Shares of Balkrishna Industries Ltd increased by nearly 10% on Monday on the National Stock Exchange, touching a new 52-week high
Shares of Balkrishna Industries Ltd increased by nearly 10% on Monday on the National Stock Exchange, touching a new 52-week high. Balkrishna Industries’ March quarter earnings are higher than expectations and that has cheered investors. Earnings before interest, tax, depreciation and amortization (Ebitda) increased by a robust 37% year-on-year (y-o-y) to ₹557 crore.
The company manufactures off-highway tyres used in specialist segments such as mining, earthmoving, agriculture and gardening. Commenting on the results, analysts from ICICI Securities Ltd said, “Balkrishna Industries’ result was above consensus estimates as revenue growth surprised (up 26%) while Ebitda margins (around 32%/ flat quarter-on-quarter) remained resilient even as domestic peers reported 350-600 basis points contraction." One basis point is one-hundredth of a percentage point.
Sales volume at 68,002 tonnes is the highest ever on a quarterly basis, said Balkrishna Industries. Volume growth stood at 17% y-o-y, boosting overall performance last quarter. Strong demand for agri tyres helped volume growth. Analysts from Kotak Institutional Equities point out, average selling price increased by 7% y-o-y owing to price hikes and a favorable product mix.
Going ahead, the company believes strong demand trends are likely to continue in the financial year 2022 (FY22). Accordingly, it has given a sales volume guidance of 250,000-265,000 tonnes for FY22, which has fairly enthused analysts. “There may be covid-19 related softness in demand leading us to give a wider range for annual guidance," said the company’s management in its presentation. FY22 guidance represents around 10-17% y-o-y growth. Note that the company’s volumes in FY21 stood at 227,131 tonnes. Geographically, Europe accounted for 50% of the sales mix in FY21, followed by 23% in India, 15% in Americas and 13% in the rest of the world region.
Going ahead, growth outlook is fairly encouraging. ICICI Securities’ analysts said, “Balkrishna Industries is likely to benefit from growth tailwinds across both agri and off-the-road segments, we expect sales/earnings per share CAGR of around 21%/26% over FY21-FY23E." CAGR refers to compound annual growth rate.
Meanwhile, the jump in Balkrishna Industries’ shares post March quarter earnings makes valuations pricey. To be sure, some analysts reckoned valuations were expensive even before Monday’s appreciation. On 15 May, Kotak’s analysts said in a report, “At current market price of ₹1,896, valuation remains expensive (23.7 times FY23E earnings per share estimates) even after building strong operating performance over the near-term." The broker forecasts 10% volume CAGR over FY21-24E.