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Balkrishna Industries Rating: add: Industry export growth continued in August

Add with a TP of Rs 2,837 (earlier: Rs 2,572).

Balkrishna Industries’ (BIL’s) key export markets reported robust demand tendencies with Aug’21 business exports up 33% y-o-y. The newest information (Aug’21) signifies continued momentum in OTR phase (up 33% y-o-y) whilst agri (Ag) demand growth remained sturdy at ~33% y-o-y. Data continues to assist the strong demand momentum pushed by each Ag and OTR segments: FY22-YTD business exports are up ~69% y-o-y on USD foundation.

Regionally, growth in Aug’21 was led by RoW (up 42% y-o-y) adopted by EU (31%) and US (26%). Recent decline (~23% since Q1FY22) in worldwide rubber costs augurs effectively for margin enchancment in H2FY22, and continued business export acceleration additionally lends energy to our income growth assumption (above consensus) of ~31% y-o-y for FY22e (~22% quantity). Maintain Add.

Overall export growth continues as OTR rebounds: On end-product foundation, growth sustained in Ag tyres (up ~33% y-o-y) and contributed ~67% of complete exports (up 6bps y-o-y). On the OTR facet, momentum was regular at 33% growth y-o-y, which alerts gradual growth in mining and development offtake. We consider the outlook for international Ag exports stays strong beneath the rising commodity worth atmosphere. OTR demand can also be prone to be supported by infrastructure/mining investments throughout key areas as renewed infra push results in pick-up in investments.

EU helps growth spurt as US moderates: On regional foundation, the EU delivered robust growth (in each Ag and OTR segments) at ~31% y/y and the US adopted at ~26% y/y. The two areas collectively characterize ~72% (down 185bps) of Aug’21 exports. On the flip facet, RoW’s growth momentum heightened to ~42% y/y (contribution up 185bps) as economies open up on receding Covid affect. Growth in RoW exports – pushed by Canada (up 117% y/y), Brazil (101%) and Japan (112%) – displays a extra broad-based enchancment throughout areas and segments (OTR/Agri).

On sub-segment foundation, OTR growth was pushed by the EU (up ~37% y/y) adopted by RoW (32%). However, on the Ag facet, EU and RoW witnessed growth of ~29% and 52%, respectively. Maintain ADD: As BIL reaches excessive (~85-90%) utilisations in FY23e (assuming ~19% income CAGR over FY21-FY24e), we count on RoCEs to enhance to ~28%, and FCF era to surpass Rs 36 bn (cumulatively over FY23e-FY24e). The export incentive scheme (RoDTEP) may additionally present further increase to profitability. We introduce FY24e estimates and roll over to Sep’23e and keep our goal a number of at 26x Sep’23e EPS based mostly on robust growth visibility and top-quartile return metrics. Reiterate Add with a TP of Rs 2,837 (earlier: Rs 2,572).

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