Fundamental Analysis of Balkrishna Industries: MRF share has reached dizzying heights crossing the Rs 1,00,000 mark making it difficult for retail investors to include it in their diversified portfolios.

But did you know, the stock of Balkrishna Industries (another leading Indian tyre manufacturer) sells for Rs 2,500 only? And the company is as big as MRF. BKT can be a good alternative to MRF for small investors.

In this article, we’ll perform a fundamental analysis of Balkrishna Industries (BKT) and see if it can be an attractive investment opportunity.

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Fundamental Analysis of Balkrishna Industries

Balkrishna Industries Logo

We’ll begin our fundamental analysis of Balkrishna Industries by getting ourselves acquainted with the business and the scale of its operations. Next, we’ll read about the global tyre industry landscape. After that, we’ll race through the financials of the stock. In the end, a highlight of the future plans and a summary conclude the article.

Company Overview

Balkrishna Industries (BKT) is the largest off-highway tyre manufacturer in India and one of the largest across the world. It was started in 1987 by later Mr MP Poddar. Over the years, its is grown into one of the most trusted tyre companies worldwide.

BKT sold 3,01,181 million tonnes of tyres in FY23 through its nine plants (5 tyre production plants, a carbon black plant, a moulding plant, a drum plant and a windmill) located across Maharashtra, Rajasthan, and Gujarat.

It supplies its products to some of the most prominent original equipment manufacturers (OEMs) across the world including Ferrari, John Deere, Kubota, JCB, etc.

The company makes a variety of off-highway tyres for different vehicles used in agriculture, mining,  industrial, forestry, construction, and other sectors. The agriculture segment accounts for a majority of 62.7% of the sales on a standalone basis followed by the off-the-road segment (34.2%).

Balkrishna is the main preference of OEMs and non-OEM customers alike. This point is highlighted by the fact that replacement demand makes up 69.5% of the total sales. Revenue from OEMs stood at 27.9% in FY23.

Talking about its geographical segments, Europe is the main market for the tyre manufacturer as it bought 50.5% of the total standalone revenue in FY23. India and the Americas contributed 21.6% and 17.9% revenue share respectively.

Overall, Balkrishna Industries supplies its products to more than 160 countries across the world making it an export-oriented business with 79% revenue originating outside India.

We got a good understanding of the business for our fundamental analysis of Balkrishna Industries. Let us now move forward to read about the global tyre industry landscape.

Industry Overview

Tyres are one of the main automobile components making them part of the automotive components industry. As a result, the tyre industry closely tracks the automotive industry in terms of growth.

However, the sector is segmented into two categories according to the demand source: 

  1. sales to original equipment manufacturers (OEMs) or automobile companies
  2. aftermarket sales or replacement demand

The replacement demand acts as a cushion for the tyre makers in times of low demand from OEMs.

Talking about the recent industry performance, automobile and auto component manufacturers across the world recorded impressive sales in FY23. The high volume was on account of various sectors coming out of the pandemic-led demand loss and the economic slowdown before that.

Furthermore, the supply of chip shortages and other critical components eased in the recent fiscal. As a result, the manufacturing of Medium and Heavy Commercial vehicles (M&HCV) increased by 35%, passenger vehicles by 25%, tractors by 11%, and two-wheelers by 12%. 

In addition to this, multiple sub-segments recorded growth in double digits such as electric vehicles (EVs), buses, haulage & tippers, buses, and SUVs.

However, the raw material costs increased during the year compressing the profit margins of industry players. Going forward, the market experts are optimistic about the tyre industry prospects on account of higher disposable income, stability in the macroeconomic environment, higher government spending & private CAPEX, and roubust demand from rural and semi-urban areas.

Balkrishna Industries – Financials

Revenue and Net Profit Growth

The revenue of Balkrishna Industries grew at a CAGR of 17% from Rs 5,210 crore in FY19 to Rs 9,760 crore in FY23. During the same period, its net profit grew at a slower pace of 8.1% to Rs 1,057 crore in FY23. The demand was weak in Europe in the recent fiscal hurting its profitability.

The figures below represent the operating revenue and net profit growth of Balkrishna Industries for the previous five financial years.

