Multi Baggers
Balkrishna Ind
BSE ID : 502355 NSE ID : BALKRISIND
RECOMMENDED PRICE 146.00
PEAK FROM RECO 2724.40 1,766.03%
CURRENT PRICE 2349.70 Resource id #11
FY10 was an exceptional year for Balkrishna Industries with a 24% OPM and three-fold jump in PAT. We believe BIL will revert to its historic average OPM of 19-20%.
Balkrishna Industries
A niche segment player with global presence:
Balkrishna Industries Ltd (BIL) is a niche tyre manufacturer of specialty/off highway tyres for use in agriculture, mining and construction sector. Almost 90% of its revenues are generated from exports to Europe (50%), US (20%), Middle East, Africa, Australia, Asia. With global tyre majors focusing primarily on the automotive business, we expect BIL to increase its global market share in the OTR segment to 6% (currently 3%) over the next three years. BIL’s capability to customize and its vast experience will provide additional traction.
Expanding capacities to meet emerging opportunities:
BIL has earmarked capex of Rs14bn for the next three years for capacity expansion through 1) setting up a greenfield plant at Gujarat with the capacity of 250T/day and 2) increasing the capacity of Aurangabad facility to 105T/day from 85T/day currently. These expansions will come on stream over the next couple of years and will place BIL in a better position to service strong demand growth expected in US and Europe.
Import duty benefit and pricing headroom to support margins:
BIL imports 70% of its rubber (major raw material) requirement at zero duty through advance licensing scheme. Furthermore, the prices of BIL’s products are ~30% cheaper than competitors, which provide sufficient headroom to raise prices in inflationary times. This leads to higher OPM (~20%) for the company compared to <~15% OPM for its domestic peers.
Attractive valuations in the light of better fundamentals:
FY10 was an exceptional year for BIL with a 24% OPM and three-fold jump in PAT. We believe BIL will revert to its historic average OPM of 19-20%. The company is likely to deliver a 23.7% revenue CAGR over FY10-12. With superior return ratios, a healthy balance sheet (D/E of 0.7x) and 17% PAT growth in FY12, we find the stock attractively valued at EV/EBIDTA of 5.2x and P/E of 5.9x on FY12 estimates. We recommend a BUY with a target price of Rs913.
Valuation summary (Consolidated):
Y/e 31 Mar (Rs m)
FY07
FY08
FY09
FY10
Revenues
8777
11337
13999
15637
yoy growth (%)
41.6
29.2
23.5
11.7
Operating profit
1777
2261
2040
3845
OPM (%)
20.2
19.9
14.6
24.6
Pre-exceptional PAT
875
1089
732
2168
Reported PAT
831
1130
741
2168
yoy growth (%)
18.8
35.9
-34.4
192.7
EPS (Rs)
45.3
56.3
37.9
112.2
P/E (x)
16.1
13
19.3
6.5
Price/Book (x)
4.1
3.4
3
2.1
EV/EBITDA (x)
10.2
8.6
9.2
4.9
Debt/Equity (x)
1.2
1.3
1
0.7
RoE (%)
27.6
28.5
16.4
37.4
RoCE (%)
21.3
21.9
15.1
31
3200
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