1
May 21, 2018
Balkrishna Industries Ltd
India Research - Stock Broking
HOLD
Recommendation (Rs.)
CMP (as on May 21, 2018) 1118
Target Price 1252
Upside (%) 12
Stock Information
Mkt Cap (Rs.bn/US$ bn) 216.0 / 3.2
52-wk High/Low (Rs.) 1352 / 713
3M Avg. daily value (Rs. mn)
0.5
Beta (x) 0.5
Sensex/Nifty 34616 / 10516
O/S Shares(mn) 193.3
Face Value (Rs.) 2.0
Shareholding Pattern (%)
Promoters 58.3
FIIs 17.7
DIIs 11.0
Others 13.0
Stock Performance (%)
1M 3M 6M 12M
Absolute (14) 1 6 49
Relative to Sensex (14) (1) 3 31
Source: Bloomberg
Relative Performance*
Source: Bloomberg; *Index 100
Analyst Contact
Vivek Ranjan Misra
040 - 3321 6296
vivekr.misra@karvy.com
For private circulation only. For important information about Karvy’s rating system and other disclosures
refer to the end of this material. Karvy Stock Broking Research is available on Thomson Reuters &
Bloomberg (Code: KRVY<GO>)
Exhibit 1: Valuation Summary
YE Mar (Rs. Mn) FY16 FY17 FY18 FY19E FY20E
Net Sales 32725 37883 44645 51275 59216
EBITDA 8381 11319 11067 12570 14557
EBITDA Margin (%) 25.6 29.9 24.8 24.5 24.6
Net Prot 4386 7151 7393 8937 10998
EPS (Rs.) 22.7 37.0 38.2 46.2 56.9
RoE (%) 17.3 22.6 19.3 20.0 20.8
PE (x) 13.8 18.6 29.2 24.2 19.7
Source: Company, Karvy Research; *Represents multiples for FY16 & FY18 are based on historic market price
Volume Growth Accompanies Volatile Input Costs
Balkrishna Industries Ltd (BIL) recorded sales volume of 199,213 MT during FY18,
exceeding the guidance of 195,000 MT driven by higher traction in the agriculture
and mining segment. Most of the demand came from the European region which
grew at 20% YoY followed by India at 15%. The management has indicated 220,000
MT for FY19 on the back of growing demand from the o- highway industry. However,
increasing crude oil prices and disproportionate increase in carbon black costs are
likely to restrain EBITDA margin expansion. Although, we expect revenue to grow
at a CAGR of 15% during FY18-20E driven by improving agri and mining demand,
absolute stock performance has marked 49% growth in the last 12 months and we
believe that it has been factored in the valuation. Hence we recommend a HOLD.
Q4FY18 financial performance: Q4FY18 revenue grew at 22.8% YoY at
Rs. 12318 Mn supported by volume growth of 17.0% YoY and realization growth of
5.0% YoY (which is above our estimates) as the company had taken 2%-3% price
hikes during the quarter. However, EBITDA margin for Q4FY18 recorded 24.0% as
against 26.2% in the previous quarter due to higher branding costs and shifting of
equipment from Waluj and Chopanki plant to Bhuj facility. Other income component
comprising forex gain and investment income also supported PAT growth of 40.8%
YoY. In terms of geographic split, Europe and India inched slightly higher during
Q4FY18 where there was a 1-2% increase in composition while growth in the US
markets remained subdued.
Valuation and Risks
Natural rubber constitutes 35% of the raw material volume while other raw materials
like synthetic rubber and carbon black which comprises ~44.0% of the inputs depend
on crude. Although the management is condent about being able to increase
prices by 2- 3%, procurement cost of carbon black remains highly inconsistent. The
new carbon black plant at Bhuj which is expected to be operational by end of 2019
is capable of handling the current capacity utilization which may contribute a 100-
150 bps cushion for EBITDA margin and may require to be sourced from outside
upon reaching higher utilization levels.
BIL is currently trading at P/E of 19.7x for FY20E EPS of Rs. 56.9 and we value
the company at P/E of 22x for a target price of Rs. 1252 representing an upside
potential of 12% for the next 9-12 months.
