JK Tyre an “attractive bet”, says analyst
An analyst in India opines that JK Tyre & Industries is currently a very good investment, and he states that shares in the company may be capable of achieving gains as high as 40 per cent over the coming half year or so. Aashish Tater, head of research at Kolkata-based Fort Share Broking, told Indian business news broadcaster CNBC-TV18 that there is a “bullish call” on the tyre sector, and he named Goodyear India and JK Tyre & Industries as the broker’s “prime picks.” Tater particularly feels that the second of these offers opportunities for investors.
“Very interesting news came on JK Tyre on August 3, 2012,” he explained. “They are looking to acquire small plantation in order to manage their rubber supply. If it happens, they would be working with an EPS (earnings per share) of around Rs 25-28 (£0.29 to 0.32) for the next fiscal. The company is right now available at approximately Rs 95. So, one-year forward, the company is not available even at four times price earning multiple, when the peer group is available at somewhere around seven-eight times.”
“Now, take another call, the market cap to sales ratio. We are roughly working out with Rs 6,130 crore (Rs 61.3 billion or £709 million) of sales for the next year on a standalone basis,” the head of research continued. “The market cap of the company is at Rs 350 crore (Rs 3.5 billion or £40.5 million). Take an RCV (replacement cost value) model that we used for Goodyear and other players. At that point of time, we use to feel that JK Tyre is much more expensive, when it uses to hover around at Rs 180-190 mark. But now the price has almost cooled down to half levels.
“We feel it is an attractive bet because the RCV of this particular stock stands around Rs 140. Our prime target is Rs 123 from a six-eight month perspective. If you see the capacity that the company has planned in its Chennai through brownfield and greenfield expansion, we feel this will be an attractive bet in the tyre space in days to come…This is one stock that can give 30-40 per cent gains in six to eight months.”