Balkrishna Industries' (BIL) key export markets witnessed robust demand as industry exports grew 14% YoY. The latest industry export data (Dec'20) continues to be led by agri (Ag) demand (up ~21% YoY) while OTR grew by a modest 2%. Q3FY21 thus closed with a ~15% growth for the industry driven by Agri segment (up 25% YoY) while OTR also clocked ~2% growth. The latest export data continues to support a healthy demand rebound: YTD industry exports are up 7% led by Ag (up 17%). On a regional basis, in Dec'20, growth was led by EU (up 22%) followed by RoW (up 15%). We believe this augurs well for BIL (largest exporter from India), as it reaches peak utilisation in FY23E we expect the best in class RoICs of >25%, justifying its superior valuation vis-à-vis peers. Maintain BUY.
- Overall export rebound continues as Ag propels higher growth: Agri and OTR segments combined grew at a healthy ~14% YoY in Dec'20. On an end-product basis, growth acceleration continued in Ag tyres (up ~21% YoY) and contributed ~69% of total exports (up 390bps). On the OTR side, momentum is slowly picking up with a modest 2% YoY growth in Dec'20.
- EU continues to lead growth: On a regional basis, EU continued to deliver strong growth (Ag+OTR) at ~22% YoY followed by RoW at ~15% YoY. The two regions together represent ~78% of Dec'20 exports. On the flip side, the US region witnessed modest decline in Dec'20 of ~1%. Growth in RoW exports was driven by Brazil (up 57%), UAE (up 126%) and South Africa (up 66%) reflecting a more broad-based improvement across regions. In the EU, growth was led by Italy (up ~48% YoY), Poland (up ~69% YoY), Spain (up~56% YoY) and UK (up ~94% YoY) even as the region continues to battle Covid resurgence. On a sub-segment basis, OTR growth was driven by RoW (up ~11% YoY / ~42% contribution) while the US and EU declined ~5% (~29% contribution) and ~3% (~29% contribution) respectively. However, on the Ag side, EU and RoW grew rapidly (up ~31% and 19% respectively).
- Agri exports continue on growth trajectory, OTR growth likely to come back in FY22: After the initial Covid-induced demand shock (~23% decline YoY) in Q1FY21, industry exports posted a V-shaped recovery of 32% growth in Q2 and reported 15% growth in Q3 hit by the second wave. This has led to the overall industry clocking ~7% growth YTD. We believe the outlook for global Ag tyre exports remains strong under the rising commodity price environment. OTR demand is also likely to be supported by infrastructure/mining investments across key regions (e.g. USA) and beyond as commodity outlook remains firm.
- Maintain BUY: We expect strong FCF generation of ~Rs28bn over FY22E/FY23E. We roll over into FY23E, maintain our valuation multiple at 24x FY23E EPS of Rs85, and revise our target price to Rs2,047 (earlier: Rs1,969). We maintain our BUY rating on the stock.
Shares of BALKRISHNA INDUSTRIES LTD. was last trading in BSE at Rs.1691.15 as compared to the previous close of Rs. 1699.55. The total number of shares traded during the day was 46360 in over 4504 trades.
The stock hit an intraday high of Rs. 1768.1 and intraday low of 1677.9. The net turnover during the day was Rs. 79982076.