Balkrishna Industries - CY20 industry exports end on a strong note - ICICI Securities

Balkrishna Industries' (BIL) key export markets continue to witness improving demand (Nov'20 industry exports grew 14% YoY). The latest industry export data (Nov'20) continues to be driven by agri (Ag) demand (up ~23% YoY) while OTR witnessed a flattish ~1% decline. Interesting to note, demand in the US region improved across segments (OTR+Ag was up ~34% MoM) as post-election political uncertainty fades away. The latest export data continues to support the V-shaped demand rebound: YTD exports are up 6% led by Ag (up 16%). On a regional basis, in Nov'20, growth was led by RoW (up 34%) followed by the EU region (up 14%). As BIL reaches peak utilisation in FY23E (assuming ~15% revenue CAGR over FY20-FY23E), we expect the best in class RoICs of >25%, justifying its superior valuation vis-à-vis peers. Maintain BUY.

- Overall export rebound continues as agri propels higher growth: Agri and OTR segments combined grew at a healthy ~14% YoY in Nov'20. On an end-product basis, growth acceleration continued in Ag tyres (up ~23% YoY) and contributed ~68% of total exports (up 500bps). On OTR side, momentum remained stable with 1% decline YoY in Nov'20.

- EU growth surge continues: On a regional basis, EU continues to deliver strong growth (Ag+OTR) at ~14% YoY while RoW outpaced at ~34% YoY. The two regions together represent ~76% of Nov'20 exports. On the flip side, the US region decline narrowed to ~6% YoY (Ag was flat while OTR declined ~15%). Growth in RoW exports driven by Australia (up 113%), Canada (up 105%) and South Africa (up 67%) reflects a more broad-based improvement across regions. In the EU, smaller nations of Austria, Poland drove growth even as the larger economies of France, Spain and Germany (flat YoY) were a drag due to Covid resurgence. On a sub-segment basis, OTR growth was driven by RoW (up ~21% YoY / ~44% contribution) while the US and EU declined ~13% (~31% contribution) and ~15% (25% contribution) respectively. However, on the Ag side, EU and RoW grew rapidly (up ~24% and 46% respectively).

- Agri exports recover, OTR hit by Covid resurgence aftershock: After the initial Covid-induced demand shock (~23% decline) in Q1FY21, exports had shown signs of recovery only to be hit by the second wave. This has led to the overall industry clocking ~10% decline YTD. We believe the outlook for global Ag exports remains strong under the rising commodity price environment. OTR demand is also likely to be supported by infrastructure/mining investments in FY22 and beyond as commodities outlook remains firm.

- Maintain BUY: We expect strong FCF generation of ~Rs28bn over FY22E/FY23E. We maintain our valuation multiple at 24x Dec'22E EPS of Rs82.1 and maintain our target price of Rs1,969. We maintain our BUY rating on the stock.

Shares of BALKRISHNA INDUSTRIES LTD. was last trading in BSE at Rs.1557.05 as compared to the previous close of Rs. 1555.85. The total number of shares traded during the day was 25400 in over 2013 trades.

The stock hit an intraday high of Rs. 1578 and intraday low of 1550.4. The net turnover during the day was Rs. 39772422.

Source : Equity Bulls

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