About the Company

Balkrishna Industries Limited (BKT) is a tire manufacturing company based in Mumbai, India. Balkrishna Industries manufactures off-highway tires used in specialist segments like mining, earthmoving, agriculture and gardening in five factories located in Aurangabad, Bhiwadi, Chopanki, Dombivali, and Bhuj. In 2013, it was ranked 41st among the world’s tire makers.

Balkrishna Industries is currently an OEM vendor for heavy equipment manufacturers like JCB, John Deere, and CNH Industrial. The company currently enjoys a 6% market share of the global off-the-road tire segment.

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Q3FY20 Updates

Financial Results & Highlights

Standalone Financials (In Crs)
  Q3FY20 Q3FY19 YoY % Q2FY20 QoQ % 9MFY20 9MFY19 YoY%
Sales 1190.56 1206.56 -1.33% 1151.93 3.35% 3607.57 4067.52 -11.31%
PBT 274.83 216.5 26.94% 255.69 7.49% 784.07 907.13 -13.57%
PAT 220.68 144.7 52.51% 291 -24.16% 687.68 597.26 15.14%

 

Consolidated Financials (In Crs)
  Q3FY20 Q3FY19 YoY % Q2FY20 QoQ % 9MFY20 9MFY19 YoY%
Sales 1186.41 1200.59 -1.18% 1165.02 1.84% 3624.26 4034.39 -10.17%
PBT 278.27 222.43 25.10% 259.79 7.11% 793.21 897.72 -11.64%
PAT 223.8 150.98 48.23% 294.31 -23.96% 694.95 586.41 18.51%

Detailed Results

    1. The revenue for the quarter was flat at a 1.2% decline in consolidated terms.
    2. PBT was up 27% and 25% YoY in standalone and consolidated terms.
    3. PAT rose 48% YoY in the quarter mainly on account of the reduction in the tax rate and improvement in margins.
    4. Sales volumes for the quarter came in at 47,321 tons which is up 1% YoY.
    5. The EBITDA margin improved to 31.2% in Q3. The company also announced a dividend of Rs 16 per share.
    6. The markets continue to remain challenging due to environmental conditions in Europe and unfavourable macro-economic situations across the globe. The company expects better growth in FY21 from improving global macroeconomic conditions and the expectation of better weather conditions.
    7. The company has maintained its volume guidance for FY20 to minor decline.
    8. The company is establishing its brand in Canada by becoming the title sponsor of Continental Cup Curling in 2020.

Investor Conference Call Highlights

  • The company is expected to be seeing the full benefit of phase 1 of the Carbon Black plant from H2 onwards.
  • The management stated that the demand slowdown has been seen in the OTR segment across all geographies.
  • The CAPEX for the Bhuj plant is expected to be done by the end of FY21.
  • The management reports that they are getting the expected benefits in terms of margins and efficiencies as expected.
  • The raw material prices have declined in the quarter which has helped the margins to improve.
  • The management guides that present levels of gross margins should persist given there is no big surprise in raw material costs.
  • The geographical volume is as follows:
    • EU: 47%
    • USA: 19%
    • India: 20%
    • Rest of World: 13%
  • The management expects the geographical mix to be broadly the same and the contribution of India rising to almost 25%.
  • The company is hedging 70-75% of its revenues at a rate of Rs 79-80 for a Euro.
  • The total CAPEX in FY20 is expected to be around Rs 600 to 700 Cr. The CAPEX leftover for the rest of the year is around Rs 250 to 300 Cr. The CAPEX planned for FY21 is around Rs 600 Cr.
  • The volume breakup is as follows:
    • OTR:                     36% share           Up 10%
    • Agriculture:        60% share           Down <10%
    • ATV & Others:   4% share
  • The replacement market counts for 73% while OEM counts for 25% with off-take accounting for the rest of 2.5-3%.
  • The management has guided that the current run rate of marketing expenses is expected to continue in FY21 as well.
  • The company has maintained its market share in the Agri market of 8% and in OTR of 2%-2.5%.
  • The company has taken a price reduction in line with the reduction in raw material costs which maintains the gap of 10%-15% in prices between it and its peers.
  • The company continues to strengthen its distribution in the USA as its products get higher market adoption in the replacement market.
  • All players in the market are maintaining a cautious stance with good pricing discipline and not pursuing market share by slashing selling prices.
  • The company aspires to reach a market share of 10% in the global market in the next 3 years and the management is doing its best with the brand building to help achieve this figure.
  • The management admits that the overall outlook across all segments and geographies remains challenging and they will probably see some volume decline in the year.
  • The management expects H2 to be flat in terms of volumes and overall volumes of FY20 to decline almost 5% YoY.
  • There has been a serious decline in the Agri tires industry of 20%-25% in the year so far.
  • The management has maintained that they will not engage in price reductions to gain extra market share as reducing the prices unnecessarily will dilute the brand value.
  • Latin America does not feature too high on the company’s priorities at the moment and they will revisit their plans for the region in the future.

