November 9, 2017 Analyst: Ashutosh Tiwari [email protected] (+91-8128694112, +91 79-40504017) Page 1 of 13
Before reading this report, you must refer to the disclaimer on the last page.
Balkrishna Industries Ltd. Absolute :ADD
Relative : BENCHMARK
2QFY18 Result: Estimate (), TP (), Rating () Regular Coverage 7% ATR in 14 Months
Strong volume traction, better Euro-INR rate beneficial for margin as well, retain ADD Auto Parts
© 2017Equirus All rights reserved
Rating Information
Price (Rs) 1,827
Target Price (Rs) 1,955
Target Date 31st Dec'18
Target Set On 9th Nov'17
Implied yrs of growth (DCF) 15
Fair Value (DCF) 1,504
Fair Value (DDM) 634
Ind Benchmark BSEAUTO
Model Portfolio Position NA
Stock Information
Market Cap (Rs Mn) 176,634
Free Float (%) 45.63 %
52 Wk H/L (Rs) 1880/812
Avg Daily Volume (1yr) 368,597
Avg Daily Value (Rs Mn) 526
Equity Cap (Rs Mn) 193
Face Value (Rs) 2
Bloomberg Code BIL IN
Ownership Recent 3M 12M
Promoters 54.4 % 0.0 % -3.9 %
DII 12.3 % -1.3 % -2.4 %
FII 18.3 % 0.0 % 0.0 %
Public 15.1 % 1.3 % 6.4 %
Price % 1M 3M 12M
Absolute 8.3 % 15.1 % 78.6 %
Vs Industry 6.3 % 12.0 % 63.1 %
APOLLOTYRE -2.2 % -13.9 % 19.0 %
MRF 0.3 % -1.4 % 24.6 %
Standalone Quarterly EPS forecast
Rs/Share 1Q 2Q 3Q 4Q
EPS (17A) 15.4 25.1 19.2 14.2
EPS (18E) 15.8 21.0 21.2 24.0
BIL’s 2QFY18 volumes grew by a strong 16% yoy and 6% qoq, surprising positively in a
seasonally weak quarter. Our industry interactions indicate that due to strong OEM
demand in the European market, supplies of some large agri tyre players in Europe
have drifted towards OEM, buoying aftermarket growth for players like BIL. We thus
raise our FY18E volumes by 4% to 193k; management too has revised its guidance
upwards to 190-195k from 185-190k earlier. The Euro-INR hedge rate is expected to
inch up higher in 2H due to an increase in the Euro-USD rate over the last few
months; this should negate some impact of rising RM prices. We increase our
FY18/FY19E EPS by 11.7%/12.4% due to higher volume and margin assumptions, and
retain ADD with a Dec’18 TP of Rs 1,955 set at 20x Dec’18 EPS (vs. Rs 1,739 earlier).
Specialty tyre market doing well, volume growth to remain strong: Industry leader
Michelin’s specialty tyre sales grew 13% yoy in Sep’17 quarter, pointing towards
buoyancy in the market. While a large part of Michelin’s growth is driven by mining
tyres, even the agri market has picked up. BIL management also indicated that they
have seen better growth in construction and mining tyres. Ultra large mining tyre
trials are going well and we expect some pick up in those volume from FY19. We
upgrade our volume growth estimates for BIL given its strong qoq volume growth in a
seasonally weak quarter; management has also increased its FY18 volume guidance.
Margins to remain strong due to better Euro hedge rate in 2H: The Euro-INR hedge
rate during 2Q was at 80; management has guided for FY18 average of 81-82,
implying that 2H realizations would be around 83, which should help ASPs. On the RM
cost front, management has guided for a decline in 3Q as the entire high-cost
inventory has been consumed. While RM costs may increase in 4Q due to rising crude
prices, we believe that a better hedge rate would keep margins healthy.
Growth across geographies drives volumes; benefits of operating leverage visible:
Volume growth was good across geographies driven by a revival in the market,
especially in the mining and construction space. Management stated that the
company’s penetration in the US is improving. RM cost per kg increased 29% yoy and
despite a 7% increase in ASPs, contribution per kg declined 14% yoy. However, a
441bps yoy decline in other expenses as percentage of sales due to operating
leverage led only to a marginal 1% yoy decline in EBITDA/kg. Ramp-up of the Bhuj
plant is also helping BIL as operating expenses are lower at the plant and there are
savings in freight cost as well, plant being close to port.
