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HDFC Securities Institutional Equities
While Balkrishna Industries Ltd. enjoys a sustainable competitive advantage over global peers in the off-highway tyres segment, the global OHT demand outlook remains uncertain, given the erratic weather conditions in Europe and recessionary trends in the U.S. and Europe.
Further, Balkrishna Industries margin has declined to a multi-quarter low of 20% due to-
high input costs;
a sharp increase in freight costs; and
adverse currency movement.
We assume its margin would normalise gradually to 27.5% by FY25E as these cost headwinds normalise.
Significantly high capex trends in the last five years have hurt Balkrishna Industries’ returns and remains a key cause of concern. Capex is likely to remain elevated in the near term as-
Balkrishna Industries has recently temporarily deferred Rs 4 billion of capex for plant refurbishment and
it is expected to hit 90% utilisation level in FY23E.
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