Balkrishna Industries Ltd. share price target

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.

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.

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.