IGI Logo

Industry export trends remain robust

Balkrishna Industries’ (BIL) key export markets reported strong demand trends with Sep’21 industry exports up 31% YoY. Latest data (Sep’21) indicates continued momentum in OTR segment (up 32% YoY) even as agri (Ag) demand growth remained sturdy at ~31% YoY. Data continues to support the robust demand momentum driven by both Ag and OTR segments: FY22-YTD industry exports are up ~60% YoY on US$ basis. Regionally, growth in Sep’21 was led by RoW (up 49% YoY) followed by US (28%) and EU (24%). Recent decline (~23% since Q1FY22) in international rubber prices (Chart 7) bodes well for margins in H2FY22. Stronger-than-expected capex from key industrial customers remains a key upside risk to our revenue growth assumption of ~31% YoY for FY22E (~22% volume). Valuations have turned reasonable. Upgrade to BUY.

* Overall export growth continues as OTR rebounds: On end-product basis, growth sustained in Ag tyres (up ~31% YoY) and contributed ~67% of total exports (down 15bps YoY). On the OTR side, momentum was also strong at 32% growth YoY, signaling uptick in mining and construction segment. We believe the outlook for global Ag exports remains steady under the rising input price environment. OTR demand is also likely to be supported by infrastructure / mining investments across key regions (e.g. US, EU) as renewed infra push leads to pick-up in investments.

* US supports growth spurt in agri as EU backs OTR: On regional basis, US delivered strong growth (in both Ag and OTR segments) at ~28% YoY and EU followed at ~24% YoY. The two regions together represent ~70% (down 352bps) of Sep’21 exports. On the flip side, RoWs growth momentum heightened to ~49% YoY (contribution up 352bps) as economies approach normalcy. Growth in RoW exports – driven by Australia (up 125% YoY), Brazil (119%) and Canada (85%) – reflects a more broad-based improvement across regions and segments (OTR/agri). In the EU, Germany (up 79%), Portugal (up 82%) and Russia (140%) drove growth even as large economies of France, Spain and Italy witnessed modest growth (up ~3% cumulative). On sub-segment basis, OTR growth was driven by RoW (up ~34% YoY) followed by EU (33%), on the Ag side as well, RoW and US witnessed growth of ~63% and 28%, respectively.

* Upgrade to BUY: As BIL reaches high (~85-90%) utilisation in FY23E (assuming ~19% revenue CAGR over FY21-FY24E), we expect RoCEs to improve to ~28%, and FCF generation to surpass Rs46bn (cumulatively over FY22E-FY24E). The export-incentive scheme (RoDTEP) may also provide additional boost to profitability. The recent price correction (>10%) has made valuations reasonable at 22x Sep’23 EPS. We value BIL at unchanged multiple of 26x Sep’23 EPS (Rs109) to arrive at an unchanged target price of Rs2,837. We upgrade our rating to BUY from Add.

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