Estimate Revision:
Current
Change from previous
(%)
RsMn FY18E FY19E FY18E FY19E
Sales 44,951 52,041 3.5% 4.1%
EBITDA 12,689 16,186 6.2% 10.7%
PAT 7,983 9,793 11.7% 12.4%
EPS 82.6 101.3 11.7% 12.4%
Consolidated Financials
Rs. Mn YE Mar FY17A FY18E FY19E FY20E
Sales 37,838 44,951 52,041 57,236
EBITDA 11,310 12,689 16,186 17,438
Depreciation 3,040 3,118 3,199 3,281
Interest Expense 220 35 30 30
Other Income 2,536 2,318 1,445 2,031
Reported PAT 8,326 7,663 9,793 10,986
Recurring PAT 7,169 7,983 9,793 10,986
Total Equity 35,429 41,754 50,093 59,392
Gross Debt 7,970 1,990 1,990 1,990
Cash 13,740 14,038 23,275 33,956
Rs Per Share FY17A FY18E FY19E FY20E
Earnings 74.2 82.6 101.3 113.7
Book Value 367 432 518 614
Dividends 8.0 11.5 12.5 14.5
FCFF 69.9 79.0 110.8 128.2
P/E (x) 24.6 22.1 18.0 16.1
P/B (x) 5.0 4.2 3.5 3.0
EV/EBITDA (x) 15.4 13.3 9.8 8.5
ROE (%) 23 % 21 % 21 % 20 %
Core ROIC (%) 17 % 19 % 27 % 30 %
EBITDA Margin (%) 30 % 28 % 31 % 30 %
Net Margin (%) 19 % 18 % 19 % 19 %
Balkrishna Industries Ltd. Absolute –ADD Relative – BENCHMARK 7% ATR in 14 Months
November 9, 2017 Analyst: Ashutosh Tiwari [email protected] (+91-8128694112, +91 79-40504017) Page 2 of 12
Earnings call takeaways
Market scenario, volumes, guidance & raw materials
The industry is growing at about 6-7%.
The company clocked its highest-ever quarterly volumes, at 49,331 tons or 16% yoy
growth for 2QFY18.
1H volumes stood at 95,658MT.
Management stated that the demand scenario continues to improve on the back of a
stable global outlook and increasing commodity price.
BIL intends to strengthen its brand by increasing its product range and expanding
geographically.
BIL is expanding its distribution network in India to strengthen domestic sales.
Management is confident of meeting its FY18 annual volume guidance of 190,000-
195,000MT and may even revise it upwards.
Full-year EBITDA margin is expected at 30%.
Geographical breakup of volumes was as follows: Europe 54%, America 17% and India
14-15%.
Currently, BIL’s global market share is around 5% and the company aims to double it
to 10% in the next 3-4 years.
Management’s focus is on improving capacity utilization.
Sequential RM price declines were not fully realized as the company utilized its high-
cost inventory.
RM prices are expected to stay range-bound, as has been the case for last two
months.
Current inventory level is at 60-65 days.
The non-agri segment is expected to yield better growth than the agri segment.
BIL is getting a good response for mining tyres, especially from the replacement
market.
The company is seeing strong operating leverage from the Bhuj plant with utilization
at 70%. The plant’s annual production is of ~19,000 tons.
BIL has guided for FY18 capex of Rs 3-3.5bn, with Rs 1bn-1.5bn for maintenance and
Rs 1.5bn for the carbon black facility.
Forex and other highlights
OEM sales form about 24-25% of total sales with replacement sales comprising the
rest.
Ultra large tyres are under evaluation with results expected from early next year.
BIL has not taken any price hikes this quarter; competitors too have refrained from
taking any hikes.
Realized forex gains pertaining to sales were at Rs 670mn for 2Q and at
Rs 1.31bn for H1.
Net forex gains stood at Rs 660mn, including realized gains of Rs 730mn and
unrealized losses of Rs 70mn.
Euro-INR realizations for H2 were likely at ~Rs 83, and are thus expected at
Rs 81-82 for FY18E and FY19E vs. 75-76 last year.
The company hedges 80-85% of its net exposure for Euro forex risk by forward
contracts of 18-24 months, and covers its dollar exposure through imports.
BIL has repaid US$ 33mn of long-term debt in the month of August. The remaining
debt will be repaid in Aug’18 when it becomes due.
The company’s gross long-term loan stands at US$ 33mn. In comparison, cash and
cash equivalents were at Rs 10.6bn, making the company net debt-free.
As part of its backward integration plan, BIL will incur a capex of Rs 1.5bn for setting
up a carbon black facility (annual capacity: 60,000MT) at the Bhuj plant. This facility
will be ready by 1QCY19.
BIL expects the plant to generate ROIC of more than 20% and 10% cost savings on
carbon-black sourcing. It will also help save on logistics and planning fronts.