Analyst’s View

BKT has been a rising player in the off-road tires business for years now. They have indeed suffered from volume contraction of 14% YoY but they remain committed to the CAPEX plans. The company has stayed true to its commitment of increasing brand presence to drive growth in India and abroad, all of which is evident from its various branding initiatives and incremental advertising costs. As mentioned above, the broad industry is in a slowdown and it remains to be seen how long these conditions persist. Nonetheless, BKT remains a good stock to keep an eye on considering their resilient performance and their efforts to keep margins stable and maintain their pricing advantage over their competition in such difficult industry conditions.

If you’d like to read our detailed analysis on BKT’s moat please click here.


 

 

 

Q2 2020 Updates

Financial Results & Highlights

Standalone Financials (In Crs)
Q2FY20 Q2FY19 YoY % Q1FY20 QoQ % H1FY20 H1FY19 YoY%
Sales 1151.93 1416.34 -18.67% 1265.08 -8.94% 2417 2860.96 -15.52%
PBT 255.69 338.22 -24.40% 253.55 0.84% 509.24 690.63 -26.26%
PAT 291 222.31 30.90% 176 65.34% 467 452.56 3.19%

 

Consolidated Financials (In Crs)
Q2FY20 Q2FY19 YoY % Q1FY20 QoQ % H1FY20 H1FY19 YoY%
Sales 1165 1403.12 -16.97% 1272.83 -8.47% 2437.85 2833.8 -13.97%
PBT 259.79 327.4 -20.65% 255.15 1.82% 514.94 675.28 -23.74%
PAT 294.31 210.3 39.95% 176.84 66.43% 471.15 435.42 8.21%

 

Detailed Results

    1. The revenues for the quarter dipped 19% and 17% YoY in standalone and consolidated terms.
    2. PBT was down 24% and 21% YoY in standalone and consolidated terms.
    3. PAT rose in the quarter mainly on account of the reduction in the tax rate.
    4. Sales volumes for the quarter came in at 45,169 tons which is down 14% YoY. H1 sales volumes were down 12% YoY at 96,473 tons.
    5. The markets continue to remain challenging due to environmental conditions in Europe and unfavorable macro-economic situations across the globe.
    6. The Board has declared an interim dividend of Rs 2 in the current quarter.
    7. Q2 EBITDA Margin was 27.9% vs 27.7% last year.
    8. The company cash and cash equivalent position of Rs 1207 Cr with no long term debt in the books.
    9. The company has revised its volume guidance for FY20 to minor decline.
    10. The company has commenced production in phase 1 of their Carbon Black plant. This will add a capacity of 60,000 tons. Phase 2 of capacity of 80,000 tons will be commissioned in FY21.
    11. The company continues to maintain its strong brand presence in international markets. They remain the exclusive tire manufacturer for MONSTER JAM in America.
    12. The company is also the new title sponsor for the Italian Serie B football league and the French League cup competition, enhancing their brand presence in key markets in the EU.
    13. The company has also become a new global partner for Spanish Football League La Liga.

