Balkrishna Ind – Stock Investment

The success story of BKT, begun in 1995 when it entered into production of cross ply off-highway tyres, With the help of persistent & intensive market research coupled with ever expanding production capabilities, BKT has made its mark in the niche segments like Agricultural, Construction, Industrial, Earthmover, ATV (All Terrain Vehicle) and Turf care applications.

BKT is continuously developing its production base and has expanded its product range significantly. With three manufacturing plants and one In-house Hi-tech Mould-manufacturing facility at different locations in India, BKT is very well equipped to feed the ever-growing demand of its worldwide customers. 4th Tyre plant a Greenfield project is already underway.

Expanding capacities to meet emerging opportunities:

BIL has earmarked capex of Rs14bn for the next three years for capacity expansion through 1) setting up a greenfield plant at Gujarat with the capacity of 250T/day and 2) increasing the capacity of Aurangabad facility to 105T/day from 85T/day currently. These expansions will come on stream over the next couple of years and will place BIL in a better position to service strong demand growth expected in US and Europe.

Attractive valuations in the light of better fundamentals:

FY10 was an exceptional year for BIL with a 24% OPM and three-fold jump in PAT. We believe BIL will revert to its historic average OPM of 19-20%. The company is likely to deliver a 23.7% revenue CAGR over FY10-12. With superior return ratios, a healthy balance sheet (D/E of 0.7x) and 17% PAT growth in FY12, we find the stock attractively valued at EV/EBIDTA of 5.2x and P/E of 5.9x on FY12 estimates. We recommend a BUY with a target price of Rs913.

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