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Balkrishna Industries - Growth momentum continues - ICICI Securities

Posted On: 2020-09-24 22:05:56

Balkrishna Industries (BIL) remains one of our top ideas under our coverage universe. We believe it continues to provide superior risk-reward vis--vis peers due to its standout earnings resilience. The latest industry export data continues to remain strong with both segments (agri, OTR) returning to growth path together for the first time since Dec'19. The latest monthly (Aug'20) industry export data continues to support V-shaped demand rebound across agri tyres at 42% YoY and off-the-road (OTR) tyres at 13% YoY. We had mentioned in our previous monthly note continued improvement in data points and higher visibility on growth would remain the key catalyst for the stock. Input costs rise remains a key monitorable. We introduce FY23, factor-in volume and EPS CAGR of ~8%/17% respectively over FY20-23E, upgrade our target price to Rs1,671(earlier: Rs1,514). Maintain BUY.

- Overall export rebound continues as both agri and OTR segments shine: Agri tyre and OTR tyre segments combined grew at a healthy 31% YoY / 8% MoM in Aug'20 on solid base of the prior year. On an end-product basis, sharp growth acceleration (up 42% YoY) was witnessed in the agri tyre segment (accounts for ~67% of total exports). On the OTR side, growth momentum picked up at 13% YoY / 16% MoM in Aug'20.

- EU leads the recovery: On regional basis, the EU grew fastest at ~48% YoY / 10% MoM while the US grew ~18% YoY / 3% MoM. The two regions together represent ~71% of Aug'20 exports. Growth in EU exports was driven by Germany, France and Italy (together up ~52% YoY). These three countries contributed ~26% and ~43% to the overall exports and exports to EU respectively in Aug'20. In rest of the world (RoW), Australian and Canada reported strong growth. On a sub-segment basis, OTR growth was also driven by EU region (grew ~28% YoY/ ~35% contribution) while US region growth was modest at ~3% (~25% contribution). However, on the Agri side both EU and US regions grew rapidly (up ~55%/31% respectively).

- Q2FY21 industry exports gain steam as economic activity resumes: Q1FY21 had closed with an overall export decline of ~23% YoY. However, in Jul-Aug'20, exports increased 26% YoY. On an end-product basis, agri tyre segment led exports with 37% rise while OTR grew 6%. BIL could also benefit from the improving demand traction due to its superior product offerings across segment and rising brand recognition.

- Maintain BUY: We expect FCF generation to be strong at ~Rs14bn (5.3% FCF yield) in FY22E. We value the stock at an unchanged multiple of 22x Sep'22E EPS of Rs76 to arrive at our target price of Rs1,671 (earlier:1,514). Maintain BUY.

Shares of BALKRISHNA INDUSTRIES LTD. was last trading in BSE at Rs.1306.9 as compared to the previous close of Rs. 1348.55. The total number of shares traded during the day was 30421 in over 1871 trades.

The stock hit an intraday high of Rs. 1400 and intraday low of 1299.4. The net turnover during the day was Rs. 40399993.

Source: Equity Bulls

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