Company Update
Consumer Discretionary - Automobiles & Components
Balkrishna Industries Ltd
Bloomberg Code: BIL IN
90
120
150
180
May-17
Jun-17
Jul-17
Aug -17
Sep-17
Oct-17
Nov-17
Dec-17
Jan-18
Feb-18
Mar
-18
Apr-18
May-18
Balkrishna Industries Ltd
Sensex
2
May 21, 2018
Balkrishna Industries Ltd
Key takeaways from quarterly earnings
Company has taken 2-3% price hikes during the quarter.
Agriculture and Mining grew by 20% and 16% YoY respectively during the year.
BIL is hedged for EURO at 82-83 for FY19.
Capex guidance for FY19E is ~Rs. 4000 Mn and ~ Rs. 2500 Mn for FY20E.
Bhuj plant operates at 75% utilization and clocked 77,000 MT of tyres during FY18.
Total dividend for FY18 amounts to Rs 5.5/ share.
Global OTR market is
estimated at ~$15 Bn
where BIL has ~5% market
share.
Exhibit 2: Q4FY18
YE Mar (Rs. Mn) Q4FY18 Q3FY18 QoQ % Q4FY17 YoY %
Volume in (MT) 54002 49553 9.0 46149 17.0
Turnover 12318 11060 11.4 10029 22.8
Expenditure 9362 8163 14.7 7476 25.2
EBITDA 2956 2897 2.0 2554 15.7
Depreciation 783 799 (2.1) 751 4.2
Interest 34 19 81.5 53 (34.9)
Other Income 837 777 7.7 617 35.6
PBT 2976 2856 4.2 2367 25.7
Ta x 1040 964 7.8 993 4.7
PAT 1936 1892 2.3 1375 40.8
EBITDA Margin (%) 24.0 26.2 (220) bps 25.5 (147) bps
EBIT Margin (%) 17.6 19.0 (132) bps 18.0 (33) bps
Net Prot Margin (%) 15.7 17.1 (139) bps 13.7 201 bps
Source: Company, Karvy Research
Exhibit 3: Quarterly Sales and Realization
Source: Company, Karvy Research
Exhibit 5: Segment-Wise Revenue Split
Source: Company, Karvy Research
Exhibit 4: Capacity Utilization
Source: Company, Karvy Research
Exhibit 6: Geographical Data
Source: Company, Karvy Research
200
210
220
230
240
250
0
2500
5000
7500
10000
12500
Q1FY16
Q2FY16
Q3FY16
Q4FY16
Q1FY17
Q2FY17
Q3FY17
Q4FY17
Q1FY18
Q2FY18
Q3FY18
Q4FY18
Realizations (Rs'000 Per MT)
156000
166000
220000
280000
300000
300000
300000
300000
300000
133039
138339
142810
154156
147535
172419
199213
220000
249088
0%
20%
40%
60%
80%
100%
0
100000
200000
300000
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19E
FY20E
Total Capacity (MT)
Volumes (MT)
Utilization
Agriculture
63.0%
Industrial
22.0%
Mining
13.0%
Others
2.0%
Europe
54.0%
USA
15.0%
India
17.0%
RoW
14.0%
3
May 21, 2018
Balkrishna Industries Ltd
Exhibit 7: Channel Split
Source: Company, Karvy Research
Exhibit 8: Raw material composition by volume
Source: Company, Karvy Research
Exhibit 10: 10yr PE Band
Source: Bloomberg, Karvy Research
Exhibit 11: 10yr PE Band
Source: Bloomberg, Karvy Research
OEM
26.0%
Replacement
72.0%
Off-Take
2.0%
0
200
400
600
800
1000
1200
1400
-10
0
10
20
30
40
May-08
Oct-08
Mar-09
Aug-09
Jan-10
Jun-10
Nov-10
Apr-11
Sep-11
Feb-12
Jul-12
Dec-12
May-13
Oct-13
Mar-14
Aug-14
Jan-15
Jun-15
Nov-15
Apr-16
Sep-16
Feb-17
Jul-17
Dec-17
Avg P/E
1 yr fwd P/E
1+STDEV
1-STDEV
Price (Rs.)
