Balkrishna Industries - Quarter ends on a strong note - ICICI Securities

Balkrishna Industries (BIL) key export markets continue to recover smartly (Q2FY21 exports grew: 32% YoY). We believe BIL provides superior risk-reward vis-à-vis peers due to its standout earnings resilience. The latest industry export data (Sep'20) remains strong with both segments (agri, OTR) on firm growth path with combined exports rising 45%. The latest monthly export data continues to support a strong V-shaped demand rebound across agri tyres at 63% YoY and off-the-road (OTR) tyres at 18% YoY. On a regional basis, the growth for Sep'20 was led by EU region (up 66%). Continued improvement in growth remains the key catalyst for the stock. Input costs increases remains a key risk. Factoring-in volume and EPS CAGRs of ~8% and 17% respectively over FY20-FY23E, we maintain our target price at Rs1,671. Reiterate BUY.

- Overall export rebound continues as both agri and OTR segments shine: Agri tyre and OTR tyre segments combined grew at a healthy 45% YoY / 10% MoM in Sep'20 on solid base of the prior year. On an end-product basis, sharp growth acceleration (up 63% YoY) was witnessed in agri tyres (~67% of total exports). On the OTR side, growth momentum picked up to 18% YoY / ~10% MoM in Sep'20.

- EU growth surges: On regional basis, the EU continues to deliver strong growth at ~66% YoY / 10% MoM while the US grew ~23% YoY / 11% MoM. The two regions together represent ~71% of Sep'20 exports. Growth in EU exports was driven by France, Italy and Netherlands (together up ~52% YoY). These three countries contributed ~20% and ~33% to the overall exports and exports to EU respectively. In rest of the world (RoW), Australia and Canada reported strong growth. On a sub-segment basis, OTR growth was driven by EU region (up ~37% YoY / ~35% contribution) while US growth was ~13% (~25% contribution). However, on the agri side, both EU and US regions grew rapidly (up ~77% and 32% respectively).

- Q2 industry exports growth covers up the covid shock in Q1: After a 23% decline in Q1FY21, exports increased 32% YoY in Q2FY21. Thus H1FY21 exports have clocked ~3% growth. The pace of recovery has been quite sharp. On an end-product basis, the agri tyre segment led exports for Q2 with 45% rise while OTR grew 10%. On a regional basis, the EU continued to grow rapidly (up 46%) followed by US which also grew ~22%. BIL is expected to benefit from the improving demand traction due to its superior product offerings across segments and rising brand recognition.

- Maintain BUY: We expect FCF generation to be strong at ~Rs15bn (~5.8% FCF yield) in FY23E. We value the stock at an unchanged multiple of 22x Sep'22E EPS of Rs75.9 to arrive at our target price of Rs1,671. Maintain BUY.

Shares of BALKRISHNA INDUSTRIES LTD. was last trading in BSE at Rs.1379 as compared to the previous close of Rs. 1375.65. The total number of shares traded during the day was 24281 in over 2231 trades.

The stock hit an intraday high of Rs. 1418 and intraday low of 1374. The net turnover during the day was Rs. 33955127.

Source : Equity Bulls

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