Buy Balkrishna Industries, target price Rs 2,539: LKP Securities

LKP Securities has buy call on Balkrishna Industries with a target price of Rs 2539. The current market price of Balkrishna Industries is Rs 2124.15. Time period given by analyst is year when Balkrishna Industries price can reach defined target.

Balkrishna Industries, incorporated in the year 1961, is a Large Cap company (having a market cap of Rs 41122.43 crore) operating in Tyres sector.

Balkrishna Industries key Products/Revenue Segments include Tyres & Tubes, Export Incentives, Scrap and Other Operating Revenue for the year ending 31-Mar-2021.


Financials
For the quarter ended 31-03-2022, the company has reported a Consolidated Total Income of Rs 2483.58 crore, up 15.04 % from last quarter Total Income of Rs 2158.85 crore and up 36.86 % from last year same quarter Total Income of Rs 1814.74 crore. Company has reported net profit after tax of Rs 374.84 crore in latest quarter.

Investment Rationale
Balrishna Industries reported good set of numbers especially at the topline. Volume expansion was seen across all the geographies, verticals and channels. Realizations grew on price hikes taken and good product mix. Going forward, India is expected to join the bandwagon with good monsoons and pick up in the farm sector. As the supply constraints settle down, the brokerage expects volumes to rise further supported by capacity expansion at its various plants. Higher dependence on Replacement segment should keep the demand buoyant as OEMs are facing supply issues. It will help margins as well. Price hikes taken and to be taken, should further assist margins as RM costs are on rise.

Captive Carbon black and Power plants should help saving costs. Capex outlay of Rs 11 bn (Rs 9 bn for capex expansion and Rs 2 bn for maintenance capex) for FY23 is not very high and is quite manageable with rich cash reserves. Despite this expense, the management doled out rich dividends of Rs 28/share this year which gives comfort to the investors. With raised debt this year for capex expansion, the leverage ratio is still comfortable at 0.28x which the brokerage believes to reduce going forward with strong operations. Higher capex outlay in FY22 led to negative FCF, but the brokerage believes that the bulk of the capex is behind us, so in FY23, with stronger demand and business, we expect FCF to come back in the green. It therefore values BKT at 21x on FY24E earnings as compared to 17.7x current PE.

Promoter/FII Holdings
Promoters held 58.29 per cent stake in the company as of 31-Mar-2022, while FIIs owned 14.05 per cent, DIIs 11.78 per cent.