Balkrishna Industries Ltd. Absolute –ADD Relative – BENCHMARK 7% ATR in 14 Months
November 9, 2017 Analyst: Ashutosh Tiwari [email protected] (+91-8128694112, +91 79-40504017) Page 3 of 12
Exhibit 1: Quarterly sales volume (tons)
Source: Equirus Securities, Company
Exhibit 2: ASP/kg & raw material cost/Kg trend (Rs)
Source: Equirus Securities, Company
Exhibit 3: Quarterly EBITDA/kg (Rs)
Source: Equirus Securities, Company
Exhibit 4: Annual sales volumes &EBITDA margins
Source: Equirus Securities, Company
0
10,000
20,000
30,000
40,000
50,000
60,000
1Q
FY14
2Q
FY14
3Q
FY14
4Q
FY14
1Q
FY15
2Q
FY15
3Q
FY15
4Q
FY15
1Q
FY16
2Q
FY16
3Q
FY16
4Q
FY16
1Q
FY17
2Q
FY17
3Q
FY17
4Q
FY17
1Q
FY18
2Q
FY18
234 244 250 245 247 250 256 261
231 238 239 251
225 225 227 227 233 241
122 121 121 119 124 124 120 120
107 95 92 88 89 86 89
102 113 111
0
50
100
150
200
250
300
1Q
FY14
2Q
FY14
3Q
FY14
4Q
FY14
1Q
FY15
2Q
FY15
3Q
FY15
4Q
FY15
1Q
FY16
2Q
FY16
3Q
FY16
4Q
FY16
1Q
FY17
2Q
FY17
3Q
FY17
4Q
FY17
1Q
FY18
2Q
FY18
ASP/Kg RM cost/Kg
56 51
57 56 62
69
85
112
39
81 77
90
75 78 77
65 61
77
0
20
40
60
80
100
120
1Q
FY14
2Q
FY14
3Q
FY14
4Q
FY14
1Q
FY15
2Q
FY15
3Q
FY15
4Q
FY15
1Q
FY16
2Q
FY16
3Q
FY16
4Q
FY16
1Q
FY17
2Q
FY17
3Q
FY17
4Q
FY17
1Q
FY18
2Q
FY18
56 72
81 84 112
133 138
143 154 148
172
193
213 232
0%
5%
10%
15%
20%
25%
30%
35%
0
50
100
150
200
250
FY07
FY08
FY09
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18E
FY19E
FY20E
Sales Volumes EBITDA Margin - RHS
Balkrishna Industries Ltd. Absolute –ADD Relative – BENCHMARK 7% ATR in 14 Months
November 9, 2017 Analyst: Ashutosh Tiwari [email protected] (+91-8128694112, +91 79-40504017) Page 4 of 12
Quarterly performance, standalone
Rs Mn 2QFY18 2QFY18E 1QFY18 2QFY17 % Change
Comments 2QFY18E 1QFY18 2QFY17
Net Sales 11,145 10,747 10,128 9,325 4% 10% 20%
less: Forex loss/(gain) -730 0 -680 -230
Adjusted Sales 11,875 10,747 10,808 9,555 10% 10% 24%
Materials consumed 5,482 4,853 5,232 3,666 13% 5% 50%
Employee Cost 596 613 587 540 -3% 2% 10%
Other Expenses 2,017 2,257 2,147 2,045 -11% -6% -1%
Total Expenditures 8,096 7,723 7,966 6,250 5% 2% 30%
EBITDA 3,779 3,025 2,842 3,305 25% 33% 14%
Depreciation 777 767 755 725 1% 3% 7%
EBIT 3,002 2,257 2,087 2,580 33% 44% 16%
Interest 26 36 51 47 -28% -49% -45%
Other Income 95 241 243 805 -61% -61% -88%
PBT 3,071 2,462 2,278 3,338 25% 35% -8%
Tax 1,042 788 747 909 32% 39% 15%
Recurring PAT 2,030 1,674 1,531 2,429 21% 33% -16%
Extraordinaries 286 0 34 -160
Reported PAT 1,744 1,674 1,497 2,589 4% 17% -33%
EPS (Rs) 21.0 17.3 15.8 25.1 21% 33% -16%
EBITDA Margin 33.9% 28.1% 28.1% 35.4% 577 bps 585 bps -153 bps
Adj. EBITDA Margin 31.8% 28.1% 26.3% 34.6% 368 bps 553 bps -276 bps
Adj Gross Margin 53.8% 54.8% 51.6% 61.6% -101 bps 224 bps -780 bps
EBIT Margin 26.9% 21.0% 20.6% 27.7% 594 bps 633 bps -73 bps
PBT Margin 27.6% 22.9% 22.5% 35.8% 465 bps 506 bps -824 bps
PAT Margin 15.7% 15.6% 14.8% 27.8% 7 bps 87 bps -1211 bps
Tax Rate 33.9% 32.0% 32.8% 27.2% 191 bps 113 bps 667 bps
Balkrishna Industries Ltd. Absolute –ADD Relative – BENCHMARK 7% ATR in 14 Months
November 9, 2017 Analyst: Ashutosh Tiwari [email protected] (+91-8128694112, +91 79-40504017) Page 5 of 12
2QFY18 2QFY18E 1QFY18 2QFY17 % Change
