Balkrishna Industries Ltd. share price forecast

Indian OHT exports improved sequentially by 12% in Jul’23 (in line with average monthly exports in CY23), though were down ~20% YoY. Agri segment exports increased 4% MoM to ~USD 85mn as against OTR segment exports at their highest in CY23 at USD 52mn, up 27% MoM.

Weakness in OHT exports from India intensified in Jun’23 and touched their lowest in past 2 years, down 30% YoY to USD 122mn. This was due to continued weak demand, impact of cyclone in Gujarat and deflationary pricing. A week’s production loss from the leader with an average market share of 50%, implies overall exports got hit by ~12.5% -- adjusted for which, it was largely in line with past 6-month average export level.

The Ramco Cements: We maintain REDUCE rating on The Ramco Cements with an unchanged target price of INR 830/share (12x Mar-25E EBITDA). We estimate TRCL to deliver 26% EBITDA CAGR during FY23-25E (strong volume offtake, energy cost reduction, and op-lev gains). We estimate gearing to remain elevated (net debt/EBITDA >2.5x) as we model expansion in AP and Karnataka. In Q1FY24, while Ramco reported strong 29% YoY volume growth, NSR fell 5% QoQ. This negated the input/freight cost reduction gains. Thus, unit EBITDA fell ~INR 100 per MT QoQ to INR 783 per MT. Emami: Consolidated revenue grew by 7% (in-line) with domestic/international revenues growing by 7/8% YoY. Organic revenue/volume growth was c.4% and flat YoY. Emami's revenue performance was impacted by unseasonal rain as a 16% growth in the non-summer portfolio was offset by a 5% decline in the summer portfolio. Navratna fell 8% while pain management, healthcare and BoroPlus grew in double digits. GM expanded by 240bps YoY to 65.4% on soft input costs. However, higher A&P spends and employee costs limited EBITDAM expansion to 60bps, which came in at 23%. EBITDA grew by 10% YoY (HSIE 7%). Emami plans to reinvest a large part of GM expansion in brand building, while still expecting EBITDAM to expand by 200-250bps YoY in FY24. The company remains cautiously optimistic about demand recovery, given (1) softening inflation, which could aid rural demand (2) brand investments and (3) near-normal monsoon. We remain cautious about core business growth, given the limited scope to add new consumers in niche categories. We...

Quarterly Update Q1FY24

Balkrishna Industries’ (BIL) Q1FY24 EBITDAM at 22.7% was up 240bps QoQ, driven by a combination of lower raw material basket (RMB) cost, better product mix, lower freight cost and favourable hedge rate. BIL is confident of improving its global OHT market share from ~6% now to ~10% in 4 years and would do the due capex when needed to scale up.

Indian OHT exports improved sequentially by ~3% in May’23, though were down ~10% YoY. We believe industry would witness steep cuts YoY in Jun-Jul’23 on elevated base, post which the base would turn favourable along with inventory levels of distributors coming down to desirable levels of ~50-60 days by then.

Reiterate REDUCE with an unchanged TP of INR 2,083. BKT's Bhuj facility is its largest facility in India spread over 270 acres of land it has a total capacity of 140k MT pa and its key highlights include 1) a captive power plant 2) a captive carbon black plant with 200k MT pa capacity 3) expandable capacity at the same location by around 150k MT p.a. 4) close proximity to a port and 5) housing colony set-up for attracting talent. On the demand front, the near-term outlook remains weak as distributors continue to liquidate stock in a bid to avoid overstocking in a weak macro. This is likely to continue for a couple of quarters and management is hopeful of a demand recovery by H2FY24. On the margin front, management expects about 200bps improvement YoY in the near term with major benefit likely in H2. While its long-term aspirations (10% global market share over 3-4 years from current 5-6% and 26-28% margin guidance) remain intact, lack of near-term demand visibility would continue to remain an overhang for the stock, especially given that the stock hasn't corrected much despite adverse macro. Also, despite factoring in most positives, the stock at 24x FY25E appears expensive.

We visited the Bhuj facility of Balkrishna Industries (BIL) and interacted with the management. Following are the key takeaways: 1) company is aiming at ~10% market share in the global off-highway tyre market in next 4 years vs current ~6.5% (as against expected industry CAGR of ~3-4% during the same period).

Post stocking up of inventory at distributor level in end markets between March and July CY22, India OHT exports have consolidated since August, facilitating de-stocking amidst steady retail demand.

For Q4FY23, BIL reported revenue of INR 23,170 mn (-2.4% YoY/ +7.0% QoQ). Sales volume was 72,676 MT, which was a decline of 5.8% YoY but an improvement of 9.3% QoQ. The Average Selling Price (ASP) per MT was higher by 3.6% YoY but contracted by 2.1% QoQ.

Greenlam Industries: We maintain our ADD rating on Greenlam Industries, with a revised target price of INR 395/share (16/35x its Mar'25E consolidated EBITDA/APAT). In Q4FY23, it reported strong 15/49/80% YoY growth in consolidated revenue/EBITDA/APAT. It is driven by a robust 17% volume uptick and subsequent op-lev gains boosting consolidated EBITDA margin by 320/300bps YoY/QoQ to 13.9%. We like Greenlam for its leadership positioning in laminates. The upcoming laminate expansions should drive a consolidated volume CAGR of 17% during FY23-25E, in our view. While plywood/ particle board will boost revenues from FY24/FY25 onwards respectively, huge Capex should keep net debt to EBITDA elevated at ~2-3x during FY23-25E. Ahluwalia Contracts: Ahluwalia Contracts (AHLU) reported revenue/EBITDA/APAT of 8.6/1.1/0.8bn, (missing)/beating our estimates by (17.7)/9.5/10.8%. While surpassing its FY23 order inflow (OI) guidance of INR 45bn with an OI of INR 50.6bn, the order book (OB) as of Mar'23 stood at INR 81.6bn. With an OI of INR 37.5bn in FYTD24, the OB as of date stands at ~INR 120bn (~4.2x FY23 revenue). The OB is well-diversified, providing a natural hedge from a slowdown in any particular business/geography segment. AHLU guided for FY24 revenue to grow by 20% YoY, with EBITDA margin (excl. other income) at ~11%+ and an OI of INR 20-25bn in the remaining part of the year. Given robust inflows, better margins and pick-up in execution, we recalibrate our FY24/25E EPS higher and increase the multiple to 14x from 13x. We maintain BUY on the stock, with an increased TP of INR 700/sh. Repco Home Finance: REPCO's Q4FY23...

Balkrishna Industries’ (BIL) Q4FY23 EBITDA margin at 20.3% was in line with our estimate and up 420bps QoQ, driven by gradual decline in the cost of consumed raw material basket (RMB) and relatively lower-priced freight contracts. BIL is aiming at 200-300bps EBITDAM improvement in FY24 over current levels –on the back of lower RMB cost, better hedge rate and further normalisation of logistics cost.

Quarterly Update Q4FY23

Indian OHT exports declined for the third quarter in a row in Q4FY23, from the highs of Q1FY23, as with the easing of container supplies, distributors in target markets started cutting down inventory from elevated ~120 days to targeted levels of ~60 days.

Industry OHT exports remained subdued in Jan’23, closer to Oct’22 lows, post spiking up in the seasonally strong Dec’23. Overall OHT export revenues were down 9% YoY in Jan’23 (up 6% FY23-TD) with the agri tyre segment down 12% YoY vs OTR down 3% YoY.