Shares of JK Tyre & Industries rallied nearly 14 per cent in intraday trade on the Bombay Stock Exchange on Thursday after the tyre manufacturer reported strong earnings for the second quarter ended September 30, 2019.
The company on Wednesday posted over three-fold jump in consolidated net profit to Rs 167.70 crore during Q2FY20, compared to Rs 45.78 crore in the same period last fiscal, aided by gains from deferred tax liability.
Consolidated revenue from operations declined by 13.59 per cent to Rs 2,154.95 crore during quarter under review as against Rs 2,493.76 crore in the year-ago period.
During September quarter, the company said it has re-assessed deferred tax liability at 25.17 per cent as against 34.94 per cent earlier following reduction in corporate tax rate to 22 per cent announced by the government.
Buoyed by strong Q2 earnings, JK Tyre & Industries share price gained as much as 13.87 per cent to touch an intraday high of Rs 80 apiece on the BSE, after opening higher at Rs 78.80 against previous close level of Rs 70.25. In comparison, the S&P BSE Sensex was trading 0.32 per cent higher at 40,181 levels.
In a similar trend, stocks of JK Tyre & Industries were trading 9.18 per cent higher at Rs 76.70 after opening higher at Rs 80.35 on the National Stock Exchange (NSE). The stock has intraday high of Rs 80.35 during the day's trade.
Rahul Agarwal, Director Wealth Discovery/EZ Wealth said, "Although the company has shown a strong bottom line numbers in Q2, it is mostly supported by one-time gains from deferred tax liability. The management expects increase in volumes, resulting in improvement in profitability in the remaining period of the current financial year. We believe that the positive outlook would only sustain if we notice a visible improvement in the Indian economy in general and the auto sector in particular. The festive season did bring some joy to the auto and auto related stocks including JK Tyre but this positive trend needs to sustain for longer term price appreciation. For now, we expect that the positive news is baked into the price, the stock has shot up from Rs 65 to Rs 75 in four trading sessions. Investors with long positions should book profits and re-enter the stock after some meaningful correction."
Since the beginning of this year, the stock has plunged over 32 per cent (as of Wednesday's close) and has underperformed the market.
During July-September period, JK Tyre has reported 20 per cent rise in sales in two- and three-wheeler tyres, compared to preceding quarter, though it is a new entrant in this segment.
On the outlook, the company said it expects Indian economy to improve in the second half of current financial year and the green shoots are already visible with some improvement in economic activity. Volumes are expected to increase, resulting in improvement in profitability in the remaining period of the current financial year, it added.
Edited by Chitranjan Kumar