Buy Balkrishna Ind; target of Rs 193: SKP Securities

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Buy Balkrishna Ind; target of Rs 193: SKP Securities

SKP Securities is bullish on Balkrishna Ind and has recommended buy rating on the stock with a target of Rs 193 in its May 26, 2011 research report.

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SKP Securities is bullish on Balkrishna Ind and has recommended buy rating on the stock with a target of Rs 193 in its May 26, 2011 research report.

"Balkrishna Industries Ltd. (BIL) is the world's premier manufacturer of pneumatic tyres for special applications, with an achievable capacity of 1,26,000 MTPA. They primarily focus on the production of a range of offhighway tyres that includes agricultural, industry, material handling, forestry, lawn and garden, construction and earth moving tyres. The company has a worldwide distribution network and more than 1900 SKUs."

"BIL's Rs. 14 bn capacity creation plan is progressing as per schedule. The Brownfield capex plant at Chopanki is expected to increase the capacity to 1,40,000 MTPA by Q2FY12. The Greenfield capex plan at Bhuj is expected to conclude by Q3FY13 and is expected to further increase the capacity by 90,000 MTPA. We expect, sales to grow at 28% CAGR over FY11-FY13E to Rs. 35,954 mn on the back of increase in capacity. EBITDA margins are expected to remain constant. Even though rubber prices are expected to come down as the season for latex output will be due in H2FY12, the prices of other raw materials like synthetic rubber, are expected to remain firm due to higher crude prices. BIL forward contracts for natural rubber is booked at $5100 / tonne for 6 months and the management expects it to soften to $3500- $4000 / tonne but the recent 6-8% price hike in April is likely to keep the margins stable. We expect PAT margin to come under pressure due to increase in financial and depreciation charges."

"At CMP the stock is trading at a P/E of 6.5x and 5.0x for FY12E and FY13E respectively. We maintain our rating as "Buy" for BIL having valued it on DCF to arrive at a fair value of Rs 193 yielding a potential 31% upside (15 months)," says SKP Securities research report.

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To read the full report click on the attachment