JKTYRE — earnings call

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Prepared remarks

Moderator · Conference Operator

MR. CHIRAG JAIN - EMKAY GLOBAL FINANCIAL SERVICES JK Tyre & Industries Limited August 11, 2025

Ladies and gentlemen, good day and welcome to the JK Tyre & Industries Limited Q1FY26

Thank you very much.

We will now begin with the question and answer session.

The first question is from the line of Abhishek Jain from AlfAccurate Advisors.

Please go ahead.

Abhishek Jain

Thanks for the opportunity and congrats on the decent set of numbers.

Sir, in this quarter, we have seen that margin has improved basically driven by the standalone numbers.

So how the margin trajectory will improve in the coming quarter given that there is a fall in the rubber prices in last couple of months, if you can give some guidance?

Anshuman Singhania

Yes, there has been a margin improvement in this quarter versus the previous quarter with our new & innovative products which are very well received in the market and are gaining traction along with new OEM approvals.

Also, the higher rim sizes tyres in the PCR category are driving good margin expansion in the replacement market as well.

We were up on a y-o-y basis, in terms of the numbers by 32% in the replacement market in the passenger line category and in the Truck & Bus radial segment, we achieved high single-digit volume growth on a year-on-year basis.

So, this is giving us confidence that going forward definitely we will see good traction because as you also heard about the recent repo rate cuts with good monsoon, and along with that, the thrust on the infrastructure push by the government is coming in very clearly.

So, all this augurs well for the demand ahead.

Abhishek Jain

So, gross margin expansion in the first quarter FY26 was around 120 bps quarter-on-quarter.

So how the numbers will reflect in from second quarter onwards as most of the tyre companies are expecting that benefit of the fall in rubber prices will accrue from the second quarter.

So, if you can give some guidance on the gross margin front?

Sanjeev Aggarwal

Yes, you are right.

As we mentioned earlier, the raw material price scenario is likely to remain benign.

And if this continues then definitely, in the increasing demand scenario, we will be able to increase our prices, which will be supportive, as Anshuman ji mentioned.

With the improved product mix and increased volumes, because as you are aware, we have already been implementing projects in PCR, TBR and all steel light truck radial (ASLTR) tyres, which are margin accretive products.

JK Tyre & Industries Limited August 11, 2025 And this will definitely help us in improving the margins going forward.

The NSR improvement will happen, and we are expecting that if the raw material prices remain rangebound, we will be able to come back to the guidance which we have been talking about for the range of margins on EBITDA level.

Abhishek Jain

Okay.

And sir, my next question on the Mexico business Rupee v/s Mexican peso average realization was Rs.4.28 in this quarter, while it has now moved to Rs.4.7 in the last 2-3 months.

So how do you see the benefit of it?

Arun Bajoria

The benefit will occur when we convert the Mexican peso to Indian rupees while consolidating the financial statements in India.

So certainly, you are right, it is going to benefit us.

Abhishek Jain

And sir what about the exports ?

Sanjeev Aggarwal

Exports will be increased because there is a depreciation of the peso.

So that will help us in exporting more.

And in any case, you have heard in the opening remarks by Anshuman ji that there is a NIL tariff, which has been imposed on the exports from Mexico to U.S. markets.

So, we will have the opportunities to grab actually, and we will increase our exports to North America as well as to other countries.

Arun Bajoria

Brazil and LATAM markets.

Sanjeev Aggarwal

Yes, Brazil and LATAM actually.

So, we are hoping that in addition to the increased domestic demand, the exports will also help us in improving the volumes and margins.

Abhishek Jain

So, this quarter, despite the topline growth, margin turned negative in Mexico.

So, how do you see the numbers in the coming quarter in terms of topline growth and plus that margin improvement?

Because this is the first time we are seeing the negative margin in the Mexico business, EBIT margin.

Arun Bajoria

Yes, as you heard our Managing Director mentioning about the disruption in the Mexican market amongst other economies because of the US tariffs, the uncertainties going on around this tariff war and then they shifted the timelines from February to March, then till the end of July and now in August, they shifted by another 90 days.

So, now we are feeling that it is settling down, and therefore, our sales is expected to go up.

Also, our bottom line is going to improve.

Anshuman Singhania

And Mr. Abhishek, just to add, our Mexican revenues were up by 12% sequentially.

Sanjeev Aggarwal

In the first quarter, on constant currency basis, there was an increase in revenues by about 7%.

And overall, the Mexican pesos depreciated vis-a-vis the rupee, it has also helped us on consolidated basis.

So, the revenue has gone up by 12% in a way.

