This Multibagger Tyres Sector Stock Gets Buy Call For 17% Potential Gains, Gave Over 170% In 3 Years

HEM securities in its recent report on Balkrishna Industries Ltd. (BKT) has given a buy call to the stock of the company for a target price of Rs 2,293 apiece. The brokerage sees potential gains of 17% if the stock is bought at the current market price. BKT is a Midcap Tyre sector company having a market capitalization of Rs 38,170.48 crore.

Stock Outlook

The current market price of BKT's stock is Rs 1974.40 apiece on BSE. The 52 week low level of the stock is Rs 1,681.95 apiece and the 52 week high level is Rs 2,724.40 apiece, respectively. Its ROE is 20.70%. Its dividend yield is 1.42% and the face value is Rs 2.

Returns on investments over the past 5 years

The company has given a negative return of 1.75% in the past 1 week, whereas, in the past 1 month it gave a negative return of 8.71%. The stock in the past 3 months gave a negative return of 12.88% and in the past 1 year gave a negative return of 18.11%, respectively. The stock over the past 3 and 5 years, gave multibagger returns of 172.21% and 142.97%, respectively.

Result Overview

• Balkrishna Industries Ltd Q1FY23 consolidated revenues came in at Rs 2619 Cr, up 45.3% YoY and up 10.3% QoQ.
• EBITDA for Q1FY23 stood at Rs 444 Cr, down 13.1% YoY and down 11.1% QoQ.
• EBITDA margins for Q1FY23 came at 16.95%, -1141 bps YoY and -424 bps QoQ.
• PAT for Q1FY23 stood at Rs 307 Cr, down 7.1% YoY and down 18.1% QoQ.

Management Commentary

• Management retained the sales guidance at 3.2-3.3 lakh MTPA for FY23.
• Management has given the CAPEX guidance of ~900 which is in line with their previous commentary.

Segmental Analysis

Q1FY23 Segmental Mix: Agriculture (64%), OTR (32.8%), Others (3.2%).

Q1FY23 Channel Mix: Replacement (69.8%), OEM (27.8%), Others (2.4%).

Q1FY23 Geographical Mix: Europe (49.7%), Americas (19.6%), India (21.2%), RoW (9.6%)

Concall Summary

• Sales volume for Q1FY23 is 83153 MT (+7.8% QoQ and +21% YoY).
• Margin performance was slightly muted due to rise in RM prices, freight rates and power costs. The logistics costs has almost doubled.
• Demand continues to remain strong despite inflationary pressures in US and adverse economic environment in Europe.
• Management mentioned that Q2 may face some challenges but demand comeback can be witnessed in Q3 and Q4.
• Raw material prices were at elevated levels but now they are gradually easing.
• Company has taken 5% price hike in Q1FY23 to combat the rising RM prices. BKT tires are cheaper than their competitors and management expects the same to continue.
• Company maintains long-term margin guidance of 28-30%.
• Company is looking for expansion to gain their market share.

Other Developments

• Total achievable capacity will be 360000 MTPA by H2FY23.
• Company expects commissioning for 55000 MTPA carbon black capacities by Q3FY23.

Valuation & Outlook

Balkrishna Industries is the leader in mining and agricultural segment and they generate ~80% of their revenues from exports.

The brokerage said, "We believe company will continue to perform well over next few quarters due to robust demand environment. We believe that company's export oriented business model, labor cost benefits and aggressive marketing may help them in outperforming their peers. Also with the help of CAPEX they are increasing their capacity which will help them in gaining their market share. We give a "BUY" rating on the stock and value the stock at 22.5x FY24E earnings to arrive at the target of Rs 2293."

Disclaimer

The stock has been picked from the brokerage report of HEM Securities. Greynium Information Technologies, the Author, and the respective Brokerage House are not liable for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to check with certified experts before making any investment decision.