Balkrishna Industries to gain from volume recovery, market share expansion

In a weak demand environment, the country’s largest tyre maker by market capitalisation, Balkrishna Industries delivered a volume growth of 5 per cent in the third quarter of the financial year 2025 (Q3FY25).

 

While demand conditions continue to remain weak, the company has guided for a low single digit volume growth for FY25. Though there are multiple headwinds, brokerages believe that the company is well placed to benefit from a revival in demand going ahead.

 

IIFL Research expects strong earnings growth when demand momentum improves. Analysts led by Joseph George of the brokerage conservatively forecast 8-10 per cent volume growth in FY26/FY27. In addition to potential volume up-cycle, other earnings drivers include higher euro-rupee realisations, revenue from specialty carbon black (FY26) and normalisation of freight costs. They expect earnings to grow annually by 17 per cent over FY25-27.

 

Revenues for the tyre maker were up 11 per cent over the year ago quarter on the back of a 5 per cent rise in volumes and a 6 per cent gain in average selling prices. Even as the European market was weak, volumes were higher due to growth in the result of the world markets, India and the Americas.

 

Volumes in the EU market was down 16 per cent year-on-year (Y-o-Y) and partly negated the gains in India (up 19 per cent), 14 per cent growth in the Americas and 60 per cent improvement in the rest of the world. The 6 per cent growth in selling prices was on account of a richer product mix and a favourable foreign exchange movement.

 

Aniket Mhatre and Amber Shukla of Motilal Oswal Research are, however, cautious as the retail demand in key global markets is currently weak and likely to remain uncertain due to ongoing geopolitical challenges. 

 

The brokerage has a neutral rating as it expects margins to be under pressure as the impact of rise in input costs is expected to be felt in Q4. This is likely to limit earnings growth in the near term. Given the uncertain global demand macro, it has lowered our estimates by 5.5 per cent for FY26.

 

Kotak Research too believes that the near-term demand outlook for the off-highway segment remains muted in the EU, owing to higher inventory levels and a slowdown in infrastructure spending. The brokerage has a sell rating due to expensive valuations despite baking in a recovery in volumes and profitability from FY2026.

 

While gross margins in the quarter were up 40 basis points Y-o-Y to 52.4 per cent, operating profit margins fell by 40 basis points to 24.9 per cent which was in line with estimates. The company expects a 1.0-1.5 per cent sequential increase in the raw material basket in Q4FY25. The pressure on gross margins is expected to be offset partly by a reduction in freight cost, richer product mix and cost control measures

 

On the demand front, some brokerages believe that there are some triggers which could aid volumes. Siddhartha Bera and Kapil Singh of Nomura Research point out that agri commodity prices seem to have bottomed out and have started inching upwards, which should support replacement demand.

 

Even as demand worries plague automakers and the sector declined 10-30 per cent Y-o-Y in 2024, Balkrishna grew 5 per cent Y-o-Y in 9MFY25.

 

Market share gain in geographies such as the US/India has helped diversify EU mix further and looks sustainable. New off the road or OTR capacities augur well for a stronger push in the US in FY26, says the brokerage.

 

Balkrishna’s current valuation at 14 times FY27 enterprise value to operating profit is attractive given a strong return on invested capital of 25 per cent in FY26-27, says Nomura Research, which has upgraded the stock.