Balkrishna Industries outlook to improve with lower rubber prices

MUMBAI: The near term outlook for balkrishna Industries seems to be bright on account of lower rubber prices and expansion of its plant. However, most of the positives seem to be priced in the current market price of the company.

Rubber prices constitute to over 50% of the operating costs for the company. Since April 2012, international rubber prices have fallen by 20% to $23,300 per 5 metric ton.

According to industry observers, rubber prices are expected to remain around this level for this year. this is primarily because of the surplus production of rubber in Thailand As a result, the company is expected to see an improvement in its margin in the coming quarters.

Another positive factor for the company is the commissioning of its new plant. The company's plant at Bhuj is expected to be operational in the next operational year. the management has guided for an 20% y-o-y growth in volumes for this financial year. however, the company may find it difficult to achieve this growth due gloomy macro-economic scenario in Europe. Balkrishna Industries receives 60% of its revenues from Europe.

At the current market price of Rs 258.8, the company is trading at a P/E of 9.3. The current price has factored in the favorable outlook for the company in the near term. Any further fall in rubber prices is likely to increase investor sentiment in the company.