Balkrishna Industries’ off-highway travels put it in a relatively better place
2 min read.Updated: 23 Jun 2020, 09:07 AM ISTR. Sree Ram
Sales volumes grew 5% notwithstanding the covid-19 disruption, which led to zero sales in the last seven days of March
Revenue grew just 0.4% from the year-ago quarter reflecting price cuts and low realisations
Among listed tyre companies, Balkrishna Industries Ltd takes the road less travelled. The company manufactures off-highway tyres used in specialist segments such as mining, earthmoving, agriculture and gardening. But, as it turns out, it appears to have helped the firm during covid times.
Balkrishna Industries’ shares are trading near their February highs, while shares of other tyre companies are down by about 12%, in line with the broader market. The company reported decent performance for the March quarter with sales volumes growing 5%, notwithstanding the covid-19 disruption, which led to zero sales in the last seven days of March.
Its revenue grew just 0.4% from a year ago earlier, reflecting price cuts and low realizations. But, thanks to low raw material costs, operating earnings grew by an impressive 21% from the year-ago quarter. The stock gained about 2% in the last two trading sessions.The company said it can hold on to its FY20 performance this fiscal year.
“If everything remains what it is, as of today, performance for FY21 should be at similar levels, of what has been achieved during FY20," Balkrishna Industries said in a call with analysts.
Note that the company, too, faced lockdown restrictions for most part of April. As a result, loss of production days will be notably higher in FY21, than in the fiscal year gone by. “I am not aware if there is any other tyre manufacturer who said they will be able to keep up the FY20 performance. Historically, they have delivered on guidance," said Bharat Gianani, analyst, Sharekhan.
It’s helpful that around 61% of the company’s sales volumes came from the agriculture and farm sectors. Europe generates a little over half of its total sales, with India and the US accounting for the rest.
The agriculture sector in Europe this year is recovering after several years of weather disturbances. Also, the replacement market constitutes 71% of total sales. All of this augurs well for the company, said analysts.
“In the last two months, we saw good demand in the agriculture segment across geographies, and we see this demand holding up," the management said during the call. On the costs front, input expenses have been easing and profit margins expanded 1.4 percentage points to 28.2% last fiscal year.
With the commissioning of the second phase of the carbon black project, the company is now self-sufficient on this key raw material.
This backward integration, coupled with low raw material costs, should help Balkrishna Industries keep up the earnings momentum.
But since the company predominantly derives its revenues from exports, adverse currency movements can impact profits margins. This is one risk investors need to watch out for.