50
70
90
110
130
150
0
500
1000
1500
2000
May-08
Oct-08
Mar-09
Aug-09
Jan-10
Jun-10
Nov-10
Apr-11
Sep-11
Feb-12
Jul-12
Dec-12
May-13
Oct-13
Mar
-14
Aug-14
Jan-15
Jun-15
Nov-15
Apr-16
Sep-16
Feb-17
Jul-17
Dec-17
May-18
51.6x
31.3x
11x
Price (Rs.)
Exhibit 9: Valuation Summary
Item (Rs Mn) Q4FY18 Actual Karvy Est Consensus
Variation
Karvy Est Consensus
Net sales 12318 11153 11584 10.4 6.3
EBITDA 2956 2955 3345 0.0 (11.6)
EBITDA Margin (%) 24.0 26.5 28.9 (250) bps (488) bps
EPS (Rs.) 10.0 10.1 11.0 (0.8) (8.9)
Source: Company, Karvy Research
In-line with our estimates;
misses consensus.
Natural Rubber
35.0%
Synthetic Rubber
17.0%
Carbon black
27.0%
Fabric
7.0%
Other/Chemicals
14.0%
4
May 21, 2018
Balkrishna Industries Ltd
Financials
Exhibit 12: Income Statement
YE Mar (Rs. Mn) FY16 FY17 FY18 FY19E FY20E
Revenues 32725 37883 44645 51275 59216
Growth (%) (14.6) 15.8 17.8 14.9 15.5
Operating Expenses 24344 26564 33578 38705 44659
EBITDA 8381 11319 11067 12570 14557
Growth (%) 20.8 35.0 (2.2) 13.6 15.8
Depreciation & Amortization 2822 3038 3113 3459 3658
EBIT 5560 8280 7953 9111 10898
Other Income 1490 2491 3362 4371 5682
Interest Expenses 395 214 131 144 166
PBT 6655 10557 11185 13339 16415
Tax 2269 3406 3792 4402 5417
Adjusted PAT 4386 7151 7393 8937 10998
Growth (%) 21.9 63.1 3.4 20.9 23.1
Source: Company, Karvy Research
Exhibit 13 : Balance Sheet
YE Mar (Rs. Mn) FY16 FY17 FY18 FY19E FY20E
Cash & cash Equivalents 3028 136 245 3385 2834
Trade Receivables 3803 4122 5019 5376 5980
Inventory 3877 4597 5942 6139 6839
Loans & Advances 2091 2296 2993 3333 3849
Other assets 1462 3324 3542 1887 2008
Net Block 30979 29584 29673 29541 28198
Investments 8575 13472 11032 17756 28749
Total Assets 53815 57531 58447 67418 78457
Trade Payables 3367 3633 3974 4510 5288
Short & Long term Provisions 123 182 204 245 275
Short & Long term Borrowings 12721 7673 6186 7179 8290
Other Liabilities 9787 10556 7131 7206 7283
Total Liabilities 25998 22044 17495 19140 21136
Shareholders Equity 193 193 387 387 387
Reserves & Surplus 27623 35292 40566 47892 56935
Total Networth 27817 35486 40952 48279 57321
Total Networth & Liabilities 53815 57531 58447 67418 78457
Source: Company, Karvy Research
Our volume estimates are
based on guidance for
FY19E.
EBITDA margin is expected
to be maintained on the
back of better realization
due to higher EURO and
capacity utilization.
