Competition, demand worries ahead for Balkrishna Industries' stock

The stock of off highway tyre (OHT) maker, Balkrishna Industries (BIL), slipped over 6 per cent to ₹ 2,492 a share on Monday amid concerns that its diversification into other tyre categories will weigh on its margins. The move also comes amid uncertain global demand conditions for its core OHT category.

 

The foray into new categories, which are highly competitive, has prompted brokerages to cut their earnings and downgrade the stock.

 

BIL will be entering the premium passenger vehicle (PV) and commercial vehicle or CV (bus and truck radials) radial tyres in India. The focus would be the domestic replacement market. While it will launch the CV radial tyres by the last quarter of financial year 2025-26 (Q4FY26), PV radials will be introduced by Q3FY27. The production will be ramped up gradually and the company is seeking a 5 per cent target market share by FY30. 

 

It has planned a capital expenditure of ₹3,500 crore over FY26-28 to set up additional production facilities at Bhuj, including units for carbon black, power plants, rubber tracks, CV and PC radial tyres. Over the next five years, BIL is eyeing 70 per cent revenue from OHT segment, a fifth from new tyre categories and the rest from carbon black sales. 

 

What is likely to be critically monitored from here on, according to Aniket Mhatre of Motilal Oswal Research, is whether or not it is able to gain material traction in these segments.

 

The other aspect relates to margins and returns turning materially dilutive in the long run. The success will not only be in terms of market share gains but also without materially hurting core returns. This is likely to be a herculean task, says the brokerage which has maintained its neutral rating with a target price of ₹2,553. 

 

 

Kotak Research, too, believes that Balkrishna’s entry into the truck and bus radials segment marks a strategic pivot into a margin-dilutive, highly competitive market. Unlike its niche OHT model, TBR requires deep dealer networks, credit-based selling and fleet-level servicing. The move carries high execution risk, may strain return ratios and could dilute the company’s long-standing value proposition, says the brokerage.

 

The other challenge for BIL is the demand uncertainty.

 

While volumes in Q4 were flat year-on-year (Y-o-Y), the company did not give a volume guidance for FY26 given uncertainties related to US tariffs and geopolitical tensions. The company has been able to pass on the higher costs from US tariffs only partially to consumers. 

 

Kotak Research points out that Balkrishna Industries faces a cautious outlook amid softening global OHT demand. While Europe remains weak due to agri-slowdown, North America offers only moderate support from infrastructure and farm mechanisation. The brokerage has retained a sell rating as current valuations remain expensive at 27 times FY26 consolidated earnings estimates. It has a target price of ₹2,100.

 

The reciprocal tariff is another challenge for BIL as the US contributes about 15 per cent of volume. Given the 10 per cent additional taxes, the company is partly absorbing the impact and passing on the rest to customers. Analysts led by Vishakha Maliwal of ICICI Securities believe tariffs could impact retail demand via higher prices, making BIL products less competitive and with OEMs manufacturing in the US potentially gaining share. This could impact BIL’s volume growth and margins in the near term, they add. The brokerage has downgraded the stock from add to reduce and cut target price to ₹ 2,300 from ₹2,900.