ICICI Securities has placed a buy call on Balkrishna Industries Limited (BIL) with a target price of Rs 2,479 per share. With the estimated target price, the brokerage claims a potential upside of up to 27% from its current level if the stock is purchased at the current market price. It is a mid-cap Tyres sector company with a market capitalization of Rs 37,964.60 crore.
BIL has reported strong demand trends in its key overseas markets with overall Q2FY23 exports revenue being up 25% YoY (in US$ terms) against industry exports being up 5% YoY. The data indicates growth momentum in OTR segment exports (up 10% YoY) and steady agri demand (up ~3% YoY) despite adverse market conditions in target geographies and supply-chain issues. Data continues to support robust demand momentum driven by both agri and OTR segments (H1FY23 industry exports in US$ are up ~16% YoY), on a strong base of H1FY22.
Stock Outlook & Returns
The BIL stock's current market price is Rs 1,960.75 per share, trading 0.73% above the previous close of Rs 1,946.60 per share. Today, it opened at Rs 1,956.35 per share on NSE. According to data available on NSE, the stock recorded its 52-week high level at Rs 2,537.45 on 18 January 2022 and 52 week low at Rs 1,690.55 on 7 May 2022, respectively.
The stock in terms of returns on investments performed well in the past 3 years as it has given a multibagger return of 132.29%. In the past 5 years, it gave 88.95% positive returns. However, in the past 3 months, it fell by 7.44% and in 1 year, it fell by 13.22%, respectively, giving negative returns.
Overall industry export growth continues as OTR demand remains strong
On end-product basis, industry growth sustained in agri tyres (H1FY23 up ~13% YoY) and accounted for ~66% of total exports (down 170bps YoY). On OTR side, momentum remains strong with H1FY23 growth at 22% YoY, signalling rising infrastructure spending along with improving mining activities for precious metals used in electronics and batteries aided by low inventory levels. We believe the outlook for global agri tyre exports remains strong as peers witness strong order inflows from replacement market with inventory destocking exercise by dealers resulting in lower dispatches.
BIL's share of India OHT tyre exports breaches 60% mark in Q2FY23 as US drives growth spike in agri and OTR
As per commerce ministry data, BIL has been consistently outperforming industry exports on a YoY basis (refer Table 4) and has finally breached 60% market share mark in Q2FY23 from average 50% share over the past three years. On regional basis, BIL reported 17% growth YoY against industry decline of 17% YoY in the EU in Q2, while for the US, BIL grew 60% YoY, higher than industry growth of 55% YoY.
Near-term capacity pressure presents an opportunity to enter; maintain BUY
BIL, with its cost arbitrage advantage vs peers, is still able to price its products at a discount of ~15-20% to global peers amidst inflationary power/fuel and manpower costs. "This enables BIL to make lower price hikes and maintain profitability, resulting in continued improvement in market share (currently ~7% and targeting ~10% in next 3 years). With a mean RoE of ~23% and FCF of Rs20bn in FY23E-FY24E combined, BIL is providing a great opportunity to get added in portfolio currently, we believe," the brokerage said.
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