Comments 2QFY18E 1QFY18 2QFY17
Volume (tonnes) 49,331 45,540 46,327 42,550 8% 6% 16%
ASP/kg (Rs) 226 236 219 219 -4.3% 3.3% 3.1%
Adj ASP/Kg (Rs) 241 236 233 225 2.0% 3.2% 7.2%
RM cost/kg (Rs) 111 107 113 86 4.3% -1.6% 29.0%
EBITDA/kg (Rs) 77 66 61 78 15.3% 24.9% -1.4%
Gross Margin 53.8% 54.8% 51.6% 61.6% -101 bps 224 bps -780 bps
RM as % of Sales 46.2% 45.2% 48.4% 38.4% 101 bps -224 bps 780 bps
Empl. Cost as % of Sales 5.0% 5.7% 5.4% 5.7% -68 bps -41 bps -63 bps
Other exp. as % of Sales 17.0% 21.0% 19.9% 21.4% -401 bps -288 bps -441 bps
Balkrishna Industries Ltd. Absolute –ADD Relative – BENCHMARK 7% ATR in 14 Months
November 9, 2017 Analyst: Ashutosh Tiwari [email protected] (+91-8128694112, +91 79-40504017) Page 6 of 12
Company Snapshot
How we differ from Consensus
- Equirus Consensus % Diff Comment
EPS FY18E 82.6 81.0 2 % In-line with consensus
FY19E 101.3 98.8 3 %
Sales FY18E 44,951 43,596 3 %
FY19E 52,041 50,374 3 %
PAT FY18E 7,983 7,719 3 %
FY19E 9,793 9,457 4 %
Key Drivers:
FY17A FY18E FY19E FY20E
Sales Volume (tons) 172,420 193,293 212,613 231,933
ASP (Rs/kg) 218 233 245 247
RM/kg (Rs) 92 110 110 112
EBITDA/kg (Rs) 66 66 76 75
Risk to Our View: Foreign exchange fluctuations and sharp increases in rubber prices are
major risks
Key Triggers
Fall in rubber and crude prices
Sensitivity to Key Variables % Change % Impact on EPS
Natural Rubber 10 % -5 %
NTCF 10 % -1 %
Carbon Black 10 % -1 %
DCF Valuations & Assumptions
Rf Beta Ke Term. Growth Debt/IC in Term. Yr
6.8 % 1.0 12.8 % 3.0 % 6.3 %
- FY18E FY19E FY20-22E FY23-27E FY28-32E
Sales Growth 19 % 16 % 10 % 10 % 10 %
NOPAT Margin 14 % 17 % 17 % 17 % 17 %
IC Turnover 1.35 1.60 1.84 1.90 1.90
RoIC 19.0 % 26.8 % 31.5 % 33.5 % 33.5 %
Years of strong growth 1 2 5 10 15
Valuation as on date (Rs) 759 993 1,100 1,212 1,311
Valuation as of Sept'18 870 1,139 1,262 1,390 1,504
We have valued the company at 20x Dec’18 EPS, deriving our Dec’18 PT of Rs 1,955. Our
DCF-based valuation suggests a Dec’18 TP of Rs 1,504.
Company Description:
Balkrishna Industries has a 5% global market share in off-highway tires (OTR, agri). It gets
90% of revenues from exports. It derives ~55% / 15% of its revenues from Europe and
North America. Company hedges rubber commodity and currency.
Comparable valuation Mkt Cap
Rs. Mn.
Price
Target
Target
Date
EPS P/E BPS P/B RoE Div Yield
Company Reco. CMP FY17A FY18E FY19E FY17A FY18E FY19E FY17A FY18E FY17A FY18E FY19E FY17A FY18E
Balkrishna Industries
ADD 1,827 176,634 1,955 31st Dec'18 74.2 82.6 101.3 24.6 22.1 18.0 366.5 4.2 23 % 21 % 21 % 0.5 % 0.6 %
Apollo Tyres LONG 233 118,832 279 31st Dec'18 19.2 12.3 19.1 12.3 19.2 12.4 143.2 1.4 12 % 12 % 11 % 1.3 % 1.3 %
MRF NR 65,000 275,674 NR NR 3,504.3 3,045.0 4,192.0 18.6 21.3 15.5 20,373.7 2.8 19 % 14 % 17 % 0.1 % 0.1 %
Balkrishna Industries Ltd. Absolute –ADD Relative – BENCHMARK 7% ATR in 14 Months
November 9, 2017 Analyst: Ashutosh Tiwari [email protected] (+91-8128694112, +91 79-40504017) Page 7 of 12
Standalone Quarterly Earnings Forecast and Key Drivers Rs in Mn 1Q17A 2Q17A 3Q17A 4Q17A 1Q18A 2Q18A 3Q18E 4Q18E 1Q19E 2Q19E 3Q19E 4Q19E FY17A FY18E FY19E FY20E
Revenue 9,420 9,325 8,822 10,029 10,128 11,145 11,318 12,408 12,533 13,269 12,594 13,693 37,883 44,998 52,090 57,287
