This Midcap Tyres Stock Grew 122.24% In 3 Years, Buy For Robust Gains, Target Price 2,370

Stock Outlook & Returns

The BIL stock today opened at Rs 2,060.10 per share, currently trading at Rs 2041.10 per share on NSE. The stock recorded 52-week high on 18 January 2022 at Rs 2,537.45, and its 52-week low at Rs 1,690.55 on 7 March 2022, respectively.
 It surged by 1.27% in 1 week. In 1 month it surged by 5.07% and in 3 months it surged by 2.93%, respectively. However, in 1 year, it fell by 7.02%. In 3 years it has given 122.34% multibagger returns and in 5 years 94.19% positive returns. 

Q2FY23 Result Analysis

Net Revenue increased by 28.2% YoY and 1.5% QoQ to Rs. 2657.5 crore. EBITDA decreased by -20.7% YoY and -4.0% QoQ to Rs. 426.3 crore while EBITDA Margin contracted by 992 bps YoY and 91 bps QoQ to 16.0%. Raw material cost pressure continued due to higher cost inventories, and a higher USDINR rate. Despite the pressure on operating performance, Net Profit decreased by -2.2% YoY and increased by 24.5% QoQ to Rs. 382.3 crore. This was due to higher other income, which grew by 70.0% YoY and 114.4% QoQ. The mark-to market loss suffered in Q1FY23 was reversed in Q2FY23 leading the higher other income. Net Profit Margin came in at 14.4% that declined by 449 bps YoY and improved by 267 bps QoQ. BIL's total volume sold was 78,872 MT, which was a growth of 8.4% YoY but a decline of 5.1% QoQ. The average selling price (ASP) per MT grew by 18.3% YoY and 7.0% QoQ. The sequential improvement in ASP is due to better product mix, USD appreciation vs INR, and higher contribution from North America sales.

Valuation

Balkrishna has well-diversified revenue streams in terms of geography, segments and channels. The company is undergoing a Capex program of Rs. 2,250 crores towards ramping up production over the next 2-3 years, investing in capacity expansion, backward integration, automation and modernization of its plants. Despite recent geo-political and macro-economic tensions, Q2 volumes were reasonable and ASP rose sharply on the product mix for the US and currency fluctuations. BIL may face short-term headwinds in its key markets of Europe and US due to a tough macro environment but medium and long term prospects for the company are intact. It is expected that the benefit of new contracts of containers at lower rates and lag effect of lower RM costs could aid BIL's EBITDA margin to revert towards 24-25% levels Q4FY23 onwards, over and above delivering ~5% volume growth in FY23. Improvement in product mix due to capacity creation for higher value products, upcoming commercialization of new plants, increasing productivity post modernization, automation and technology upgradation at one of its plants will all contribute to better margin performance in coming years. "We believe BIL deserves premium valuation due to its far superior EBITDA margin profile and healthy return ratios with RoCE at ~15-20% vs. ~10-15% at its peers. We recommend our investors to BUY the scrip with target of Rs 2,370 from 12 months investment perspective. The scrip is currently valued at P/E multiple of 24.1x on FY24E Bloomberg Consensus EPS of Rs 84.6," the brokerage has said.

About the company

Balkrishna Industries Ltd. (BIL), the flagship company of Siyaram Poddar Group, engages in manufacture of OTR (Off-The-Road) tyres, a niche tyre segment. These tyres are used in agriculture (tractors, trailers, farm equipment), industrial and construction activities (dump trucks, loaders etc.) and for utility vehicles (golf carts, All Terrain Vehicles etc.). The company has established its presence in this segment with around 1,800 stock keeping units (SKUs). The company exports around 80% of its total tyre production. Nearly 50% of total production is sold in Europe while other major markets for BIL are North America, Asia, Middle East followed by South America, Africa and Australia. It has four manufacturing facilities located at Bhiwadi & Chopanki in Rajasthan, Waluj in Maharashtra and Bhuj in Gujarat. In addition to this, the company operates a molding plant in Dombivli (near Mumbai). The company is ramping up its capacity and expects tyre capacity to reach at 3.6 lakh MT by end-FY23. 

Disclaimer

The stock has been picked from the brokerage report of Ashika Stock Broking. 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 check with certified experts before making any investment decision.