Reduce Balkrishna Industries; target of Rs 2083: HDFC Securities

HDFC Securities' research report on Balkrishna Industries

BKT’s Bhuj facility is its largest facility in India spread over 270 acres of land; it has a total capacity of 140k MT pa and its key highlights include 1) a captive power plant; 2) a captive carbon black plant with 200k MT pa capacity; 3) expandable capacity at the same location by around 150k MT p.a.; 4) close proximity to a port; and 5) housing colony set-up for attracting talent. On the demand front, the near-term outlook remains weak as distributors continue to liquidate stock in a bid to avoid overstocking in a weak macro. This is likely to continue for a couple of quarters and management is hopeful of a demand recovery by H2FY24. On the margin front, management expects about 200bps improvement YoY in the near term with major benefit likely in H2. While its long-term aspirations (10% global market share over 3-4 years from current 5- 6% and 26-28% margin guidance) remain intact, lack of near-term demand visibility would continue to remain an overhang for the stock, especially given that the stock hasn’t corrected much despite adverse macro.

Outlook

Also, despite factoring in most positives, the stock at 24x FY25E appears expensive. Reiterate REDUCE with an unchanged TP of INR 2,083.