improved leverage and coverage indicators, which is expected to sustain going forward as well.

During FY23, the consolidated revenue witnessed a growth of 23%
resulting in compounded annual growth rate (CAGR) of 10% over the past 6 years.

The moderation in the mix of raw materials, along with the company’s focus on increasing the share of premium SKUs in the sales mix, increasing the share in the passenger car market, and improving scale and capacity utilisation is likely to aid enhancement in the profitability of the company in FY24.

CARE has also upgraded the outlook of Cavendish Industries Limited, a subsidiary of JK Tyre, to 'stable' from 'negative'.  

The debt levels are expected to peak in FY24, as the planned truck and bus radial (TBR) and passenger car radial (PCR) capacity is completed by March 31, 2024, or early Q1FY25. 

The ratings also factor in its strong position in the domestic tyre industry characterised by established market position in the TBR
segment, with presence across all the user segments and its wide marketing and distribution network. CARE ratings expects the
robust passenger vehicle demand is expected to drive the volume growth in FY24 followed by commercial vehicles and 2/3-
wheelers.

The ratings are, however, constrained by volatility in raw material prices, exposure to foreign currency fluctuation risks, and competitive nature of the industry. Any cost overruns in the announced capacity expansion plans by JKTI, delays in deriving the likely benefits and/or a sharp rise in the raw material prices, increase in import of Chinese tyres and slower-than-expected de- leveraging could lead to deterioration in the credit metrics which remains a key monitorable.