Balkrishna Ind's Rs 1,900 cr capex plan sparks profit taking; stock down 8%

Shares of Balkrishna Industries slipped 8 per cent to Rs 1,700 on the BSE in Tuesday's intra-day trade as investors booked profit after the company announced capital expenditure (capex) plan of up to Rs 1,900 crore, which will be funded by internal accruals and debt, if required.

The stock of auto tyres and rubber products has corrected 10 per cent from its record high level of Rs 1,885 touched in intra-day trade today. At 10:45 am, it was trading 7 per cent lower at Rs 1,719 as compared to a 0.41 per cent risen in the S&P BSE Sensex.

Looking at the overall increase in demand, the board at its meeting held on Tuesday, February 8, 2021, has approved a capex plan of Rs 1,900 crore, which include Brownfield project at Bhuj to increase tire capacity, increase carbon black capacity including advance carbon black and power plant at Bhuj and modernization, automation and technology upgradation capex at existing facilities.

Further, the board has decided to shelve the US Greenfield tire project of 20,000 MTPA capacity with an estimated outlay of $100 million previously approved by the board at its meeting held on August 10, 2019.

The management said post Brownfield capex achievable capacity of tire plant will stand at 335,000 MTPA. Embarking on new capex in Carbon Black on back of the proven quality of product coupled with strong demand for captive consumption and 3rd parties. The modernization capex to lead to better efficiency, it said.

The announced capex, however, is ahead of expectations and shall consume a large part of post dividend cash accretion at the company vs. our previous estimates substantial free cash flow (FCF) generation over FY22-23E, ICICI Securities said in a note.

Meanwhile, for the October-December quarter (Q3FY21), Balkrishna Industries posted robust results with 46 per cent year-on-year (YoY) growth in standalone profit after tax at Rs 322 crore. Revenue increased by 27 per cent YoY to Rs 1,497 crore as sales volume jumped 26 per cent YoY. Ebitda (earnings before interest, taxes, depreciation, and amortisation) margin improved to 31.9 per cent from 31.2 per cent in the previous year quarter.

The demand continues to be strong in the agriculture segment across geographies. In the other segments, demand continues to remain stable more or less stable post the recovery in the end markets of industrial, construction and mining segment.

With 9MFY21 volumes of approximately 159,130 MT, the management increased guidance for FY21 and expects to end FY21 with a sales volume of 215,000-220,000 MT. The management strongly believes this demand trend to continue in FY22 and years to come.