Investor Conference Call Highlights

  • The company is expected to be seeing the full benefit of phase 1 of the Carbon Black plant from H2 onwards.
  • The management stated that the demand slowdown has been seen in the OTR segment across all geographies.
  • The CAPEX for the Bhuj plant is expected to be done by the end of FY21.
  • The management reports that they are getting the expected benefits in terms of margins and efficiencies as expected.
  • The raw material prices have declined in the quarter which has helped the margins improve.
  • The management guides that present levels of gross margins should persist given there is no big surprise in raw material costs.
  • The geographical volume is as follows:
    • EU: 47%
    • USA: 19%
    • India: 20%
    • Rest of World: 13%
  • The management expects the geographical mix to be broadly the same as the contribution of India rising to almost 25%.
  • The company is only hedging 70-75% of its revenues at a rate of Rs 79-80 for a Euro.
  • The total CAPEX in FY20 is expected to be around Rs 600 to 700 Cr. The CAPEX leftover for the rest of the year is around Rs 250 to 300 Cr. The CAPEX planned for FY21 is around Rs 600 Cr.
  • The volume breakup is as follows:
    • OTR:                     36% share           Up 10%
    • Agriculture:        60% share           Down <10%
    • ATV & Others:   4% share
  • The replacement market counts for 73% while OEM counts for 25% with off-take accounting for the rest of 2.5-3%.
  • The management has guided that the current run rate of marketing expenses is expected to continue in FY21 as well.
  • The company has maintained its market share in Agri market of 8% and in OTR of 2%-2.5%.
  • The company has taken a price reduction in line with the reduction in raw material costs which maintains the gap of 10%-15% in prices between it and its peers.
  • The company continues to strengthen its distribution in the USA as its products get higher market adoption in the replacement market.
  • All players in the market are maintaining a cautious stance with good pricing discipline and not pursuing market share by slashing selling prices.
  • The company aspires to reach a market share of 10% in the global market in the next 3 years and the management is doing its best with the brand building to help achieve this figure.
  • The management admits that the overall outlook across all segments and geographies remains challenging and they will probably see some volume decline in the year.
  • The management expects H2 to be flat in terms of volumes and overall volumes of FY20 to decline almost 5% YoY.
  • There has been a serious decline in the Agri tires industry of 20%-25% in the year so far.
  • The management has maintained that they will not engage in price reductions to gain extra market share as reducing the prices unnecessarily will dilute the brand value.
  • Latin America does not feature too high on the company’s priorities at the moment and they will revisit their plans for the region in the future.

Analyst’s View

BKT has been a rising player in the off-road tires business for years now. They have indeed suffered from volume contraction of 14% YoY but they remain committed to the CAPEX plans. The company has stayed to true to their commitment to increase brand presence to drive growth in India and abroad, all of which is evident from their various branding initiatives and incremental advertising costs. As mentioned above, the broad industry is in a slowdown and it remains to be seen how long these conditions persist. Nonetheless, BKT remains a good stock to keep an eye on considering their resilient performance and their efforts to keep margins stable and maintain their pricing advantage over their competition in such difficult industry conditions.

If you’d like to read our detailed analysis on BKT’s moat please click here.


Q1 2020 Updates

Financial Results & Highlights

Standalone Financials (In Crs)
Q1FY20 Q1FY19 YoY % Q4FY19 QoQ %
Sales 1265 1444.62 -12.43% 1391.2 -9.07%
PBT 253.55 352.41 -28.05% 275.88 -8.09%
PAT 176 230.25 -23.56% 184.74 -4.73%

 

Consolidated Financials (In Crs)
Q1FY20 Q1FY19 YoY % Q4FY19 QoQ %
Sales 1272.83 1430.68 -11.03% 1396.7 -8.87%
PBT 255.15 347.9 -26.66% 278 -8.22%
PAT 176.84 225.13 -21.45% 185.94 -4.89%

Detailed Results

    1. The revenues for the quarter dipped 12% and 11% YoY in standalone and consolidated terms.
    2. Profits fell further with PAT going down 24% and 22% YoY in standalone and consolidated terms.
    3. Sales volumes for the quarter came in at 51,304 tons which is down 10% YoY.
    4. The Board has declared an interim dividend of Rs 2 in the current quarter.
    5. The EBITDA margin fell to 24.3% from 29.1% last year.
    6. The company cash and cash equivalent position of Rs 1162 Cr with no long term debt in the books.
    7. The company continues to provide guidance of sales volume growth of 3% to 5% in FY20.
    8. The company has commenced trial production in phase 1 of their Carbon Black plant. This will add a capacity of 60,000 tons and commercial production has started from July onwards. Phase 2 of the capacity of 80,000 tons will be commissioned in FY21.
    9. The Waluj plant is set to be replaced with a new fully integrated plant which is expected to cost the company Rs 500 Cr in CAPEX.
    10. The Bhuj plant is to be upscaled to large-sized steel radial OTR tyres with a capacity of 5000 tons. A warehouse (of Rs 50 Cr) and mixing plant (of Rs 100 Cr) is also planned to be built. All of this is expected to cost the company Rs 500 Cr in capex.
    11. The OTR capacity mentioned above is expected to be completed by FY21 and commercial production will start from the following year.
    12. The Board has decided to put their plans for the US plant setup on hold due to difficult macroeconomics and business uncertainties from volatile conditions.
    13. The company continues to maintain their strong brand presence in international markets. They remain the exclusive tyre manufacturer for MONSTER JAM in America.
    14. The company is also the new title sponsor for the Italian Serie B football league and the French League cup competition, enhancing their brand presence in key markets in EU.
    15. The company continues to be the official off road tyre partner for the KFC Big Bash league in Australia.
    16. In India, the company has enhanced their public presence by becoming the official tyre sponsor for 8 marquee teams in Pro Kabaddi League and as the off highway tyre partner in the Tamil Nadu Premier League.
    17. The company retains Bollywood icon Sunny Deol as their brand ambassador, thus enhancing its brand expansion and presence in rural markets in India.