So, going forward as the uncertainties are not there now, we can focus on increasing our exports from the Mexican market.

Abhishek Jain

So that means the EBIT margins of this business, which used to be 7% -8% will come back in the coming quarter?

JK Tyre & Industries Limited August 11, 2025

Arun Bajoria

Yes, absolutely, you're right.

Abhishek Jain

Okay, sir.

And my last question on the Cavendish.

Sir, what was the revenue and EBIT of Cavendish in first quarter?

Sanjeev Aggarwal

Revenues were slightly lower because of somewhat slow demand for the TBR from OEM side.

But I think the replacement market has helped us to pick up the volumes.

And the EBITDA margin suffered because of the lower revenues.

But I think we will come back to almost about Rs.1,000 crores to Rs.1,100 Crores of average revenue for the quarter.

Accordingly, allocation of expenses will be done over the larger sales figures, and thus the margins will go back to the same levels as we have seen in the case of JK Tyres on a standalone basis.

Moderator · Conference Operator

The next question is from the line of Mitul Shah from DAM Capital.

Mitul Shah

Congratulations on a good standalone performance.

Sir, my first question is on the Mexican operation, whereas previous participant also asked about the losses for the first time after a long time.

And we are indicating normalized profit in next one or two quarters.

So which area you think would be the progress in terms of either on the raw material side will get benefited or operating leverage or any other cost-cutting thing bringing down the promotional expense incentive, which are the areas you see scope of improvement on a sequential basis going forward?

Anshuman Singhania

The raw material side will certainly help.

We are witnessing a stability in the prices.

The other areas like we have expanded our market within Mexico and our export market, which is Brazil and LATAM, we are continuously engaging with and expanding our dealers and channel partners there.

This will definitely help us.

Also, for US markets we have introduced all-terrain vehicle (ATV) tyres, which are highly profitable.

So, these are some of the areas through which our margin expansion will come.

And the continuous process of achieving operational efficiency, which we are continuously focused on.

Further, the volume game with premiumization going forward, is definitely going to help us.

Sanjeev Aggarwal

Our planned capex in Tornel worth USD27 million is on track, which is adding capacity in the passenger car segment in the Premium category tyres, so it will further improve the margins.

Mitul Shah

So Q2 itself we will see the similar margins, which you used to report earlier, or it will take 2- 3 quarters to come to normalized level for Mexico?

Sanjeev Aggarwal

Yes, we will come back to the normal levels of margins in Q2 onwards.

Because of the lower revenues, the allocation of the expenses was absorbed fully.

Mitul Shah

Out of this Rs.5 billion revenue for Mexico reported, how much would be, sir, purely U.S. dependent, how much non-U.S. part?

JK Tyre & Industries Limited August 11, 2025

Sanjeev Aggarwal

Presently about 7 to 8% exports are there to North America from Mexico.

And that is going to go up because of the benefits of the postponement of tariffs for another about 90 days and subsequently also, I think this is going to continue under the USMCA.

Mitul Shah

Okay, sir.

And last question on the domestic business side.

In replacement, Q2, do you see replacement growth would be higher than the OEM for the industry?

And if yes, then within replacement, which segment should perform or outperform in terms of higher growth, and which segment will be flattish or maybe decline also or lower growth?

Anshuman Singhania

So, in Q2, there is definitely an element of the festive season, which augurs well for demand.

In the passenger line radial, replacement market on a y-o-y basis, we were 32% higher in terms of the volumes And in the truck radial, we grew in high single-digits.

In replacement market only, in the farm, we were high of 26% on y-o-y basis.

As we go along, we see good growth coming in, particularly in the replacement market.

Even in the 2/3wheeler space, it signals well that it is on a high single-digit as well.

So, on a whole, we see that the replacement market will grow steadily as we go along in the quarter.

The OEM has remained flattish.

But there is definitely a good sentiment owing to the festive season coupled with new model launches in the passenger car.

So, passenger should have a growth.

And in the commercial trucks, there is a little bit of flattish movement right now.

But going forward, there should be some pickup, which should come post monsoon.

Moderator · Conference Operator

The next question is from the line of Aditya Shah from Omkara Capital.

Aditya Shah

I wanted to understand how is the routine Indian market revenue mix and what are the category mix that India this quarter?

Anshuman Singhania

Revenue mix has been 63% in the replacement market, 25% in the OEM and export was about 13%.

Aditya Shah

Okay.

And how was the category mix in this period?

Anshuman Singhania

In terms of our Truck & Bus (both bias and radial), it is around 55% and nearly 30% is passenger line radial and other categories including non-truck bias, which is like the LCVs is around 15%.

