Off-highway tyre manufacturer, Balkrishna Industries Limited (BKT) reported weak set of numbers in Q2FY19. Standalone revenue was up 19% yoy (down 3% qoq) at Rs1,325cr, lower than expectation of Rs1,402cr. The company was able to keep input costs in check; however, higher operating expenses led to EBITDA underperformance. At Rs333cr, EBITDA was up 9% yoy (down 7% qoq), missing estimate of Rs402cr. EBITDA margin contracted 226bps yoy (115bps qoq) to 25.1%. Standalone PAT was marginally lower than expectation at Rs222cr,
up 10% yoy (down 3% qoq). The company declared second interim dividend of Rs2/equity share.
In its Investor Presentation, the company mentioned the following steps to boost growth:
i) Replacement of Waluj plant with a new plant in the vicinity at a capex of Rs500cr. The plant will have capacity of 30,000 MTpa and will be operational by CY2021.
ii) Capex of Rs500cr for manufacturing larger sized tyres at Bhuj. This will broaden BKT’s product portfolio and increase penetration of the BKT brand.
iii) A carbon black plant of capacity 1,40,000 MTpa is under construction at Bhuj with capex of Rs425cr. Of the total capacity, 60,000MTpa will be operational by March 2019 and the rest by March 2021.
Total volume in Q2FY19 was 52,339MT, up 12% yoy (5% qoq). Volume guidance for FY19 is between 2,10,000MT – 2,20,000MT; growth of 5-10% with respect to FY19. This was lower than the 2,25,000MT – 2,30,000MT guided earlier. As per the management, the downgrade in volume guidance was due to softening in European agri segment.
Conference Call Highlights
Management reduced its FY19E volume guidance to 2,10,000 – 2,20,000MT from earlier guidance of 2,25,000 – 2,30,000MT. This implies cut of 5%, which was due to softness seen in European agri segment since September 2018.
Margin guidance for FY19E was retained at 28-30%.
Capex guidance for FY19E was unchanged at Rs700cr, with major capex expected in FY20 and FY21, details of which were not received.
The management expressed concern that global operating environment remains challenging due to ongoing trade wars, unpredictable currency movements, drought in Europe, etc.
Average INR/EUR realization will be Rs81-82 in FY19 and 84-84 in FY20. In Q2FY19, average INR/EUR was 82, while average INR/USD realization was 70.
Balkrishna Industries Ltd ended at Rs. 1,069.95, down by 45.95 points or 4.12% from its previous closing of Rs. 1,115.90 on the BSE.
The scrip opened at Rs. 1,114 and touched a high and low of Rs. 1,115.10 and Rs. 1,055.15 respectively. A total of 7,40,104 (NSE+BSE) shares were traded on the counter. The stock traded above its 200 DMA.
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