Angel Broking - Balkrishna Industries - Company Update
RAJESH DESAI
Dear All,
Forwarding you the Company Update on Balkrishna Industries.
We met the management of Balkrishna Industries (BIL) to get an update on its business. BIL operates in a niche segment of off-highway tyres (OHT) and has a global market share of ~3.5%. BIL enjoys competitive advantage over its global peers (Titan International, Mitas, Michelin and Bridgestone) on account of its low cost-structure, strong product portfolio (with over 2,000 SKUs) and a strong distribution network (~240 distributors in 120 countries). The management expressed optimism about the company’s business prospects and is targeting a volume and revenue growth of 20% and 25%, respectively in FY2013. Further, BIL expects margins to remain in the range of 18-22% going ahead. The company sees a revenue potential of ~`3,000cr annually from the Bhuj plant, once fully operational by FY2015. However, an increase in depreciation and interest expense due to the functioning of the new plant will keep earnings growth under pressure. Nonetheless, the management expects lower tax rate (~25% in FY2013E as against ~33% in FY2012) to mitigate the impact of higher depreciation and interest expense to some extent. While Chinese products are priced lower than the company’s products, quality related concerns of the former have led to their lower acceptability in the markets. Thus, the management states that the company does not face any major competition from Chinese companies. At `285, the stock is trading at 10.3x FY2012 earnings. Currently, we do not have a rating on the stock.
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CA. Rajesh Desai