Balkrishna Industries climbs 6% post Q2 results

The company said the first half of the financial year has been challenging and volume on half yearly basis have seen 12 per cent de-growth from 109,093 MT in H1FY19 to 96,473 MT in H1FY20.

Shares of Balkrishna Industries moved higher by 7 per cent to Rs 878 on the BSE on Friday after the company reported strong operating margin expansion and believe volume growth in the second half should be better.

The first half (April-September) of the financial year has been challenging and volume on half yearly basis have seen 12 per cent de-growth from 109,093 MT in H1FY19 to 96,473 MT in H1FY20. At the start of the year, the management had guided for 3 per cent to 5 per cent volume growth for the current financial year.

“We believe the second half should be better, however, it would be difficult to recover fully the lost ground of first half based on the current run-rate, therefore we expect to end the current year with minor de-growth,” Balkrishna Industries said in a statement.

In Q2FY20, the company’s standalone EBITDA (earnings before interest, tax, depreciation and amortisation) margin before incremental branding expenses improved 150 bps at 29.2 per cent from 27.7 per cent in the year-ago quarter. Net profit jumped 31 per cent year-on-year (YoY) to Rs 291 crore, due to lower tax provision. Total income declined 19 per cent to Rs 1,107 crore on YoY basis.

SBICAP Securities has ‘buy’ rating on Balkrishna Industries with 12-month target price of Rs 1,050 per share.

“Despite near-term uncertainties, commentary from global majors such as Caterpillar (refer link) indicates we might be in the early stages of a multi-year recovery in industrial cycle. With solid competitive positioning, multiple strategic initiatives currently underway and sufficient capacity (around 60 per cent utilization), Balkrishna Industries is well-positioned in an up-cycle, translating into strong FCF and return ratio potential,” the brokerage firm said in its initial coverage report dated November 5, 2019.

The company’s strong franchise in a highly specialized and large offhighway tyres (OHT) segment with around 5 per cent global market share has delivered robust cash flows, return ratios and strong balance sheet across cycles, it added.

At 02:59 pm, the stock of Balkrishna Industries was up 5 per cent at Rs 866 on the BSE, as compared to a 0.62 per cent rise in the S&P BSE Sensex. The trading volumes on the counter jumped three-fold with a combined 2.3 million shares changed hands on the NSE and BSE so far.