Materials consumed 3,846 3,666 3,584 4,718 5,232 5,482 4,995 5,476 5,609 5,938 5,636 6,128 15,813 21,184 23,312 25,987
Employee Cost 546 540 562 595 587 596 611 645 652 663 655 712 2,243 2,440 2,682 2,964
Other Expenditure 2,119 2,045 1,896 2,162 2,147 2,017 2,150 2,357 2,381 2,521 2,393 2,602 8,508 8,672 9,897 10,885
EBITDA 2,910 3,075 2,780 2,554 2,162 3,049 3,561 3,929 3,891 4,146 3,910 4,251 11,319 12,701 16,199 17,452
Depreciation 775 725 788 751 755 777 773 778 783 788 793 798 3,038 3,082 3,163 3,245
EBIT 2,136 2,350 1,992 1,803 1,407 2,272 2,789 3,151 3,108 3,358 3,117 3,453 8,280 9,619 13,036 14,206
Interest 66 47 49 53 51 26 36 36 36 36 36 36 214 150 144 144
Other Income 207 1,035 632 617 923 825 261 299 297 340 370 429 2,491 2,308 1,435 2,021
PBT 2,277 3,338 2,574 2,367 2,278 3,071 3,014 3,415 3,369 3,662 3,450 3,845 10,557 11,778 14,327 16,083
Tax 786 909 718 993 747 1,042 964 1,093 1,078 1,172 1,104 1,230 3,406 3,846 4,585 5,146
Recurring PAT 1,491 2,429 1,857 1,375 1,531 2,030 2,049 2,322 2,291 2,490 2,346 2,615 7,151 7,933 9,742 10,936
Extraordinary -154 -160 -33 -811 34 286 0 0 0 0 0 0 -1,158 320 0 0
Reported PAT 1,645 2,589 1,890 2,185 1,497 1,744 2,049 2,322 2,291 2,490 2,346 2,615 8,309 7,613 9,742 10,936
EPS (Rs) 15.42 25.13 19.21 14.22 15.84 21.00 21.20 24.02 23.70 25.76 24.27 27.05 73.99 82.07 100.79 113.14
Key Drivers
Sales Tonnage ('000 MT) 43 43 40 46 46 49 47 51 51 54 51 56 172 193 213 232
Realization (Rs/kg) 218 219 218 217 219 226 243 243 245 245 245 245 218 233 245 247
Natural Rubber (Rs/kg) 111 111 115 130 150 142 137 137 141 141 141 141 117 141 141 145
Synthetic Rubber (Rs/kg) 106 106 110 125 145 137 132 132 136 136 136 136 112 136 136 140
NTCF (Rs/kg) 200 206 206 215 225 230 230 230 232 232 232 232 207 229 232 234
- - - - - - - - - - - - - - - - -
Sequential Growth (%)
Revenue 8 % -1 % -5 % 14 % 1 % 10 % 2 % 10 % 1 % 6 % -5 % 9 % - - - -
Materials consumed 9 % -5 % -2 % 32 % 11 % 5 % -9 % 10 % 2 % 6 % -5 % 9 % - - - -
EBITDA 33 % 6 % -10 % -8 % -15 % 41 % 17 % 10 % -1 % 7 % -6 % 9 % - - - -
EBIT 46 % 10 % -15 % -9 % -22 % 61 % 23 % 13 % -1 % 8 % -7 % 11 % - - - -
Recurring PAT 10 % 63 % -24 % -26 % 11 % 33 % 1 % 13 % -1 % 9 % -6 % 11 % - - - -
EPS 10 % 63 % -24 % -26 % 11 % 33 % 1 % 13 % -1 % 9 % -6 % 11 % - - - -
Yearly Growth (%)
Revenue 10 % 15 % 26 % 15 % 8 % 20 % 28 % 24 % 24 % 19 % 11 % 10 % 16 % 19 % 16 % 10 %
EBITDA 165 % 20 % 71 % 17 % -26 % -1 % 28 % 54 % 80 % 36 % 10 % 8 % 35 % 12 % 28 % 8 %
EBIT 370 % 26 % 131 % 23 % -34 % -3 % 40 % 75 % 121 % 48 % 12 % 10 % 49 % 16 % 36 % 9 %
Recurring PAT 47 % 129 % 94 % 2 % 3 % -16 % 10 % 69 % 50 % 23 % 14 % 13 % 63 % 11 % 23 % 12 %
EPS 47 % 129 % 94 % 2 % 3 % -16 % 10 % 69 % 50 % 23 % 14 % 13 % 63 % 11 % 23 % 12 %
Margin (%)
EBITDA 31 % 33 % 32 % 25 % 21 % 27 % 31 % 32 % 31 % 31 % 31 % 31 % 30 % 28 % 31 % 30 %
EBIT 23 % 25 % 23 % 18 % 14 % 20 % 25 % 25 % 25 % 25 % 25 % 25 % 22 % 21 % 25 % 25 %
PBT 24 % 36 % 29 % 24 % 22 % 28 % 27 % 28 % 27 % 28 % 27 % 28 % 28 % 26 % 28 % 28 %
PAT 16 % 26 % 21 % 14 % 15 % 18 % 18 % 19 % 18 % 19 % 19 % 19 % 19 % 18 % 19 % 19 %
Balkrishna Industries Ltd. Absolute –ADD Relative – BENCHMARK 7% ATR in 14 Months
