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Balkrishna Industries is a leading Indian Multinational tyre manufacturing company. The company was founded in 1987 and is headquartered in Mumbai. With a market cap of Rs 36,499 crore, the company is a leader in the tyre business. Anand Rathi believes the stocks of Balkrishna Industries have the potential to gain 50% from the current market price of Rs 2045 closed on 16 May 2022 to the targeted price of Rs 3066.
Q4FY22 - Balkrishna Industries
Strong demand across regions for Balkrishna Industries and capacity additions were the highlights of the quarter. Gross margin expanded as the company passed on higher raw material costs, however, rising freight and energy costs impacted Ebitda margin. 'We expect the strong demand momentum to continue led by Euro pe. Recent capacity addition and a subsequent ramp-up by end-H1 FY23 augurs well for a healthy volume outlook," Anand Rathi has said.
Strong volume Growth
Q4 volumes grew 13% y/y, 10% q/q, to 77,119 tonnes (FY22: 288,792 tonnes, up 27% y/y). Revenue grew 36% y/y, 17% q/q, to Rs23.7bn, as demand was strong across regions. With 50,000 tonnes recently added at the Bhuj plant, we expect volumes of ~330,000 tonnes in FY23 at max capacity. Capex at the Waluj-1 plant was deferred as demand was strong and it continued to operate at peak capacity. Also, the 55,000 tonnes carbon-black capacity and the power plant would be commissioned in the next 2-3 months. "We continue to expect robust demand in agri and OHT in the US and Europe, and consistent volume growth in India. Accordingly, we expect strong, 23%, growth in FY23 and 7% in FY24," Anand Rathi has said.
Margin betterment in FY23 and FY24
The Q4 FY22 EBITDA margin contracted 80bps sequentially to 21% due to high rubber, freight and energy costs. High freight costs shaved 400bps off margins, said management. The brokerage has said, "At the start of Mar'22, the company raised prices ~3%; it expects costs to further go up 4% in Q1 FY23. It is expected to raise prices 3-4% in Jun'22 to recoup some costs. Hence, we expect margins of 24.4% in FY23 and 25.5% in FY24."
The brokerage added, "We expect a 15% revenue CAGR over FY22-24, and 19% earnings growth, leading to an EPS of Rs102.2. We maintain a Buy rating, at a revised TP of Rs.3,066 (30x FY24e)."
Disclaimer
The stock has been picked from the brokerage report of Anand Rathi Securities. Greynium Information Technologies, the author, and the brokerage house are not liable for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to check with certified experts before taking any investment decisions.
