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You are here : IndiaNotes >> Research & Analysis >> Companies >> Balkrishna Industries Ltd. >> Research

Balkrishna Industries: Accumulate

Manu Jain | 09 Jul, 2012  | Follow Author | Add to my Favourites 


Balkrishna Industries (BKIL) reported 35% YoY revenue growth in Q4FY12 led by higher volumes and realizations. The increase in volumes was ~19% and the increase in realizations was~15%. EBITDA margins improved 110bps to 17.1% due to lower rubber prices and price increase in the previous quarter. Profit after tax inclined 47% on a YoY basis to 76.3 crores. Debt during the quarter increased due to capex undertaken by the company. The company is expanding its capacity through a green field facility at Bhuj, Gujarat. The company has delivered excellent performance during the last five years with a CAGR of 30% in earnings and average RONW of 26%+.

BKIL is a niche player in the tyre segment with a presence in OHT Segment. OHT stands for “Off-Highway Tyres” such as those used in highway farm equipment and earth moving equipment. The company invests heavily in R&D too. The products are produced in a short amount of time in-house within a matter of a few weeks. All Analysts/Brokers covering the stock expect revenue CAGR of 20-30% and earnings CAGR of 19-20% in the next two years. The company’s expansion plan is set to come up in two phases - a) Brownfield - 27000 MT in Rajasthan and b) Greenfield - 1,20,000 MT in Bhuj, Gujarat. Since raw material prices (that of rubber) have corrected significantly, the EBITDA margins are expected to improve going forward. An example was the Q4FY12 performance where EBITDA margins improved 110 bps. The tyres produced by BKIL cater to earth moving equipment, agricultural, forestry and lawning equipment. The fact that BKIL is a low cost manufacturer and caters to a niche segment spells good times for it going ahead. 90% of the company’s revenue comes from overseas markets and the remaining 10% comes from India. This and the fact that it caters to OHT segment implies that it has no comparable listed peers in India. Also what augurs well for the company is a depreciating currency since it is predominantly an exporter. The tyres are priced at a discount to competitors and hence even in recessionary times there is less chance of losing market share.

Key risks to the recommendation are -
a) Any escalation in the cost of raw materials
b) Forex related risks

Valuation Matrix

 

 

 

 

 

CMP

270.15

Rs

 

 

 

 

Sales

NP

P/E

P/Bv

ROE (%)

FY13E

34879.5

3215.5

8.107441

1.835297

21.25%

FY14E

41298

3756

6.940755

1.465771

23.48%

 

Projections

Consolidated

Rs Mns

FY13E

FY14E

Sales

34879.5

41298

EBITDA

6417.5

7534.5

EBITDA M

18.40%

18.24%

PBT

4781.5

5461.5

PBT M

13.71%

13.22%

PAT

3215.5

3756

No of Shares

 

 

Mns

96.5

96.5

EPS

33.32124

38.92228

Debt

 

23062.5

Interest

 

933.5

NW

14204.5

17785.5

ROE

21.25%

23.48%

BVPS

147.20

184.31

#Consensus Estimates

 

 


Balkrishna Industries

 

FY14E

 

 

 

Debt

23062.5

t rate

0.325

 

 

Networth

17785.5

Beta

0.4

 

 

D+E

40848

D/(D+E)

0.564593

 

 

ROE

23.48

E/(D+E)

0.435407

 

 

TGR

2

Interest

933.5

RFR

 

WACC

6.218848

Risk Prem

6

8.34

 

Cost of Debt

 

2.732195

WACD

1.542579

 

Cost of Equity

 

10.74

WACE

4.67627

 

 

 

 

 

 

 

TGR/WACC-TGR

 

0.474063

 

 

 

ROE-WACC

 

17.26115

 

 

 

ROE*WACC

 

146.0186

 

 

 

((TGR/WACC-TGR)*((ROE-WACC)/(ROE*WACC))

 

5.603995

1/WACC*100

 

 

 

 

16.08015

JUSTIFIABLE P/E

 

 

 

 

21.68414

 

 

 

 

 

 

Coloured Cells are output cells and not to be touched

 

 

 

 

 

 

 

Method 2

 

 

 

 

 

g

0.02

 

 

 

 

1+g

1.02

 

 

 

 

DPS

1.8

 

 

 

 

EPS

38.92228

 

 

 

 

1-D Payout

0.953754

 

 

 

 

r

0.062188

 

 

 

 

Justifiable PE

 

23.05911

 

 

 

TP

897.5133

 

 

 

 

 

 

 

 

 

 

Method 3

 

 

 

 

 

Div Payout Ratio

 

0.046246

 

 

 

COE

 

0.1074

 

 

 

Ret Rate

 

0.953754

 

 

 

Exp Growth in Div

 

0.102433

 

 

 

Justfiable P/E

 

9.310987

 

 

 

PT

 

362

 

 

 

(Inputs into the spreadsheet based on consensus estimates)

Valuation and Recommendation:
The stock is attractively valued at 8.1x and 6.9x FY13e and FY14E EPS estimates. Value the stock at 9.3x FY14E EPS to arrive at a price target of Rs362. Expect an upside of ~34% in the Medium term. Reiterate Accumulate.

Disclaimer: The author has taken due care and caution to compile and analyze the data. The recommendations are his/her personal views. He/she shall not accept any liability whatsoever arising from the use of any of the above content.

Sources have been mentioned at relevant places in the article. In spite of this, the author does not guarantee the accuracy, adequacy or completeness of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information.

The author does not hold positions in the stock.



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About Manu Jain

Manu Jain is a Market/Investment Analyst based in Delhi. He can be contacted at manujain1232003@yahoo.co.in or his blog http://talkmanujain.blogspot.com/


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Disclaimer: The author has taken due care and caution to compile and analyse the data. The opinions expressed above are only the views of the author, and not a recommendation to buy or sell. Neither the author nor IndiaNotes.com accept any liability whatsoever arising from the use of any of the above contents.


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