IGI Logo

CY21 starts with robust demand growth

Balkrishna Industries’ (BIL) key export markets have reported robust demand (Feb’21 industry exports grew 24% YoY). The latest industry export data (Feb’21) maintained a balance with agri (Ag) demand (up ~23% YoY), while OTR grew at 25%. The latest data continues to support the V-shaped demand rebound: YTD/QTD industry exports are up 11%/27% YoY respectively. On a regional basis, in Feb’21, growth was led by US (up 39% YoY), followed by the RoW region (up 36%) while EU grew 12% (base effect). The pace of export growth in 4Q currently remains ahead of consensus expectations. As BIL reaches peak utilisation in FY23E (assuming ~18% revenue CAGR over FY20-FY23E), we expect the strong RoICs of >25%, justifying its valuation premium vis-à-vis peers. Maintain BUY. Key downside risk: Meaningful change in demand outlook.

* Overall export growth continues as OTR rebounds: Agri and OTR segments together grew at a healthy ~24% YoY in Feb’21. On an end-product basis, growth sustained in Ag tyres (up ~23% YoY) and contributed ~68% of total exports (down 22bps YoY). On OTR side, momentum is picking up with 25% growth YoY in Feb’21 which potentially signals steady increase in mining, construction offtake.

* US region supports growth spurt: On a regional basis, US delivered strong growth (Ag + OTR) at ~39% YoY while RoW followed at ~36% YoY. The two regions together represent ~72% of Feb’21 exports. On the flip side, EU region growth momentum moderated down in Feb’21 at 12% impacted by high base, covid resurgence. Growth in RoW exports driven by Australia (up 38%), Brazil (up 55%) and South Africa (up 230%) reflects a more broad-based improvement across regions and segments (OTR/Agri). In EU, Netherlands (up 90%), Portugal (up 118%) and Italy (up 28%) drove growth even as other larger economies of France, Spain and Germany witnessed modest growth (~4% cumulative growth). On a subsegment basis, OTR growth was driven by US (up ~57% YoY) followed by RoW, grew 23%, while EU grew a modest 4%. However, on the Ag side, EU and RoW grew rapidly (up ~31% and 19%, respectively).

* Agri exports continue on growth trajectory, OTR too enters growth cycle: After the initial covid-induced demand shock (~23% decline YoY) in Q1FY21, exports posted a V-shaped recovery of 32% growth in Q2 and reported 15% growth in Q3 hit by the second wave. This has led to the overall industry clocking ~11% growth YTD. We believe the outlook for global Ag exports remains strong under the rising commodity price environment. OTR demand is also likely to be supported by infrastructure/mining investments in FY22 as commodities outlook remains firm.

* Maintain BUY: We expect healthy FCF generation of ~Rs20bn over FY22E/FY23E even after factoring in Rs20bn of capex over the same period. We maintain our target price of Rs1,937 (unchanged target PE multiple:22x FY23E). Maintain BUY.

To Read Complete Report & Disclaimer Click Here

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

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