IGI Logo

Industry export trends remain robust

Balkrishna Industries’ (BIL) key export markets reported strong demand trends with Feb’22 industry exports up 20% YoY. Though the data indicates continued momentum in OTR segment (up 20% YoY) and sturdy agri demand at ~20% YoY, overall sales are flattish QoQ, in line with management commentary of lower supply due to capacity constraints. Data continues to support the robust demand momentum driven by both agri and OTR segments (FY22-YTD industry exports are up ~47% YoY on USD basis). Regionally, growth in Feb’22 was led by RoW (up 25% YoY) followed by the US and EU at 18% YoY each. Recent inflation (~12% since Q3FY22) in international rubber prices (chart 7) coupled with capacity constraints are likely to sustain pressure on H1FY23E margins. Decadal-high US new housing construction starts and higher infra/mining investments across key markets of US/EU lend realism to our revenue growth assumption of ~15% CAGR over FY22-FY24E (~12% growth in volumes). Maintain BUY.

Overall export growth continues as OTR rebounds: On end-product basis, growth sustained in agri tyres (YTD-FY22 up ~45% YoY) and contributed ~68% of total exports (down 76bps YoY). On the OTR side, momentum remains strong at YTD-FY22 growth of 51% YoY, matching the commentary from global peers, signaling uptick in mining and construction segments. We believe the outlook for global agri tyre exports remains steady as orderbooks of peers worldwide continue to be strong amid a rising input price environment.

US supports growth spurt in agri as EU backs OTR: On regional basis, the US delivered strong growth in agri segment at 25% YoY while EU led OTR growth at ~39% YoY. The two regions together represent ~73% (down 120bps) of Feb’22 exports. On the flip side, RoWs’ growth momentum heightened to ~25% YoY as most economies approach normalcy. Growth in RoW exports – driven by Brazil (up 102% YoY), Argentina (172%) and UAE (127%) – reflects a more broad-based improvement across regions and segments (OTR/agri). In the EU, Germany (up 26%), Belgium (49%) and Netherlands (18%) drove growth even as the large economies of France, Spain and Italy witnessed modest growth (up ~10% cumulative). Russia and Ukraine together contribute a mere ~3.5% of overall exports on YTD basis (~3.4% in Feb’22).

Any near-term derating presents a great opportunity to enter for long-term compounding; maintain BUY: BIL, with its cost arbitrage advantage vs peers, is able to price its products at discount to global peers and in turn make an RoCE of ~20-25%, thus enabling sustainable FCF generation. Factoring-in 11.5% WACC and 5% terminal growth in DCF, we arrive at a multiple of ~22x FY24E P/E and maintain our target price of Rs2,516. We believe any stock price correction in light of crude price surge and capacity constraints provides a good opportunity to 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