PAT CAGR of 31% is estimated over FY18-20; company well poised to take advantage of uptick in global industry
Balkrishna Industries’ (BKT’s) Q4FY18 revenue jumped 25% YoY (8% ahead of estimates), driven by robust 17% YoY volume spurt and 7% YoY realisation surge. Growth was well spread across segments/geographies. For FY18, volume grew 16% YoY to 199,200MT, 2-8% higher than management’s guidance of 185-195,000MT. For FY19, BKT has guided volume of 220,000MT (up 10% YoY over FY18). We believe it will over-achieve led by uptick across segments and geographies and as per past trend. BKT is well placed with surplus capacity (66% utilisation) and cost leadership to capture global demand uptick. We estimate PAT CAGR of 31% over FY18-20. Maintain Buy with TP of Rs 1,313.
Well-rounded volume growth
Revenue grew by a strong 25% YoY led by the 17% YoY increase in volume (on strong uptick across products and geographies) and 7% YoY increase in realisation (on account of 2-3% price hike). EBITDA margin was largely flat YoY at 28.8%, leading to EBITDA growth of 25% YoY. For FY18, revenue grew 20% YoY led by 16% YoY volume growth and 3% YoY realisation growth.
Volume growth was strong across geographies, with: a) Europe growing 15% YoY, India 22%, US 14% and RoW 14%, and segments, with: b) agricultural growing 20% YoY and OTR 16%. Mining tyres (accounts for 13% of volumes) is a major growth driver, given strong rebound in the market, as inventory draw downs have bottomed out and production at mining companies has recovered.
Margin levers to offset rising raw material costs
While inflationary pressure on key raw materials, such as, synthetic rubber and carbon black is a concern, BKT can maintain margins led by: i) global uptick in volumes, leading to ramping up of capacity utilisation from current 66%; ii) carbon black plant, which will be operational by FY19, leading to margin expansion of 1.0-1.5% at full utilisation; and iii) increasing radialisation (from current 36% to 40-42%), driven by agricultural segment.
Outlook: Positive; maintain ‘BUY’
BKT is well poised to take advantage of the uptick in global industry, capitalising on its cost leadership and surplus capacity. We estimate 31% PAT CAGR over FY18-20 and maintain Buy with TP of `1,313. At CMP, the stock trades at 17.8x FY20E EPS.
BKT’s Q4FY18 revenue grew by a strong 25% YoY (beating estimates by 8%) at Rs 13.1 bn. Growth was led by the strong ~17% YoY increase in volume to 54,002MT and 7% YoY increase in realisation. Volume growth came on strong uptick in demand across products and geographies. Realisation growth was on account of the ~2-3% price hike the company took in Jan’18 due to increasing raw material costs.