The recent JK Tyre-IFC deal has brought the spotlight back on the mobility space, where both tyre and two-wheeler stocks, have significantly underperformed the SENSEX in the last 5 years.
According to the AltG Industry Scorecard, JK Tyre's score is 47%, indicating room for improvement. The score says the company has significant room for improving its Capital Allocation and Operational efficiency. JK Tyre's low P/E ratio, which is the lowest in the peer set, suggests the same.
To generate returns for its investors, JK Tyre needs to focus on the following areas:
Better Capital Allocation
JK Tyre must allocate capital towards high-growth businesses, such as software, in mobility.
Secondly, it should consider not paying dividends and instead reinvesting the free cash flow generated from its business into high growth software businesses that generate a return of at least 15% on the invested capital.
In addition, JK Tyre should consider potentially going private to avoid the pressures of public markets and enable more strategic decision-making to implement the abovementioned points.
The company also needs to improve its margins to push net margins to 10% and gross margins to 30%, bringing its score up to 55% on the AltG Industry Scorecard. Achieving these targets will help generate significant value for shareholders.