November 9, 2017 Analyst: Ashutosh Tiwari [email protected] (+91-8128694112, +91 79-40504017) Page 8 of 12
Consolidated Financials
P&L (Rs Mn) FY17A FY18E FY19E FY20E
Balance Sheet (Rs Mn) FY17A FY18E FY19E FY20E
Cash Flow (Rs Mn) FY17A FY18E FY19E FY20E
Revenue 37,838 44,951 52,041 57,236 Equity Capital 193 193 193 193 PBT 10,586 11,854 14,402 16,157
Op. Expenditure 26,529 32,261 35,855 39,798 Reserve 35,235 41,561 49,900 59,199 Depreciation 3,040 3,118 3,199 3,281
EBITDA 11,310 12,689 16,186 17,438 Networth 35,429 41,754 50,093 59,392 Others 1,158 -320 0 0
Depreciation 3,040 3,118 3,199 3,281 Long Term Debt 7,970 1,990 1,990 1,990 Taxes Paid 3,418 3,871 4,610 5,171
EBIT 8,270 9,571 12,987 14,157 Def Tax Liability 3,805 3,806 3,806 3,806 Change in WC -2,714 -1,555 -690 -690
Interest Expense 220 35 30 30 Minority Interest 0 0 0 0 Operating C/F 8,653 9,226 12,301 13,578
Other Income 2,536 2,318 1,445 2,031 Account Payables 3,744 6,203 6,826 7,610 Capex -2,043 -1,610 -1,610 -1,210
PBT 10,586 11,854 14,402 16,157 Other Curr Liabi 6,943 112 130 143 Change in Invest 0 0 0 0
Tax 3,418 3,871 4,610 5,171 Total Liabilities & Equity 57,891 53,865 62,845 72,941 Others 0 0 0 0
PAT bef. MI & Assoc. 7,169 7,983 9,793 10,986 Net Fixed Assets 28,411 26,248 24,259 22,188 Investing C/F -2,043 -1,610 -1,610 -1,210
Minority Interest 0 0 0 0 Capital WIP 1,097 0 0 0 Change in Debt -4,932 -5,980 0 0
Profit from Assoc. 0 0 0 0 Others 2,051 3,802 4,202 4,202 Change in Equity 285 0 0 0
Recurring PAT 7,169 7,983 9,793 10,986
Inventory 4,761 4,557 5,275 5,802 Others 205 -1,338 -1,454 -1,687
Extraordinaires -1,158 320 0 0 Account Receivables 4,118 7,143 8,270 9,095 Financing C/F -4,442 -7,318 -1,454 -1,687
Reported PAT 8,326 7,663 9,793 10,986 Other Current Assets 3,714 -1,923 -2,437 -2,302 Net change in cash 2,167 298 9,237 10,681
FDEPS (Rs) 74.2 82.6 101.3 113.7 Cash 13,740 14,038 23,275 33,956 RoE (%) 23 % 21 % 21 % 20 %
DPS (Rs) 8.0 11.5 12.5 14.5 Total Assets 57,891 53,865 62,845 72,941
RoIC (%) 16 % 17 % 19 % 18 %
CEPS (Rs) 105.6 114.8 134.4 147.6 Non-cash Working Capital 1,906 3,461 4,152 4,842
Core RoIC (%) 17 % 19 % 27 % 30 %
FCFPS (Rs) 69.9 79.0 110.8 128.2 Cash Conv Cycle 18.4 28.1 29.1 30.9 Div Payout (%) 11 % 17 % 15 % 15 %
BVPS (Rs) 366.5 432.0 518.2 614.4 WC Turnover 19.9 13.0 12.5 11.8 P/E 24.6 22.1 18.0 16.1
EBITDAM (%) 30 % 28 % 31 % 30 % FA Turnover 1.3 1.7 2.1 2.6 P/B 5.0 4.2 3.5 3.0
PATM (%) 19 % 18 % 19 % 19 % Net D/E -0.2 -0.3 -0.4 -0.5 P/FCFF 26.1 23.1 16.5 14.3
Tax Rate (%) 32 % 33 % 32 % 32 % Revenue/Capital Employed 0.8 0.9 1.0 0.9 EV/EBITDA 15.4 13.3 9.8 8.5
Sales Growth (%) 15 % 19 % 16 % 10 %
Capital Employed/Equity 1.4 1.2 1.1 1.1
EV/Sales 4.6 3.7 3.1 2.6
FDEPS Growth (%) 61 % 11 % 23 % 12 %
Dividend Yield (%) 0.5 % 0.6 % 0.7 % 0.8 %
TTM P/E vs. 2 yr forward EPS growth TTM EV/EBITDA vs. 2 yr forward EBITDA growth TTM P/B vs. 2 yr forward RoE
6x
9x
12x
15X
20x
-20%
0%
20%
40%
60%
80%
0
500
1000
1500
2000
2500
Ma
r/0
4Se
p/0
4M
ar/
05
Sep
/05
Ma
r/0
6Se
p/0
6M
ar/
07
Sep
/07
Ma
r/0
8Se
p/0
8M
ar/
09
Sep
/09
Ma
r/1
0Se
p/1
0M
ar/
11
Sep
/11
Ma
r/1
2Se
p/1
2M
ar/
13
Sep
/13
Ma
r/1
4Se
p/1
4M
ar/
15
Sep
/15
Ma
r/1
6Se
p/1
6M
ar/
17
Sep
/17
Ma
r/1
8Se
p/1
8M
ar/
19
EPS Growth
-10%
0%
10%
20%
