Down 10% in 2 days, this tyre stock may remain under pressure amid capex plans
Investors are however skittish about the company’s decision to increase the capacity of carbon black a key ingredient for tyre making.
Synopsis
The tyre capacity expansion, which will be completed by the second half of FY23 is aimed at catering higher demand and has an estimated payback period of four years at the profit before tax level.
ET Intelligence Group: Balkrishna Industries’ decision to increase the extent of carbon black supply to third parties by expanding the existing plant capacity has not gone well with investors given the lower margin profile of the activity compared with the company’s overall operating margin. The stock of the off-highway tyre maker has lost 10% in the two trading sessions after the announcement on Monday evening. Its premium valuation over peers
Balkrishna Industries consolidated net profit jumped 45.3% to Rs 325.07 crore on a 30.6% increase in net sales at Rs 1,509.23 crore in Q3 December 2020 over Q3 December 2019.
Consolidated profit before tax (PBT) surged 53.7% to Rs 427.57 crore in Q3 December 2020 as against Rs 278.27 crore in Q3 December 2019. Current tax expense for the quarter soared 50.6% to Rs 99.38 crore as against Rs 65.97 crore in Q3 December 2019. The board has declared a third interim dividend of Rs 5 per equity share.
The company said the demand continues to be strong in agriculture segment across geographies. In the other segments, demand continues to remain stable more or less stable post the recovery in the end markets of industrial, construction and mining segment. With 9M FY21 volumes of approximately 1,59,130 MT, we are increasing our guidance for FY21 and expect to end FY21 with sales volume of 2,15,000-2,20,000 MT. We strongly believe this demand trend to continue in FY22 and years to come.