Investor Conference Call Highlights

  1. In branding expenses, the incremental expenses came in at 1% of revenues at Rs 20 Cr in Q1.
  2. In other income, the company gained Rs 72 Cr which includes net gain in forex of Rs 42 Cr and a net gain in investment of Rs 29 Cr. In the forex gain, Rs 28 Cr was realized net gain while the rest is unrealized.
  3. The volume breakup is as follows:
    • OTR:                 36% share            Up 10%
    • Agriculture:     60% share           Down <10%
    • ATV & Others: 4% share
  4. A large contribution of the growth in the OTR segment was from mining tires.
  5. The geographical volumes breakup is as follows:
    • EU: 49%
    • USA: 17%
    • India: 22%
    • Rest of World: 12%
  6. OEM volumes stood at 27% while replacement stood at 71% and others counted for 2% of total volumes.
  7. The total CAPEX in FY20 is expected to be around Rs 600 Cr.
  8. The management does not see the US CAPEX plan to kick-off in the foreseeable future.
  9. The management has highlighted manpower costs (5-6% for BKT vs 27-28% for peers) and selling & warehousing costs (4-5% for BKT vs 15-16% for peers) as the main differentiators for the company in comparison with their international peers. Both of these are unique advantages derived from the company’s operations in India.
  10. The company expects to maintain their guidance of 3-5% volumes growth for FY20 as channel inventory levels have gone down 50% from normal levels and this should spur higher sales volumes in the latter half of FY20.
  11. The realizations have declined due to passing on the reduction in raw material prices to the customer and the unfavorable forex conditions where the company has hedged euros at Rs 81 while the current levels are at Rs 78.
  12. The company expects to maintain all of their other expenses within 4-5% of revenues.
  13. The management expects costs of raw materials to go further down as crude prices are down and natural rubber is also going down this year.
  14. The management have indicated that margins can be expected to rise sequentially due to expected raw material price reductions in the near future.
  15. The company is optimistic that if current conditions and trends in India persist then the company can increase revenue share of India market to 25-26% from current levels in a few years.
  16. The company expects an improvement of only 80 to 100 bps from the carbon black plant.
  17. The company expects to be spending around 1.25% of revenues in incremental branding costs for the next few years.
  18. The company is comfortable despite volume contraction of 10% as the industry has declined much more drastically with a 25-30% contraction in volumes. Thus the company is confident of gaining market share despite fall in sales volumes.
  19. The CAPEX for FY20 is around Rs 600 Cr while FY21 should see CAPEX of around Rs 500-550 Cr including maintenance CAPEX.

Analyst’s View

BKT has been a rising player in the off-road tires business for years now. They have indeed suffered from volume contraction of 10% YoY but they remain optimistic of gaining market share as the industry decline has been more severe at more than 25%. The company has stayed true to its commitment to increase brand presence to drive growth in India and abroad, all of which is evident from its various branding initiatives and incremental advertising costs. The company has also shown that they are agile enough to reverse big strategic decisions like moving away from the US expansion in lieu of the current macro environment. As mentioned above, the industry is in a slowdown phase and it remains to be seen how long these conditions persist. Nonetheless, BKT remains a good stock to keep an eye on considering its resilient performance despite the industry slowdown and the commitment to keep raising its market share even in such tough conditions.

If you’d like to read our detailed report on BKT’s moat please click here.


