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Healthy volume growth boosts overall performance Demand outlook remains uncertain

* BIL’s 4QFY24 overall performance significantly beat our estimates, led by strong growth in volumes. EBITDA margins came in at 26.3% (+500bp YoY) due to lower RM and other costs, despite a rise in freight costs (+200bp YoY). The management indicated that demand recovered well in 4Q but remains uncertain.

* We raise our FY25E/FY26E EPS by ~12% each to factor in a gradual pickup in demand and resultant margin improvement. We reiterate our Neutral rating with a TP of INR2,535 (~22x Mar’26E EPS).

ASP improves QoQ due to better mix, freight cost pass-through

* BIL’s standalone 4QFY24 revenue/EBITDA/PAT grew 16%/44%/90% YoY to INR27b/INR7.1b/INR4.9b (vs. est. INR23.5b/INR5.7b/ INR2.9b). FY24 consol. revenues declined 7% YoY, but EBITDA/adj. PAT grew 15%/34% YoY.

* Volumes grew 13% YoY to 82.1k tons (est. 73.95k tons). Realizations grew 3% YoY to INR328.6k/unit (est. INR318.4k). Realization grew sequentially, mainly led by a better mix, pass-through of high freight costs and better hedge rates, despite no price hikes in 4Q.

* Gross margins expanded 4pp YoY (+130bp QoQ) to 53.3% (est. 51.8%). There was an adverse impact of freight costs (up 200bp YoY as % of sales) due to the Red Sea crisis. Despite this, EBIDTA margin improved by 5pp YoY to 26.3% (est. 24.1%), adjusted for the EPR provision of INR112.5m.

* Adj. PAT beat was driven by forex gains, higher other income and a lower tax rate.

* The board declared a dividend of INR16/share for FY24, flat YoY.

* FCFF stood at INR10b in FY24 (vs. cash outflow of INR3b in FY23), mainly due to strong operating cash flow of INR20.8b (vs. INR14.5b in FY23) and lower capex of INR10.8b (vs. INR17.5b in FY23).

Highlights from the management commentary

* Retail demand improved in 4Q, outlook remains uncertain: 4Q demand was ahead of the management’s guidance as demand picked up in key regions in 4Q. However, the management refrained from giving any volume growth guidance for FY25 as the demand outlook in key regions remains uncertain due to the ongoing geopolitical tensions.

* RM cost hike to be offset by price hikes: The management expects a rise in RM costs by only INR1-2/kg in 1QFY25, despite a rise in rubber prices in international markets, as BIL has some stock in inventory and some in transit. To mitigate this impact, BIL plans to hike prices in 1QFY25.

* Carbon black sales: FY24 carbon black sales formed 7% of total revenues, which is expected to scale up to 8-9% in FY25. Its current capacity for carbon black stands at 170k tons, which is expected to reach 200k tons. Capacity utilization stands at ~85-90%.

Valuation and view

* Retail demand in key global markets is currently on an upswing, while demand in India also remains healthy. However, the management has refrained from giving volume guidance for FY25 due to ongoing geopolitical issues. We expect BIL to continue to outperform the specialty tyre industry, driven by the expansion of its product portfolio and the ramp-up in the OTR segment, providing opportunities to strengthen its competitive positioning.

* Current valuations fairly reflect its industry-leading margin, FCF, and capital efficiencies. It currently trades at a P/E multiple of 31x/25x FY25E/FY26E EPS. We reiterate our Neutral stance on the stock.

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