Midcap Tyres Stock Gave More Than 100% Return In 3 Yrs, Buy For Robust Returns: ICICI Securities

ICICI Securities has placed a "buy" call on Balkrishna Industries Limited (BIL) with an estimated target price of Rs 660/share for the stock. According to the given target price, the stock is likely to give a return of up to 15% if purchased at the current market price. Balkrishna Industries is one of India's leading Tyre manufacturing companies. It is a midcap company with a market capitalisation of Rs 43,019.84 crore.

Stock Outlook & Returns

The share price of Balkrishna Industries last traded at Rs 2,225.35/share on the NSE, up 0.38% from its previous close. The 52-week high of the stock was recorded on 19 January 2022 at Rs 2,511.30/share and the 52-week low was on 7 March 2022 at Rs 1,690.55/share, respectively.

The stock has fallen 0.36% the previous week. However, it surged 3.85% in a month and 14.85% in 3 months, respectively. In the past 1 year, it moved down 10.21%. Whereas in 3 years it gave 101.16% positive return and in 5 years it gave 95.27% positive returns. 

QoQ volume decline seems limited at ~5-6%

The brokerage said, "Our analysis suggests ~5-6% QoQ decline in volume for Balkrishna Industries (BIL), implying ~74-75k ton sales in Q3FY23 vs ~79k ton in Q2FY23. Off highway tyre (OHT) industry exports data out of India till November 2022 suggests continued strength in OTR segment, driven by US and RoW vs continued weakness in agricultural category, still down ~20% from its Q1FY23 levels. Going by seasonally stronger despatches in December, we expect ~7-8% QoQ value decline for India OHT exports, implying ~5-6% volume decline, as partial price cuts were expected following a decline in raw material basket (RMB) cost. EU continued to be the weak link for India OHT exports, down ~22% YoY vs US growing ~16% YoY. OHT exports revenue YTD is up 11%, with agricultural segment being up 7% YoY vs OTRs being up 19% YoY, with growth assumption of ~16% CAGR over FY22-FY24E (~9% volume CAGR)."

It added, "For BIL, we maintain our FY23 volume growth estimate of ~8% YoY, implying 150k ton sales volume in H2FY23 vs 162k ton in H1FY23. With need for incremental destocking at distributor level in export markets, we believe our estimated volume in H2 is already building in the potential reduction in sales volume. We keep our FY23/24 volume/earnings estimates unchanged and maintain BUY with DCF-based TP of Rs2,549 (Rs2,479 earlier), implying 22xFY25E EPS, with increase in valuation being purely led by earnings roll-over by a quarter."

Disclaimer

The stock has been picked from the brokerage report of ICICI Securities. Greynium Information Technologies, the Author, and the respective Brokerage house are not liable for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to consult with certified experts before making any investment decision.