Balkrishna Industries an outperformer: HDFC Sec

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Balkrishna Industries an outperformer: HDFC Sec

Broking house, HDFC Securities has maintained a market outperformer rating on Balkrishna Industries. At the CMP of Rs 582, the stock is trading at a PER of 13.8x and 10.8x its FY07 and FY08E earnings respectively.

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Broking house, HDFC Securities has maintained a long-term positive outlook on Balkrishna Industries  and rate it a Market Outperformer. At the CMP of Rs 582, the stock is trading at a PER of 13.8x and 10.8x its FY07 and FY08E earnings respectively. For FY07, the company reported a robust topline growth of 42.5% yoy to Rs 8,776 million.

HDFC Securities report on Balkrishna Industries:

For FY07, Balkrishna Industries reported a robust topline growth of 42.5% yoy to Rs 8,776 million, driven by a strong performance of the tyre segment, which grew by 45.5% yoy. However, due to higher raw material costs, the operating profit margins declined by 180 bps yoy to 20.8%. The Adj. PAT for FY07 grew by 20.8% yoy at Rs 842 million.

Growth in tyre business (85% of BIL's topline) is expected to remain robust. BIL closed FY07 with a sales volume of 65,000 tonnes and is targeting sales of more than 80,000 tonnes for the next fiscal. Consequently, revenue from the tyre business is expected to report impressive growth.

The stock has witnessed a sharp decline in the past few months, mainly on account of hardening rubber prices, which is the key raw material for the company. The stock is down 55% to Rs 582, after touching a high of Rs 1,298 in January 2006. At the CMP of Rs 582, the stock is trading at a PER of 13.8x and 10.8x its FY07 and FY08E earnings respectively. We believe, the current valuation factors in the pessimism surrounding margin concerns to a fairly large extent. However, the quality of BIL's business and the softening of rubber prices, make the current valuations attractive. The stock offers a good investment opportunity. We maintain a long-term positive outlook on the stock and rate it a Market Outperformer.