30%
40%
0
50000
100000
150000
200000
Mar
/04
Sep/
04M
ar/0
5Se
p/05
Mar
/06
Sep/
06M
ar/0
7Se
p/07
Mar
/08
Sep/
08M
ar/0
9Se
p/09
Mar
/10
Sep/
10M
ar/1
1Se
p/11
Mar
/12
Sep/
12M
ar/1
3Se
p/13
Mar
/14
Sep/
14M
ar/1
5Se
p/15
Mar
/16
Sep/
16M
ar/1
7Se
p/17
Mar
/18
Sep/
18M
ar/1
94x
6x
8x
10x
12x
EBITDA Growth
0%
10%
20%
30%
40%
0
500
1000
1500
2000
2500
Ma
r/0
4N
ov/
04
Jul/
05
Ma
r/0
6N
ov/
06
Jul/
07
Ma
r/0
8N
ov/
08
Jul/
09
Ma
r/1
0N
ov/
10
Jul/
11
Mar
/12
No
v/1
2Ju
l/1
3M
ar/
14
No
v/1
4Ju
l/1
5M
ar/
16
No
v/1
6Ju
l/1
7M
ar/
18
No
v/1
8
RoE
1.0x
2.0x
3.0x
4.0x
Balkrishna Industries Ltd. Absolute –ADD Relative – BENCHMARK 7% ATR in 14 Months
November 9, 2017 Analyst: Ashutosh Tiwari [email protected] (+91-8128694112, +91 79-40504017) Page 9 of 12
Historical Consolidated Financials
P&L (Rs Mn) FY14A FY15A FY16A FY17A
Balance Sheet (Rs Mn) FY14A FY15A FY16A FY17A
Cash Flow (Rs Mn) FY14A FY15A FY16A FY17A
Revenue 37,719 38,168 32,895 37,838 Equity Capital 193 193 193 193 PBT 7,062 7,133 6,743 10,586
Op. Expenditure 28,822 28,236 24,671 26,529 Reserve 18,757 22,566 27,555 35,235 Depreciation 1,703 2,437 2,823 3,040
EBITDA 8,896 9,933 8,223 11,310 Networth 18,951 22,760 27,748 35,429 Others 379 437 1,421 1,158
Depreciation 1,703 2,437 2,823 3,040 Long Term Debt 24,120 23,574 12,902 7,970 Taxes Paid 1,772 2,125 2,342 3,418
EBIT 7,193 7,496 5,400 8,270 Def Tax Liability 2,212 1,903 2,669 3,805 Change in WC -1,355 1,959 2,084 -2,714
Interest Expense 273 476 395 220 Minority Interest 0 0 0 0 Operating C/F 6,017 9,841 10,729 8,653
Other Income 141 114 1,737 2,536 Account Payables 4,648 4,595 3,411 3,744 Capex -8,858 -3,699 -2,387 -2,043
PBT 7,062 7,133 6,743 10,586 Other Curr Liabi 290 354 7,253 6,943 Change in Invest -3,668 -771 -3,151 0
Tax 2,316 2,408 2,285 3,418 Total Liabilities & Equity 50,221 53,185 53,984 57,891 Others 230 101 18 0
PAT bef. MI & Assoc. 4,746 4,726 4,457 7,169 Net Fixed Assets 23,890 25,731 28,588 28,411 Investing C/F -12,296 -4,369 -5,520 -2,043
Minority Interest 0 0 0 0 Capital WIP 5,656 4,763 2,311 1,097 Change in Debt 4,319 -608 -4,985 -4,932
Profit from Assoc. 0 0 0 0 Others 5,887 2,256 1,657 2,051 Change in Equity 0 8 0 285
Recurring PAT 4,746 4,726 4,457 7,169 Inventory 5,684 4,114 3,983 4,761 Others -669 -702 -1,269 205
Extraordinaires 0 0 40 -1,158 Account Receivables 6,138 5,797 3,850 4,118 Financing C/F 3,649 -1,302 -6,254 -4,442
Reported PAT 4,746 4,726 4,418 8,326 Other Current Assets 2,796 2,317 2,024 3,714 Net change in cash -2,631 4,170 -1,045 2,167
EPS (Rs) 49.1 48.9 46.1 74.2 Cash 170 8,207 11,573 13,740
RoE (%) 28 % 23 % 18 % 23 %
DPS (Rs) 2.0 2.4 5.6 8.0
Total Assets 50,221 53,185 53,984 57,891
RoIC (%) 12 % 11 % 10 % 16 %
CEPS (Rs) 66.7 74.1 75.3 105.6 Non-cash Working Capital 9,680 7,279 -807 1,906 Core RoIC (%) 12 % 12 % 10 % 17 %
FCFPS (Rs) -63.1 59.9 56.6 69.9 Cash Conv Cycle 93.7 69.6 -9.0 18.4 Div Payout (%) 5 % 6 % 14 % 11 %
BVPS (Rs) 196.1 235.5 287.1 366.5 WC Turnover 3.9 5.2 -40.7 19.9
P/E 37.2 37.4 39.6 24.6
EBITDAM (%) 24 % 26 % 25 % 30 % FA Turnover 1.3 1.3 1.1 1.3 P/B 9.3 7.8 6.4 5.0
PATM (%) 13 % 12 % 14 % 19 % Net D/E 1.3 0.7 0.0 -0.2 P/FCFF -29.0 30.5 32.3 26.1
Tax Rate (%) 33 % 34 % 34 % 32 % Revenue/Capital Employed 0.9 0.8 0.7 0.8 EV/EBITDA 23.0 19.7 22.3 15.4
