Analyst Concall
Balkrishna Ind sees weakness in global markets in Oct-Mar
This story was originally published at 14:33 IST on 26 October 2024
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--Balkrishna Ind: Weakness seen in Europe, North America at present
--Balkrishna Ind: See minor growth in sales volume in FY25
--Balkrishna Ind: FY25 total capex seen around INR 8 bln INR 10 bln
--Balkrishna Ind: Expect FY25 EBITDA margin at 25%
--Balkrishna Ind: Inventory at normal levels Jul-Sept, demand seen slowing
--Balkrishna Ind: Expect price hike of 1-2% in Oct-Dec
--Balkrishna Ind: Impact of price hike will come into effect Oct-Dec
--Balkrishna Ind: Cash reserves INR 29.94 bln as on Sept 30
--Balkrishna Ind: Expect weakness in global markets in Oct-Mar
--Balkrishna Ind: Environment in tyre market challenging in Apr-Sept
--CONTEXT: Balkrishna Industries mgmt in post-earnings analyst concall
--Balkrishna Ind: Jul-Sept earnings in line with expectations
By Narayana Krishna and Akshay V. Johnson
MUMBAI – Balkrishna Industries Ltd. on Saturday said the tyre market is witnessing a challenging environment globally and the company is expecting weakness in Oct-Mar during the current financial year.
In a post-earnings call, the company's management said that weakness is seen in Europe and North America at present. Europe and the Americas together made up 60% of the company's sales in Apr-Sept. The agriculture segment contributed to 59.4% of the company's sales volume in Apr-Sept. The volume in 2024-25 (Apr-Mar) is likely to see minor growth, given the current challenging environment, the company said.
The company said that the September quarter earnings were in line with expectations despite a challenging tyre market environment in Apr-Sept. Balkrishna Industries reported a higher-than-expected net profit of INR 3.50 billion, up 4.2% from INR 3.35 billion a year ago. Analysts had estimated the company to report a net profit of INR 3.41 billion. The company reported a net revenue of INR 24.36 billion for the September quarter, up 9.5% from INR 22.26 billion a year ago. Analysts had estimated the company to report a net revenue of INR 23.48 billion.
The management said the company's Jul-Sept inventories were at normal levels, but it sees demand slowing. The company estimates an earnings before interest, tax, depreciation, and amortisation margin of 25% in 2024-25. For Jul-Sept, the company reported an EBITDA margin of 25.1%. Balkrishna Industries' total capital expenditure is seen at around INR 8 billion-INR 10 billion, the management said. The company spent INR 5.4 billion during Apr-Sept.
The company expects to see a price hike of 1-2% in Oct-Dec as part of its raw material costs adjustment. The management said there is no scope of raw material costs coming down in the near future. As of Sept. 30, the company had cash reserves of INR 29.94 billion, while net debt was INR 680 million.
"The company is witnessing macro challenges accentuated by recessionary fears in the US, geopolitical tensions, and an inflationary raw material scenario, coupled with high costs," Rajiv Poddar, joint managing director of the company, said. "This has resulted in a weak demand scenario across our major markets, barring India, where we continue to witness stable demand environment."
In spite of these challenges, the company believes it will be able to achieve minor sales volume growth in FY25 as per the earlier guidance. The company has begun the implementation of the first phase of tyre capital expenditure towards off-the-road tyre segment, which will be completed by the first half of FY26.
Balkrishna Industries is a manufacturer of off-highway tyres, specialising in tyres for agricultural, industrial and off-the-road vehicles. The company is expected to have a better euro realisation for the second half of FY25 as the management expects a euro-INR rate of INR 92 per euro for the remainder of the year, up from INR 91 per euro for the September quarter. The management said it is uncertain about recovery in demand in European and North American markets. There are a lot of factors currently affecting demand, such as geopolitical tensions, it added.
The company also does not see any further reduction in trade costs in the second half of FY25, even though freight costs have come down recently. Prices of raw materials such as natural rubber are falling, but the company does not see its benefits being reaped in Oct-Dec. The reduction in input costs will have an impact on the Jan-Mar quarter. The company expects a tax rate of 20-24% in the third quarter of FY25.
In Jul-Sept, realisation went up despite no price hike because of improved mix, the company said. On Friday, shares of Balkrishna Industries closed at INR 2,907.55 on the National Stock Exchange, down 1.1% from the previous close. End
Edited by Namrata Rao
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