Reduce Balkrishna Industries; target of Rs 2148 : HDFC Securities

HDFC Securities' research report on Balkrishna Industries

Balkrishna Industries’ (BKT) Q1 FY24 PAT, at INR3.1bn, came in ahead of our estimate of INR2.6bn, led by higher other income even as EBITDA lagged estimates. Q1 tonnage declined 19% YoY and was lower than expected due to plant shutdown at Bhuj on account of the cyclone. While Q2 will have the spillover benefit for a weak Q1, management maintained that demand continues to be weak globally due to the impact of heat waves and recessionary trends in key regions. As a result, management has refrained from giving any volume guidance for FY24. We factor in BKT’s margin to improve to 25% 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 87-88 vs INR 85.3 for FY23 and expect it to improve to 27% for FY25, as operating leverage benefits are likely to kick in. However, cost pressures like (1) competitive headwinds and (2) continuous investments in its brand may result in downside risks to our estimates.

Outlook

However, despite factoring in most positives, the stock at 25.6x FY25E appears expensive. Maintain REDUCE with a revised TP of INR2,148 (INR2,083 earlier), as we roll forward to June-25 EPS (no change in target multiple).