Moderator · Conference Operator

The next question is from the line of Nilesh, who is an Individual Investor.

Nilesh

Good set of numbers, sir.

Congratulations for that.

On the sequential basis, there is improvement in margin.

But sir, what is the percentage of our premium products versus regular one, because that will give you going ahead the margin expansion?

Anshuman Singhania

Yes, premiumization when we are talking about in the passenger car radial, 16-inch and above in FY'23, we around 18%.

And presently, now we are trading at 26% and our new capacities are also coming in for the passenger car.

So, we are planning to increase this 26% mix to around 40% in the coming quarters.

And secondly in the truck tyres, our XF series has gained very-well acceptance in the OEM and as well as gaining a lot of traction in the replacement market.

Even JK Tyre & Industries Limited August 11, 2025 the XD and XM tyre series, which are our premium truck radial offering, is gaining a lot of traction.

So, these are the products in which we are having good sales, which will ultimately improve profitability, going further.

Nilesh

Whether JK Tyre has any internal target to be debt free in next 3 years or 5 years?

Sanjeev Aggarwal

Basically, this is a capital-intensive industry however we have been constantly reducing our overall debt.

But at the same time, in order to grow, we have to increase our capacities as well.

And therefore, we have to keep implementing growth capex projects.

And I think going forward, we will be able to increase our margins and increase our profitability.

So, the larger proportion of the projects going forward will be funded through our internal accruals rather than through loan.

And that is the reason why I've been saying that the overall debt-to-EBITDA should remain within a range of about 1.5x to 1.8x as compared to 4x, which used to be the case 3-4 years back.

So, now we are targeting to remain below 2x, and this is a very comfortable range.

Rather we should take the benefit of the interest rates which are prevalent in India in order to get a better profitability.

So, debt is not always bad, if it is well managed.

Anshuman Singhania

I'd like to add, that we are very much focusing on deleveraging.

And we have been able to significantly reduce our net debt from a peak level in FY20 of Rs.5,400 crores to Rs.3,800 crores as of 30th June 2025.

So this is a continuous process.

And we also have cash over Rs.600 crores in our books, which will be utilized for our capacity enhancements.

Moderator · Conference Operator

The next question is from the line of Nandan Pradhan from Emkay Global.

Nandan Pradhan

Congratulations on a great set of results.

So just two questions from my side.

One would be because we've seen the RM being flattish this quarter, if you could just quantify the kind of price hikes that we've been able to take.

And second question was in our Q4 results, we had called out double-digit consol. revenue growth for the full year largely led by the replacement.

So, if you could just shed some color on what kind of growth we are expecting for the full year in replacement as well as OEM -- or if you could break it down into purpose of category.

That is all from my side.

Anshuman Singhania

Yes, in Q1 the Raw material prices have actually declined by nearly 2.5% on a quarter-on-quarter basis and there has been a flattish net sales realization, which is the price increase on a quarter- on-quarter basis.

Our growth of 11% in the domestic markets is from the volume push, which has helped, and we continue to do that both in the OEM and in the replacement market, which has really helped us, and going forward also, we continue to focus on that.

Nandan Pradhan

Sir what is the Full year guidance ?

Anshuman Singhania

And the full year, we see good growth coming in.

It is going to be better than last year.

As you know, last year was an election year and then a lot of infrastructure projects, etc. were stalled JK Tyre & Industries Limited August 11, 2025 and then the CV market was rather muted.

So now with the auto industry having good traction, we are seeing an initial double-digit growth for ourselves.

Nandan Pradhan

And if I could just squeeze in the last question.

We had mentioned that the Rs.1,400 crores of capex was possibly going to be over by December.

Do we still stand on that, or do we see some kind of delay in that?

Sanjeev Aggarwal

It is progressing very well and as per schedule.

And from the third quarter of this financial year, we will be starting these projects.

And then, of course, ramp-up will happen over the next 6 months period.

So, the projects are on.

We have been investing money into these projects, and that is how we are seeing that the volumes will increase going forward and we will get the benefit of the operating leverage.

Nandan Pradhan

Thank you, sir.

That’s it from my side and all the very best.

Moderator · Conference Operator

Thank you.

As there are no further questions from the participants, I now hand the conference over to the management for the closing comments.

Sanjeev Aggarwal

All right, thank you very much to all of you for joining this conference call and we look forward to meet you next quarter.

Thank you so much.

Anshuman Singhania

Thank you and All the best.

Moderator · Conference Operator

Thank you.

On behalf of Emkay Global Financial Services Limited, that concludes this conference.

Thank you for joining us, and you may now disconnect your lines.