Balkrishna Industries’ (BIL) Q1FY17 revenues came in at | 928 crore (up 8.4% YoY) vs. our estimate of | 856 crore. Volumes grew 11% YoY to 43,306 MT (includes sales of 1,850 MT in Q4FY16 adjusted in Q1FY17) vs. expectations of volumes ~40,057 MT for the quarter • EBITDA margin at 28% (up 1518 bps YoY) was higher than estimate of 27%. The company has seen marginal benefit of forex gains thereby impacting margins. Subsequently, reported PAT came in at | 149 crore (up 46.1% YoY) vs. our estimate of | 110 crore • BIL has adopted Ind AS. Accordingly, there have been some major adjustments in Q1FY16 (last years) numbers as also accounting treatment for volumes sold during the period.
BIL is an export dominated niche play and is well placed to capture the demand revival opportunity. Though the management remains cautiously optimistic it has revised its volume guidance upwards signifying pre-signs of demand revival. Its strategy of higher utilisation, repayment of debt & deepening its reach will revive its performance. Thus,they value BIL at 13x FY18E EPS to arrive at a target price of | 925 with a HOLD recommendation on the stock. Any unfavourable regulatory changes (countervailing duty of 3-5% in US) may impact its performance.