Reduce Balkrishna Industries; target of Rs 2083: HDFC Securities

HDFC Securities' research report on Balkrishna Industries

Balkrishna Industries’ (BKT) Q4FY23 margin, at 21.3%, was in line with our estimate. Demand in Europe continues to be weak and the company hopes it will improve in H2. Hence, inventory destocking is likely to continue until it normalizes by June-July. Given this challenging demand environment, management has refrained from providing any volume guidance for FY24. We factor in BKT’s margin to improve to 24% in FY24 (from 20% in FY23) on the back of reduced input costs, normalization of freight rates, and favourable Euro-INR hedge rate at INR 88-89 vs INR 85.3 for FY23. However, cost pressures like (1) competitive headwinds (which may force BKT to pass on input cost reduction) and (2) continuous investments in its brand; may result in downside risks to our estimates. Further, the sharp rise in interest burden is likely to cap earnings growth, unless BKT aims to reduce debt soon. On account of continued demand weakness, we have lowered our EPS estimates by 8%/1% for FY24-25E.

Outlook

However, despite factoring in most positives, the stock at 31x FY24E appears expensive. Maintain REDUCE with a revised TP of INR2,083 (INR1,936 earlier), as we roll forward to FY25 EPS (no change in target multiple).

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