Dec 02, 2016 03:21 PM IST | Source:

Buy Balkrishna Industries; target of Rs 1400: ICICI Direct

ICICI Direct is bullish on Balkrishna Industries has recommended buy rating on the stock with a target price of Rs 1400 in its research report dated December 01, 2016.

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ICICI Direct's research report on Balkrishna Industries

BIL is a focused off-highway tyre (OHT) manufacturer with contribution of agricultural and OTR segments at 63% and 34%, respectively. With the OHT segment only 10-15% of revenues for global players like Bridgestone & Michelin, BIL’s focus on this niche segment augurs well for BIL as it currently enjoys 5% market share in a $15-billion global market. Also, the only focused global player, Titan, commands a hefty brand premium (20-25%) over BIL’s products. Hence, this outlines the headroom for growth in this highly capital & labour intensive segment characterised by large number of SKUs and high degree of customisation.

We believe BIL is an export dominated niche play and is well placed to capture the demand revival opportunity. The management has indicated at signs of demand revival across geography, visible from its strong H1FY17 performance. Margins are also expected to sustain considering benign input cost and better product mix, going forward. Its strategy of higher utilisation, repayment of debt & deepening its reach will further supplement its growth. Thus, we value BIL at 15x FY18E EPS to arrive at a target price of Rs 1400 with a BUY recommendation on the stock.

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