Home / Companies / News /  Double digit decline in commercial vehicle sales might impact the fortunes of JK Tyre in FY 21

Double digit decline in commercial vehicle sales might impact the fortunes of JK Tyre in FY 21

Component manufacturers like JK Tyre is likely to report subdued earnings in the current financial year. Photo: BloombergPremium
Component manufacturers like JK Tyre is likely to report subdued earnings in the current financial year. Photo: Bloomberg

  • Sales of commercial vehicles declined significantly by 28.75% to 717688 units in the last fiscal due to change in truck axle load norm
  • Component manufacturers like JK Tyre is likely to report subdued earnings in the current financial year

Falling demand for commercial vehicles in the coming quarters due to the Covid-19 induced economic slowdown could adversely impact the financials of J K Tyre and Industries Ltd, one of the leading manufacturers of truck and bus tyres in the domestic market, according to analysts.

Sales of commercial vehicles declined significantly by 28.75% to 717688 units in the last fiscal due to change in truck axle load norms, slowdown in economic activity and increase in prices of vehicles due to the introduction of the Bharat Stage 6 norms. As economic activity is likely to suffer significantly due to the pandemic, sales of commercial vehicles will also decline in the range of 26% to 28% during the year, according to ratings agency Crisil.

Hence, component manufacturers like JK Tyre is likely to report subdued earnings in the current financial year.

“JKTIL is market leader in truck-bus radial (TBR) segment with 30% market share (overall M&HCV market share at 23%). Domestic commercial vehicle space remains a clear laggard on demand front, with issues like slowing economic activity and system overcapacity (higher load bearing due to revised axle load norms and sluggish freight movement) seen persisting over much of FY21 estimates unless affirmative policy interventions take place," said, Shashank Kanodia and Jaimin Desai, research analyst, ICICI Securities, in a note on June 18.

“However, healthy share of aftermarket i.e. replacement (65% of consolidated revenues, with OEM, exports equally forming the rest), is seen mitigating the extent of damage, especially in FY21E. Improved product mix on account of higher replacement sales is also seen limiting impact of negative operating leverage on the margins front."

JK Tyres and Industries Ltd reported a loss of 52.78 crore for the quarter ending March 31, on account of subdued demand for its products in India and abroad. The company reported a net profit of 33.66 crore in the corresponding period last fiscal. Due to tepid demand for vehicles across geographies, the revenue from operations declined significantly by 33.61% year on year to 1794.76 crore.

“Amid adequate capacity to service demand over the next two years, incremental capex needs, going forward, appear limited. In our view, this represents an opportunity for the company to follow through decisively on earlier stated deleveraging plan (cumulative ~35% of long-term debt over three years)," analysts said.

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