Brokerage Upgrades TP: Tyres Stock Jumps 10%, Hits 52-Week High; Buy?

Balkrishna Industries' shares surged by 10% in early trade on May 21, reaching a fresh 52-week high. This jump follows the company's impressive Q4 earnings report, which exceeded market expectations.

On the BSE, the shares climbed 9.45% to Rs 3057, while on the NSE, they rose by 9.27% to Rs 3061. By 9:40 am, the shares were trading at Rs 2996.8 apiece on the NSE, marking a 7.1% increase from the previous session's closing price.

"Q4FY24 revenue grew 16% YoY to INR27bn, a 10% beat, on the back of higher volumes and realisations. The volume beat was due to robust growth in the agribusiness segment and the Americas/India replacement markets. The realisation beat was the better Euro rate and price increases. This aided EBITDA growth of 42% to INR7bn, beating the estimate of INR5bn. Factoring in better margins, we are increasing FY25E and FY26E EBITDA by 5% each," Nuvama Equities said in the report.

The tyre manufacturer reported a staggering 87.4% increase in net profit, reaching Rs 486.8 crore compared to Rs 260 crore in the same period last year. Revenue growth for the fourth quarter was also robust, with a 16% increase to Rs 2,682 crore, up from Rs 2,317 crore in the corresponding quarter of the previous fiscal year.

"Compared to a volume decline of 8% in 9MFY24, a recovery took place in Q4FY24 with 13% growth owing to robust growth in the agribusiness segment and the Americas/India replacement markets. Going forward, we anticipate a volume improvement across regions (especially in agri-replacement markets) and market share gains. realisation should also improve on better Euro/Dollar rates and price increases. We are building in a 17% revenue CAGR over FY24-26E. Furthermore, EBITDA is likely to expand at a faster CAGR of 24% on improved scale and better hedge rates," Nuvama added.

"The company has historically outpaced the industry on a compelling quality-price mix. This outperformance should sustain over FY24-26E with a revenue/EBITDA CAGR of 17%-24%. Maintain 'BUY' with a TP of INR3,070 (earlier INR2,740), based on 25x FY26E EPS (earlier 23x). We are increasing target valuation factoring to improve the volume outlook," Motilal Oswal added.

This strong financial performance has propelled the stock upwards, contributing to a 30% gain in Balkrishna Industries' share price over the past year. In contrast, the domestic benchmark Nifty 50 has gained about 23% during the same period.

"BIL's 4QFY24 overall performance significantly beat our estimates, led by strong growth in volumes. EBITDA margins came in at 26.3% (+500 bp YoY) due to lower RM and other costs, despite a rise in freight costs (+200 bp YoY). The management indicated that demand recovered well in 4Q but remains uncertain," said Motilal Oswal.

"Post reporting higher-than-expected operating performance, management is looking for volume growth in FY2025 over FY2024 and assumes the EBITDA margin in FY2025 can match the EBITDA margin in Q4 FY2024 as it is planning to raise prices to counter the expected rise in input basket, expecting normalised tariff rates along with the commencement of high-margin advanced carbon capacity in FY2025" said Sharekhan BNP Paribas report.

Despite the positive earnings report, brokerages have expressed mixed opinions on the stock. Some analysts remain optimistic about the company's growth prospects, while others are cautious, pointing to potential challenges in the industry and market volatility.

"Inventory levels in European markets are reaching normal levels. Further, management has highlighted that geopolitical issues are continuing to be a challenge. BKT continues to aspire for a 10% market share in the domestic market in the medium term compared to a 5-6% market share currently," Sharekhan BNP Paribas reports.

"Retail demand in key global markets is currently on an upswing, while demand in India also remains healthy. However, the management has refrained from giving volume guidance for FY25 due to ongoing geopolitical issues. We expect BIL to continue to outperform the specialty tyre industry, driven by the expansion of its product portfolio and the ramp-up in the OTR segment, providing opportunities to strengthen its competitive positioning." Motilal Oswal research report.

Balkrishna Industries' latest financial results have significantly boosted investor confidence, driving the stock to new highs and outperforming the broader market. The company's ability to sustain this momentum will be closely watched by market participants and analysts alike.

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