Balkrishna Industries - Lower revenue nullifies benefits of fall in rubber prices - BRICS

BIL's Q3FY13 results fell short of our expectations - revenue came in 23% below estimate, while PAT was 41% lower than estimate. Revenue at Rs7.04bn was down 10% yoy. Higher depreciation and employee costs were offset by softening in rubber prices - EBITDA was up 9% yoy, with EBIDTA margin coming in at 22%. Adjusted PAT stood at Rs744mn, up 2% yoy. The company's board has given its in-principle approval for a proposal to restructure/reorganize the Paper and Synthetics businesses owned by its wholly owned subsidiaries - Balkrishna Paper Mills and Balkrishna Synthetics respectively. BIL has arranged a conference call on February 18, 2013, after which we will revise our estimates, if required - we have a BUY rating on BIL.

Revenue down 10% yoy: Revenue at Rs7.04bn was down 10% yoy and 20% qoq - likely due to poor demand in the European markets. Volume declined 15% yoy and 19% qoq to 30,125MT, while realisation was up 6% yoy, but down 1.8% qoq to Rs233,935/T.

EBIDTA supported by lower raw material costs: While the benefit of low rubber prices in Q2FY13 was visible in Q3FY13 - raw material cost, as a % of sales, was down 218bps yoy, while employee cost, as a % of sales, was up, due to low volume and manpower addition for capacity expansion at Bhuj. The commencement of production at Bhuj also resulted in an increase of 30% yoy in depreciation. EBITDA came in at Rs1.6bn, up 9% yoy, but down 16% qoq, and 23% below our estimate, resulting in EBIDTA margin of 22% vs. 18% in Q3FY12.

Adjusted PAT down 40% qoq: BIL made a tax provision of Rs307mn - which pegged the tax rate for the quarter at 28.7%, down 110bps yoy and 894bps qoq. With other income being lower than usual - PAT (adjusted for forex gains/losses) stood at Rs744mn, up 2% yoy, but down 40% qoq, and 41% below our estimate.

Source : Equity Bulls

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