Debt of $33 Mn to be
paid-o by August 2018
5
May 21, 2018
Balkrishna Industries Ltd
Exhibit 14: Cash Flow Statement
YE Mar (Rs. Mn) FY16 FY17 FY18E FY19E FY20E
PBT 6655 10557 11185 13339 16415
Depreciation 2822 3038 3113 3459 3658
Interest expense 391 214 131 144 166
Other income (798) (258) (3362) (4371) (5682)
Others 1659 (844) 0 0 0
Tax Paid (2327) (3112) (3792) (4402) (5417)
Inc/dec in Net WC 2550 (1159) (7164) 1482 (1056)
Cash ow from operating activities 10952 8437 111 9651 8084
Inc/dec in capital expenditure (2386) (1809) (2774) (3327) (2315)
Inc/dec in investments (3672) (3797) 2439 (6724) (10992)
Others 371 140 3362 4371 5682
Cash ow from investing activities (5688) (5466) 3027 (5681) (7625)
Inc/dec in borrowings (5298) (5005) (1681) 993 1112
Dividend paid (Incl Tax) (913) (644) (1265) (1610) (1955)
Interest paid (346) (218) (131) (144) (166)
Cash ow from nancing activities (6557) (5868) (3076) (761) (1010)
Net change in cash (1293) (2897) 62 3209 (551)
Source: Company, Karvy Research
Exhibit 15: Key Ratios
YE Mar FY16 FY17 FY18 FY19E FY20E
EBITDA Margin (%) 25.6 29.9 24.8 24.5 24.6
EBIT Margin (%) 17.0 21.9 17.8 17.8 18.4
Net Prot Margin (%) 13.4 18.9 16.6 17.4 18.6
Dividend Payout Ratio (%) 12.1 10.8 14.4 15.1 14.9
Net Debt/Equity (x) 0.3 0.2 0.1 0.1 0.1
RoE (%) 17.3 22.6 19.3 20.0 20.8
RoCE (%) 13.4 19.8 17.6 17.8 18.0
Source: Company, Karvy Research
Exhibit 16: Valuation Parameters
YE Mar FY16 FY17 FY18 FY19E FY20E
EPS (Rs.) 22.7 37.0 38.2 46.2 56.9
DPS (Rs.) 2.8 4.0 5.5 7.0 8.5
BVPS (Rs.) 143.9 183.6 211.8 249.7 296.5
PE (x) 13.8 18.6 29.2 24.2 19.7
P/BV (x) 7.8 6.1 5.3 4.5 3.8
EV/EBITDA (x) 26.5 19.6 20.1 17.7 15.3
EV/Sales (x) 6.8 5.9 5.0 4.3 3.8
Source: Company, Karvy Research; *Represents multiples for FY16 - FY18 are based on historic market price
Operating capex is
~200-250 Cr and is likely
to increase once the
carbon black facility at
Bhuj becomes operational
by 2019.
Dividend pay-out ratio is
expected to be consistent.
6
May 21, 2018
Balkrishna Industries Ltd
Stock Ratings Absolute Returns
Buy : > 15%
Hold : 5-15%
Sell : < 5%
Connect & Discuss More at
1800 419 8283 (Toll Free) research@karvy.com Live Chat
f
in
You
Tube
Disclaimer
Analyst certication: The following analyst(s), Vivek Ranjan Misra, who is (are) primarily responsible for this report and whose name(s) is/are mentioned
therein, certify (ies) that the views expressed herein accurately reect his (their) personal view(s) about the subject security (ies) and issuer(s) and that no
part of his (their) compensation was, is or will be directly or indirectly related to the specic recommendation(s) or views contained in this research report.