Fiscal YearOperating RevenueNet Profit
20239,7601,057
20228,2951,435
20215,7831,178
20204,811960
20195,210774
5-Yr CAGR17.0%8.1%

(figures in Rs Cr except for CAGR)

But how is it that the net profit didn’t grow at the same or faster rate as the operating revenue? We attempt to answer this in the next section on the margins of our fundamental analysis of Balkrishna Industries.

Profit Margins

During our study period, the operating profit margin of BKT declined from 22.8% in FY19 to 15.2% in FY23. It translated into a lower net profit margin of 10.8% in FY23 against 14.8% in FY19. Rising raw material costs bit into the profit margins of tyre makers, hurting their profitability.

The table below showcases how the profit margins of Balkrishna Industries have performed over the past five fiscal years.

Fiscal YearOperating Profit MarginNet Profit Margin
202315.210.8
202224.017.3
202127.120.4
202023.919.9
201922.814.8

(figures in %)

Return Ratios

The fluctuation in margins affected the profitability of BKT bringing down the return ratios: return on capital employed (RoCE) and return on equity (RoE) to 16.5% and 14.0% in FY23 respectively. Furthermore, the recent CAPEX has further expanded the capital base bringing down the return ratios.

The figures below represent the RoCE and RoE of Balkrishna Industries for the previous five fiscals.

Fiscal YearRoCERoE
202316.514.0
202225.720.7
202125.019.6
202021.919.2
201923.616.6

(figures in %)

Debt Analysis

Moving on to the debt analysis for our fundamental analysis of Balkrishna Industries, we can note that its debt/equity ratio increased from 0.2 in FY19 to 0.4 in FY23. The company borrowed more to meet its CAPEX requirements. However, with a high-interest coverage of 42.8 times, its debt is still within the comfortable limit.

The table below highlights the debt/equity ratio and interest coverage ratio of Balkrishna Industries over the past five fiscals.

Fiscal YearDebt / EquityInterest Coverage
20230.442.8
20220.4267.4
20210.2137.6
20200.2129.0
20190.2106.7

Future Plans Of Balkrishna Industries

So far we looked at the previous fiscals’ data for our fundamental analysis of Balkrishna Industries. In this article, we’ll try to get some sense of what lies ahead for the company and its investors.

  1. Balkrishna Industries almost doubled its production capacity of carbon black to 2,00,000 MTPA in December 2022 from 1,15,000 MTPA earlier. Furthermore, it plans to add 30,000 MTPA more capacity by the end of Q2FY24 for this critical raw material.
  2. Furthermore, the tyre maker spent money on the upgradation and automation of its manufacturing sites at Bhiwadi, Chopanki and Bhuj.
  3. BKT recently completed its capacity expansion at its new Waluj plant taking the total production capacity to 55,000 MTPA.
  4. As part of its long-term brand-building strategy, the company sponsored multiple sporting events across America, Canada, Spain, France etc such as the La Liga football league, Monster Jam trucking event, and more.
  5. The management is optimistic about FY24 on multiple points including inventory costs, logistics costs, and hedging rates.

Key Metrics Of Balkrishna Industries

We are almost at the end of our fundamental analysis of Balkrishna Industries. Let us take a quick look at the key metrics of the stock.

ParticularsAmountParticularsAmount
CMP ₹2,378.3Market Cap (Cr.)₹45,467
EPS₹55Stock P/E41
RoE14%RoCE17%
Promoter Holding58%Book Value₹391
Debt to Equity0.4Price to Book Value6.39
Net Profit Margin10.8%Operating Profit Margin15.2%

Conclusion

As we conclude our fundamental analysis of Balkrishna Industries we can say that despite macroeconomic setbacks, the company has devotedly grown its sales in the past. At the same time, it is well-positioned to tap future demand with its capacity expansion projects completed. Going forward, investors should closely monitor the quarterly performance in terms of revenue growth and margins.

Do you think with recession fears reducing, BKT is well-positioned to capture the tyre market globally? What are your views on this tyre stock? How about we continue this conversation in the comments below?

Written By Vikalp Mishra

By utilizing the stock screener, stock heatmap, portfolio backtesting, and stock compare tool on the Trade Brains portal, investors gain access to comprehensive tools that enable them to identify the best stocks also get updated with stock market news, and make well-informed investment decisions.


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