Q4 2019 Updates

Financial Results & Highlights

                                                                Standalone Financials (In Crs)
Q4FY19 Q4FY18 YoY % Q3FY19 QoQ % FY19 FY18 %  Change
Sales 1391.2 1315.46 5.76% 1206.56 15.30% 5458.7 4800.67 13.71%
PBT 275.88 297.58 -7.29% 216.5 27.43% 1183 1118.5 5.77%
PAT 184.74 193.62 -4.59% 144.7 27.67% 782 739.25 5.78%
                                                                Consolidated Financials (In Crs)
FY19 FY18 %  Change
Sales 5428.16 4800.72 13.07%
PBT 1176.56 1116.04 5.42%
PAT 773.65 735.79 5.15%

 

Detailed Results

    1. Sales volumes grew 3% YoY for Q4 and 6% YoY for FY19.
    2. FY19 Revenues grew 13% YoY and Q4 Revenues grew only 5.76% YoY.
    3. EBITDA margins were at 24.8% and 26.8% for Q4 and FY19 respectively.
    4. Profit margins were at 13.6% and 14.7% for Q4 and FY19 respectively.
    5. There was a slight decline in EBITDA margins which was mainly due to lower forex rates and higher raw material prices. Higher brand and advertising spends also contributed to lower margins for the quarter and FY19.
    6. Gross profit margin declined QoQ mainly due to lower sales realization and high cost of inventory of previous quarter.
    7. The company has guided that sales volumes should rise 3%-5% in FY20.
    8. The company has started manufacturing large size 51-inch diameter tyres at their Bhuj facility.
    9. The company continues to consolidate its strong brand presence by sponsoring various sporting events like football leagues in France and Italy, T20 league in Austrailia and as official and exclusive tyre supplier to Monster Jam (a freestyling and racing competition involving monster trucks) in USA.

Investor Conference Call Highlights

  1. The capex for the carbon black plant is expected to be around Rs 425 Cr. The company has entered the final stage of completing the first phase of 60,000-ton capacity. They expect the full benefit of this expansion to start from H2FY20 onwards.
  2. The second phase with a capacity of 80,000 tons is expected to be commissioned by FY21. All other capex projects are expected to stay on schedule.
  3. The company gained around Rs 18 Cr in forex gains in Q4 while the figure for FY19 stood at Rs 118 Cr.
  4. The company has a strong cash position of Rs 1138 Cr and have recommended a final dividend of Rs 2 per share.
  5. The management has said that most of the export challenges for the company originate from the trade wars going on in the world economy right now and it has impacted all product categories for the company.
  6. The management maintains that if raw material costs go down and the pressure on demand continues then they will have to take pricing action. This is the case for all players in this sector.
  7. The management has guided that EBITDA margins are expected to stay in the range of 25%-28% for the coming financial year.
  8. The company is looking to maintain its current level of marketing spending and will not add to it in FY20.
  9. The breakup of sales volumes for FY19 are:
    • Europe: 50%
    • USA: 17%
    • India: 18%
    • Rest of the World:          15%
  10. The breakup according to categories for FY19 are:
    • Agriculture: 61%
    • OTR: 36%
    • ATV: 4%
  11. The capex guidance for FY20 is expected to be around Rs 700 Cr.
  12. The management maintains that they keep a pricing gap of 10%-15% between them and their peers.
  13. The company aims to keep this gap steady and strengthen their brand presence in order to gain market share in the coming years.
  14. Volume growth for India has been good at 18% YoY for FY19.
  15. The management has said that the impact of USA China trade wars has caused negative sentiment to rise in export markets and they expect this to affect demand from their principal export markets of EU.
  16. The management has implied that the market for their products is quite price insensitive but they will be compelled to reduce prices when the competition does the same.
  17. The management insists that if they will borrow any debt to fund capex they will do so in foreign currency only.
  18. The maintenance capex for each year is estimated to be Rs 250 Cr.
  19. The company’s current market share in the Agri-tires and OTR segments is 8% and 2%-2.5% respectively. Combining both it comes out to around 5% of global off-road tires market.
  20. The management has implied that the pressure on the demand guided by the company is expected to be short term in nature.
  21. In the capex project involving the Waluj plant, the company is not adding any new capacity but is shifting the existing plant to a new location.
  22. From the USA plant, the company is expecting annual revenues of around Rs 500-600 Cr once it is fully operational.
  23. The company is also constructing a warehouse in Italy for storing inventory of Rs 35-40 Cr.
  24. The company targets 100 SKUs for addition each year. They have 2700 SKUs currently.

Analyst’s View

BKT has been one of the leading players in the global off-road tire market. The company is now experiencing pressure on demand and high raw material prices as the rest of the industry. Thus the management has guided for a modest volume growth of 3%-5% only for the next financial year. Although this demand pressure is mainly present in export markets, there is significant room for growth in the domestic market where the company entered late. Nonetheless, it remains to be seen how the company navigates the increasingly tough export environment, gain market share and increase its capacity utilization.

