IGI Logo

A quarter of consolidation is still left

Post stocking up of inventory at distributor level in end markets between March and July CY22, India OHT exports have consolidated since August, facilitating de-stocking amidst steady retail demand. Size of OHT exports bottomed out in Oct’22 at ~US$130mn vs Mar-Jul’22 average exports of ~US$170mn and is now exporting ~US$140mn, in line with the average of past six months, implying stability and consolidation. We expect favourable base for OHT exports out of India to start August onwards, implying three more months of decline in exports value. For Balkrishna Industries (BIL), as against long term average share within India OHT exports at ~50%, it moved up to ~59% in H1FY23, driven by excess stocking at dealer level. This saw a sharp reversal in Q3FY23 with mean reversion in inventory levels taking the share down to ~36% and is now back at ~53%. April overall OHT exports were down 13% YoY, with agri OHTs showing signs of revival from October lows vs OTRs still remaining subdued. We are building in 5%/12% volume growth for BIL in FY24E/FY25E with EBITDAM at 22%/24.5%, respectively. Maintain ADD with DCF-based TP of Rs2,577 (earlier Rs2,468), implying 26xFY25E EPS. Change in target price is purely driven by earnings rollover by a quarter in DCF.

* India OHT exports consolidating since August 2022: Since the lows of OHT exports out of India in Oct’22 at US$130mn, it has been steady around US$140mn/month level, with YoY decline of ~10-12%. We expect this trend of consolidation to persist till July’23, post which base effect will turn favourable along with destocking exercise also largely getting over. This would imply five months of excess inventory build-up getting liquidated over a year, impacting India OHT exports growth in FY23 and partly in FY24. We believe with container rate deflation and raw material basket correction largely getting priced in, going ahead, revenue growth would largely follow volume and mix change. With industry witnessing the impact of elevated base in H1FY23 till July, we are building in 5% volume growth for BIL in FY24, implying quarterly mean volume of ~79k tons vs Q4FY23 level of ~72k tons.

* BIL’s share of India OHT tyre exports back at ~53%, in line with long-term mean levels in Q4FY23: BIL’s share within India OHT exports recovered to ~53% in Q4FY23 from lows of ~36% in Q3FY23, highs of ~60% in H1FY23 and long-term average of ~50%, with recovery in US being much stronger QoQ for BIL vs EU. Also, with majority of decline on YoY basis being in the OTR segment at ~20% vs ~10% for agri segment, volume decline for BIL may now look lower than industry exports from India in coming months, thus, further pushing up the share. As against stable volume of ~75k tons a quarter in FY22, we expect BIL to enter the growth phase and start reporting ~80k tons a quarter H2FY24 onwards. We are building FY24 volume of BIL at 316k tons, up ~5% YoY.

To Read Complete Report & Disclaimer Click Here

For More ICICI Securities Disclaimer https://www.icicisecurities.com/AboutUs.aspx?About=7  

SEBI Registration number is INZ000183631

Above views are of the author and not of the website kindly read disclaimer