HSBC maintains hold rating on Balkrishna Industries

Mumbai: HSBC has maintained hold rating on Balkrishna Industries and revised target price to Rs 1,040 from Rs 1,090. The stock is down 34% over the past six months on concerns over returns on new capex and cut in guidance, the firm said.

"BIL’s share price has corrected 37% since its peak in August 2018 as investors believe that new capex announced by the company is return dilutive and the cut in FY19 volume guidance puts growth at risk," said HSBC.

HSBC has cut earnings forecasts by 5-9% on lower volume assumptions. HSBC sees strong potential for long-term growth. HSBC believes that Balkrishna Industries' value-for-money products which meet global quality standards and the company’s continued focus on improving its brand image will allow its products to move up the perceived quality curve and gain market share.


HSBC sees lower risks of a sharp increase in rubber price as it expects natural rubber to be in surplus for the next two years.

"BIL has net cash, will generate free cash flow, and expects ROE of 20% with an earnings CAGR of 20% over FY18-21. The stock is trading at a one-year forward PE of 17.3 times, at its 3-year mean multiple," said HSBC.