Sales growth (%) 11 % 1 % -14 % 15 %
Capital Employed/Equity 2.5 2.2 1.8 1.4
EV/Sales 5.4 5.1 5.6 4.6
FDEPS growth (%) 36 % 0 % -6 % 61 %
Dividend Yield (%) 0.1 % 0.1 % 0.3 % 0.5 %
Balkrishna Industries Ltd. Absolute –ADD Relative – BENCHMARK 7% ATR in 14 Months
November 9, 2017 Analyst: Ashutosh Tiwari [email protected] (+91-8128694112, +91 79-40504017) Page 10 of 12
Equirus Securities
Research Analysts Sector/Industry Email
Equity Sales E-mail
Abhishek Shindadkar IT Services [email protected] 91-22-43320643 Vishad Turakhia [email protected] 91-22-43320633
Ashutosh Tiwari Auto, Metals & Mining [email protected] 91-79-61909517 SubhamSinha [email protected] 91-22-43320631
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Rating & Coverage Definitions: Absolute Rating • LONG : Over the investment horizon, ATR >= Ke for companies with Free Float market cap > Rs 5 billion and ATR >= 20% for rest of the companies • ADD: ATR >= 5% but less than Ke over investment horizon • REDUCE: ATR >= negative 10% but <5% over investment horizon • SHORT: ATR < negative 10% over investment horizon Relative Rating • OVERWEIGHT: Likely to outperform the benchmark by at least 5% over investment horizon • BENCHMARK: likely to perform in line with the benchmark • UNDERWEIGHT: likely to under-perform the benchmark by at least 5% over investment horizon Investment Horizon Investment Horizon is set at a minimum 3 months to maximum 18 months with target date falling on last day of a calendar quarter. Lite vs. Regular Coverage vs. Spot Coverage We aim to keep our rating and estimates updated at least once a quarter for Regular Coverage stocks. Generally, we would have access to the company and we would maintain detailed financial model for Regular coverage companies. We intend to publish updates on Lite coverage stocks only an opportunistic basis and subject to our ability to contact the management. Our rating and estimates for Lite coverage stocks may not be current. Spot coverage is meant for one-off coverage of a specific company and in such cases, earnings forecast and target price are optional. Spot coverage is meant to stimulate discussion rather than provide a research opinion.
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Balkrishna Industries Ltd. Absolute –ADD Relative – BENCHMARK 7% ATR in 14 Months
November 9, 2017 Analyst: Ashutosh Tiwari [email protected] (+91-8128694112, +91 79-40504017) Page 11 of 12
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Analyst Certification
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certify that no part of my compensation was, is or will be, directly or indirectly, related to the specific recommendations or views expressed in this report.
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Balkrishna Industries Ltd. Absolute –ADD Relative – BENCHMARK 7% ATR in 14 Months
November 9, 2017 Analyst: Ashutosh Tiwari [email protected] (+91-8128694112, +91 79-40504017) Page 12 of 12
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Disclosure of Interest statement for the subject Company Yes/No If Yes, nature of such interest
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