Disclaimer: Karvy Stock Broking Limited [KSBL] is registered as a research analyst with SEBI (Registration No INH200003265). KSBL is also a SEBI
registered Stock Broker, Depository Participant, Portfolio Manager and also distributes nancial products. The subsidiaries and group companies including
associates of KSBL provide services as Registrars and Share Transfer Agents, Commodity Broker, Currency and forex broker, merchant banker and
underwriter, Investment Advisory services, insurance repository services, nancial consultancy and advisory services, realty services, data management,
data analytics, market research, solar power, lm distribution and production, proling and related services. Therefore associates of KSBL are likely to have
business relations with most of the companies whose securities are traded on the exchange platform. The information and views presented in this report are
prepared by Karvy Stock Broking Limited and are subject to change without any notice. This report is based on information obtained from public sources , the
respective corporate under coverage and sources believed to be reliable, but no independent verication has been made nor is its accuracy or completeness
guaranteed. The report and information contained herein is strictly condential and meant solely for the selected recipient and may not be altered in any
way, transmitted to, copied or distributed, in part or in whole, to any other person or to the media or reproduced in any form, without prior written consent
of KSBL. While we would endeavor to update the information herein on a reasonable basis, KSBL is under no obligation to update or keep the information
current. Also, there may be regulatory, compliance or other reasons that may prevent KSBL from doing so. The value and return on investment may vary
because of changes in interest rates, foreign exchange rates or any other reason. This report and information herein is solely for informational purpose and
shall not be used or considered as an oer document or solicitation of oer to buy or sell or subscribe for securities or other nancial instruments. Though
disseminated to all the customers simultaneously, not all customers may receive this report at the same time. KSBL will not treat recipients as customers by
virtue of their receiving this report. Nothing in this report constitutes investment, legal, accounting and tax advice or a representation that any investment or
strategy is suitable or appropriate to your specic circumstances. This material is for personal information and we are not responsible for any loss incurred
based upon it. The investments discussed or recommended in this report may not be suitable for all investors. Investors must make their own investment
decisions based on their specic investment objectives and nancial position and using such independent advice, as they believe necessary. While acting
upon any information or analysis mentioned in this report, investors may please note that neither KSBL nor any associate companies of KSBL accepts any
liability arising from the use of information and views mentioned in this report. Investors are advised to see Risk Disclosure Document to understand the
risks associated before investing in the securities markets. Past performance is not necessarily a guide to future performance. Forward-looking statements
are not predictions and may be subject to change without notice. Actual results may dier materially from those set forth in projections.
Associates of KSBL might have managed or co-managed public oering of securities for the subject company or might have been mandated by the subject
company for any other assignment in the past twelve months.
Associates of KSBL might have received compensation from the subject company mentioned in the report during the period preceding twelve months from
the date of this report for investment banking or merchant banking or brokerage services from the subject company in the past twelve months or for services
rendered as Registrar and Share Transfer Agent, Commodity Broker, Currency and forex broker, merchant banker and underwriter, Investment Advisory
services, insurance repository services, consultancy and advisory services, realty services, data processing, proling and related services or in any other
capacity.
KSBL encourages independence in research report preparation and strives to minimize conict in preparation of research report.
Compensation of KSBL’s Research Analyst(s) is not based on any specic merchant banking, investment banking or brokerage service transactions.
KSBL generally prohibits its analysts, persons reporting to analysts and their relatives from maintaining a nancial interest in the securities or derivatives of
any companies that the analysts cover.
KSBL or its associates collectively or Research Analysts do not own 1% or more of the equity securities of the Company mentioned in the report as of the
last day of the month preceding the publication of the research report.
KSBL or its analysts did not receive any compensation or other benets from the companies mentioned in the report or third party in connection with
preparation of the research report and have no nancial interest in the subject company mentioned in this report.
Accordingly, neither KSBL nor Research Analysts have any material conict of interest at the time of publication of this report.
It is conrmed that KSBL and Research Analysts, primarily responsible for this report and whose name(s) is/ are mentioned therein of this report have not
received any compensation from the subject company mentioned in the report in the preceding twelve months.
It is conrmed that Vivek Ranjan Misra, Research Analyst did not serve as an ocer, director or employee of the companies mentioned in the report.
KSBL may have issued other reports that are inconsistent with and reach dierent conclusion from the information presented in this report.
Neither the Research Analysts nor KSBL have been engaged in market making activity for the companies mentioned in the report.
We submit that no material disciplinary action has been taken on KSBL by any Regulatory Authority impacting Equity Research Analyst activities.
Karvy Stock Broking Limited
Plot No.31, 6th Floor, Karvy Millennium Towers, Financial District, Nanakramguda, Hyderabad, 500 032, India
Tel: 91-40-2331 2454; Fax: 91-40-2331 1968
For More updates & Stock Research, visit www.karvyonline.com