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Weakness to linger for a couple of more quarters 

Industry OHT exports remained subdued in Jan’23, closer to Oct’22 lows, post spiking up in the seasonally strong Dec’23. Overall OHT export revenues were down 9% YoY in Jan’23 (up 6% FY23-TD) with the agri tyre segment down 12% YoY vs OTR down 3% YoY. In Jan’23, exports to the EU and US declined 9% and 18% YoY respectively. Due to container shortages globally and ~5x increase in container prices early CY22, distributors stocked up excess inventory (~10% higher than retail demand) between Mar-Jul’22. The destocking exercise started in Aug’22 and we expect it to persist till Q1FY24E, post which the quantum of exports should once again stabilise at ~US$140mn-145mn/month. Also, due to discontinuation of container surcharge rates getting passed on amidst declining container rates, realisation levels for OHT exports, we believe, would have contracted by ~6-8% from Q2FY23 levels. This would impact India’s monthly OHT export value. For BIL, we believe, post a subdued Q3FY23, volumes should remain at sub-70kte in Q4 too, with normalised 75kte quarterly volumes coming only from Q2FY24E onwards. We are building-in FY24E volume growth at ~8% YoY, with realisation/kg at ~Rs310. Maintain BUY with an unchanged DCF-based target price of Rs2,378, implying 22x FY25E EPS.

* OHT industry exports remain subdued post a seasonal upswing in Dec’23: India’s OHT exports contracted by ~9% YoY to US$134mn in January 2023 as against Dec’22 levels of US$152mn and past 6-month average of US$141mn. Agri tyre exports declined 12% YoY vs industrials being down 3% YoY. With retail demand commentary by major players being largely steady till date in both the segments, we believe the contraction in export volumes is due to inventory destocking and the ~6-8% cut in prices to pass on decline in container rates. We believe, by Q1FY24-end the inventory levels would be back to normal and start to grow YoY with rise in retail demand. Thus, till Jun’23, we expect monthly OHT exports to remain sub-US$140mn

* BIL destocking higher than peers in sync with its faster stocking-up: As per commerce ministry data, BIL has been consistently outperforming industry exports on YoY basis and has finally breached the 60% market share mark in H1FY23 from an average share of 50% over the past three years. This implies that against potential industry volume decline of ~5-6% QoQ, BIL volume decline would be larger in the period between 3QFY23 to 1QFY24, in order to reduce excess inventory. This would result in lower than 50% value share within India OHT exports in this period. With raw material cost declining, EUR-INR turning favourable, container rates down ~70% from Apr-May’22 highs, we believe there are enough margin triggers for BIL to boost its earnings outlook despite negative demand catalysts ahead.

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