 

 


Q3 2019 Updates

Financial Results & Highlights

Standalone Financials (In Lacs)

Q3FY19

Q3FY18 YoY % Q2FY19 QoQ % 9M FY19 9M FY18

9M% Change

Sales

120656 118405 1.90% 141634 -14.81% 406752 348521

16.71%

PBT

21650 28592 -24.28% 33822 -35.99% 90713 82091

10.50%

PAT

14470

18950 -23.64% 22231 -34.91% 59726 54563

9.46%

Detailed Results

    1. This quarter has been soft for BKT with just 2% growth in sales while profits have fallen around 24% on a YoY basis.
    2. The 9M number paint a better picture with 16% growth in revenues and 11% and 9% growth in PBT and PAT respectively.
    3. Sales volume for 9M19 were also up 7% YoY.
    4. EBITDA margin for the 9M period remained at 27.5%.
    5. EBITDA margin for Q3 was down 5% YoY to 25.3%.
    6. The main reasons cited for this are:
      • Rising material costs: Up 10%
      • Rising employee expenses: Up 11%
      • Rising other expenses like Freight and branding: Up 12%
    7. The PAT for the quarter was also impacted by a mark to market loss of Rs 34 Cr compared to a gain of Rs. 11 Cr last year.
    8. BKT is on track regarding their capex schedule.
    9. They plan to setup a plant in USA with capacity of 20,000 MT p.a. with a capex of $ 100 million.
    10. They are on schedule with the capex for the Carbon Black plant whose capital outlay is estimated to be around Rs 425 Cr for a capacity of 140,000 MT p.a.
    11. BKT is also upscaling to all steel radial tyres by investing in new capacity 5000 MT p.a. along with a new warehouse and a mixing plant at their Bhuj location. The total capex for this estimated to be around Rs 500 Cr.
    12. BKT is also replacing their old plant in Waluj with a new fully integrated facility which should cost around Rs 500 Cr.
    13. BKT is financing these additions using internal accruals and debt.
    14. BKT is looking to expand market reach in the Americas and expand product portfolio in the near future. They are also improving brand visibility and recognition by sponsoring various sports franchises and tournaments in football in the EU, kabaddi in India and monster trucks in USA.

Investor Conference Call Highlights

  1. The volumes for the quarter were down 6% on YoY basis which resulted in higher sales realization of about 9% when taking into account the corresponding growth in sales of 2% in the same period.
  2. The company is free from long term debt and maintains a healthy cash profile of around Rs 1087 Cr.
  3. Sales volume in India have gone up.
  4. Raw material costs have shot up more than 18%.
  5. The company sees raw material costs to reduce in the coming quarters.
  6. EU counts for around 47% in sales, USA counts for 18%, India counts for 21% and the rest of the world counts for 14% of sales.
  7. The inventory levels for EU and US dealers have gone down.
  8. The management expects the margins to stay between 20%-30% in the future.
  9. The overall industry is growing at 5%-6% while BKT has grown 8%-10%. This shows that the company has definitely increased its market share.
  10. The company expects farm incomes in the coming year to be better than the current year for EU and USA which may lead to increased demand for its products along qith increased demand for farm equipment.
  11. The company is in line to move ahead with the scheduled capex mentioned above.
  12. The company is expecting the Carbon Black segment to add 100 to 125 basis points to their overall tires business margins once it becomes fully operational.
  13. The company also expects that they may have some excess capacity after the new capex schedule which can take some time for utilization levels to reach peak levels.
  14. Volume growth in the US market has been 20% YoY for 9MFY19.
  15. The company is also focusing on entry and expansion into major mining countries like Australia and Brazil.
  16. The planned expansions are expected to be operational by FY ’21.

Analyst’s View

BKT has been a rising player in the off road tyres business for years now. They have indeed suffered from volume contraction and rising material costs but have been able to maintain a healthy EBITDA margin of more than 25%. The company is bullish on its future despite these recent muted numbers. This is evident considering their huge capex schedule which shows them aggressively expand their existing capacity and product portfolio. They are also slowly increasing their market shares by maintaining a growth rate that is higher than the industry growth rate. It is critical for the company to continue growing their volumes as the huge investment in capex would put pressure on earnings in the next couple of years.

If you’d like to read our detailed report on BKT’s moat please click here.

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