MARKETS

Balkrishna Industries Falls 6% on Disappointing Margin Performance in Q1

On Friday, shares of Balkrishna Industries fell 6% to Rs 2,190 in intraday trading. The stock extended a two-day losing streak after the company reported disappointing margin performance for June 2022 (Q1FY23) due to higher raw material prices. Shares of the tire and rubber products company have fallen 10% over the past three sessions. In contrast, the S&P BSE Sensex was up 0.37% at 58,515 at 09:43 am.


In Q1FY23, the company’s reported earnings before interest, tax, depreciation and amortization (Ebitda) margin declined 550bps sequentially and 910bps (YoY) to 20.1bps. Raw material prices have remained high this quarter. Raw material costs accounted for 46.6% of sales in Q1FY23, compared to 42.8% in Q1FY22 and 45.3% in Q4FY22. Management expects raw material prices to come down significantly from Q4FY23. It expects logistics costs to ease by the end of Q3 or early Q4.


“We continue to see demand for BKT tires continue to rise. However, given the macro challenges in Europe and the heatwave and inflation trends in the US, we expect demand to soften in the second quarter,” said Balkrishna Industries. However, management maintained its FY23 volume guidance of 32-33kt.


Meanwhile, the company’s standalone revenue for the quarter stood at Rs 2,646 crore, up 11.5% quarter-on-quarter, while volume grew 7.8% quarter-on-quarter. Revenue grew 21% year-on-year from Rs 1,813 crore in Q1FY22. However, profit after tax fell 14% quarter-on-quarter and 3% year-on-year to Rs 320 crore.


“Balkrishna Industries’ margin performance was a real damper, with the gross margin down about 150bps sequentially, while other expenses (driven by higher freight costs) increased about 210bps sequentially.

Management comments indicate that in Europe and US, the weak second quarter of fiscal 2023 (decline quarter-on-quarter) amid subdued demand outlook,” ICICI Securities said in a note.


BKT’s main product range includes speciality tires, commonly referred to as “off-highway tires” or OHT, for agricultural, industrial, construction, earthmoving, mining, port, lawn and garden, and all-terrain vehicle tires. In addition, the company’s carbon black products are used exclusively, and the rest are sold on the market.


Tire is a technology-intensive and capital-intensive market segment known as the “large variety, low volume market segment”. Reliable players need to maintain many stock-keeping units (SKUs) to meet the diverse needs of customers worldwide while providing pre-sale and post-sale customer service.


While agriculture is considered non-cyclical, other sub-sectors (industry, construction and mining) are cyclical. Their performance is closely linked to the global economic outlook. Europe, America, Oceania and India are the main markets for the company’s tire range.

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