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Balkrishna Industries’ Rs1,700cr capex plan spooks investors, stock plummets ~8%

The company will invest Rs700cr for developing a greenfield tyre plant in the US and another Rs1,000cr for its India operations.

September 03, 2018 11:24 IST | India Infoline News Service
Balkrishna Industries, BKT
Shares of off-highway tyre maker Balkrishna Industries Limited (BKT) tanked ~8% to the lowest point of the day as the company’s Board of Directors approved a capex plan of Rs1,700cr.

Of this amount, ~Rs700cr ($100mn) will be spent on setting up a greenfield tyre plant in the US through a wholly owned subsidiary. Further, Rs1,000cr will be spent towards increasing capacity in Waluj and Bhuj in India.

The capex plans in India and the US will be completed within a period of 30 months. The ambitious capex announcement spooked investors, leading to a huge decline in the stock price.

As per its press release, the company has received board approval for setting up a 20,000MT per annum plant in the US through a wholly owned subsidiary to be set up in the future. The project will be funded via investments from BKT and local debt.

In India, BKT will set up a greenfield project in Waluj (Maharashtra) on a freehold land of 22 acres owned by the company which is within a 5km radius of the current plant location. The capex at Waluj will be ~Rs500cr including a co-generation plant and in-house warehousing facilities for raw materials and finished goods.

The new facilities will enhance the company's operational efficiencies leading to recurring savings in operations. The existing plant will continue to operate till the new plant becomes operational. There would be no change in the capacity. Further, Rs500 cr will be utliized in setting up new line in Bhuj (Gujarat) to manufacture 5,000MT of layers of All Steel Radial OTR Tyres per annum. An additional mixing line will also be set up in Bhuj.

As on March 31, 2018, BKT had a debt of Rs868cr (long term + short term) on its consolidated balance sheet and cash and liquid investments worth Rs517cr. Over the past five years, BKT has successfully reduced debt on its books from Rs2,400cr in FY14 to Rs868cr in FY18. The D/E ratio also declined dramatically from 1.3x in FY14 to 0.2x in FY18. The recent capex announcement will lead to a spike in its debt profile and could strain cash flows over the next 2-3 years. This expectation has led to a dramatic correction in the stock price.

Balkrishna Industries Ltd is currently trading at Rs1,265 down by Rs99.1 or 7.26% from its previous closing of Rs1,364.10 on the BSE. The scrip opened at Rs1,363.50 and has touched a high and low of Rs1,363.50 and Rs1,261 respectively. So far 14,66,195 (NSE+BSE) shares were traded on the counter. The current market cap of the company is Rs26,370.40cr.

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