Buy Balkrishna Industries Ltd : Healthy performance, consistency merit premium - ICICI Direct
Buy Balkrishna Industries Ltd For Target Rs.2,825
Healthy performance, consistency merit premium…
About the stock: Balkrishna Industries (BIL) is the leader in the niche tyre segment used in heavy machinery for mining and agriculture purposes.
* Exports form lion’s share of its sales at ~80% of its revenues
* Channel mix: replacement account for ~70% while OEM share is pegged at ~26%. Agriculture accounts for ~64% of volumes with OTR share at ~32%
* It has consistently operated with high (>20%) margins & return ratios.
Q1FY22 Results: BIL reported healthy Q1FY22 results.
* Standalone net sales at | 1,813 crore were up 3.8% QoQ
* EBITDA margins at 28.3% were lower by 276 bps QoQ
* Consequent PAT at | 331.2 crore declined 11% sequentially.
What should investors do?
BIL’s share price has grown by ~7x over the past five years (from ~| 375 in August 2016), thereby vastly outperforming Nifty Auto index
* We retain BUY rating on the stock given its consistent, healthy financials
Target Price and Valuation: We value BIL at revised target price of | 2,825 i.e. 36x P/E on FY23E EPS (earlier target price | 2,250)
Key triggers for future price performance:
* Ambition to double global market share to ~10% vs. 5% currently
* Robust demand in the agriculture segment to propel volume growth
* Aggressive brownfield expansion and backward integration in place
* Net debt free b/s, double-digit return ratios & strong cash generation.
Alternate Stock Idea: In our auto ancillary coverage we like JK Tyre.
* Walking the talk on b/s deleveraging, sweating of assets & capital efficiency
* BUY with a target price of | 180
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