Balkrishna Industries hits 52-week high; stock rallies 49% in two months

Shares of Balkrishna Industries (BKT) hit a 52-week high of Rs 1,316, up 3 per cent on the BSE on Friday, on the expectation of strong earnings going forward.

The stock surpassed its previous high of Rs 1,298 touched on February 20, 2020. It was trading higher for the sixth straight day. In the past two months, the stock of BKT has rallied 49 per cent, as compared to a 13.4 per cent rise in the S&P BSE Sensex.

BKT is a leading tyre manufacturer domestically in the off-highway tyre (OHT) segment which is primarily meant for exports. BKT tyres find application in agriculture (around 61 per cent of sales), mining, and other commercial activities with Europe region constituting the bulk of sales at around 51 per cent followed by India at around 20 per cent, the US at 17 per cent among others. Replacement channel constitutes the bulk of sales at BKT at 71 per cent.

For the January-March quarter (Q4FY20), BKT reported a healthy 22.8 per cent year-on-year (YoY) growth in profit before tax (PBT) at Rs 339 crore against Rs 276 crore in the year-ago quarter. EBITDA (earnings before interest, taxes, depreciation, and amortisation) margin improved to 29.3 per cent from 24.8 per cent. The company achieved the highest ever quarterly sales volumes in Q4FY20, in spite of lockdown during the last 7 days of March 2020.

“BKT stands out in the domestic tyre space, with its balance sheet strength (net cash positive), robust EBITDA margins (25 per cent plus) and healthy return ratios matrix (20 per cent plus RoCE),” ICICI Securities said in a note.

With back integration in place (carbon black), BKT is well poised to further augment its EBITDA margin profile with near-term margin guidance at 28-30 per cent. With early commissioning of carbon black capacities, BKT has also started seed marketing carbon black for third party sales and is expected to clock industry-leading margins in this segment at 25 per cent.

With the bulk of Capex stated to complete in FY21E, BKT is well poised to generate healthy free cash flows going forward in FY22E (in excess of Rs 1,000 crore). Its present average CFO yield is placed at >5 per cent, thereby supporting its healthy valuations, it said.

“BKT reported a healthy margin on the back of soft commodity cost, better forex realisation, and benefits of backward integration. Margins are expected to improve further on the back of benign commodity price trend, the full benefit of backward integration of carbon black and higher forex realisation. However, there has been a sharp rally in the share price over the last two months and we believe that the stock is fairly priced,” analysts at Nirmal Bang Equities said in result update.