Balkrishna Industries

(Donald Francis) #101

The PE firm is estimated to be sitting on modest unrealised gains on its 7-year-old investment in public listed firm.

Private equity firmChrysCapital, is looking to sell off its entire 9.59 per cent stake in the listedBalkrishna Industries Ltd, the largest Indian manufacturer of off-highway tyres (OHT).

ChrysCapital had acquired the stake…

(Vivek Gautam) #102

Chrysler capital has been one of the best investor n more importantly exits at right time.numerous example like Suzlon,Bharti,Shriram group are there .so their exiting BkT is a very important event.Why have they exited at this juncture fully.

(Abhishek Basumallick) #103

That is something which concerns me as well. But on the other hand, it is good that part of the offloaded stake has been picked up by the four largest mutual fund houses in India - Reliance, SBI, ICICI and Franklin.

(Donald Francis) #104


Meeting with Balkrishna Industries Senior Management coming up next week.

Please fire away your questions and help us make the most of the opportunity.



(Vishu Anand) #105

I have the following questions:

1). As rubber prices have corrected in the last few months, is the company planning to cut prices of their products? Whatâs the expected EBITDA margin going forward?

2). Is the company witnessing any slowdown in sales both abroad and India?

3). How much is the sales expected to be increased during the next few years and what will drive the growth (new markets, growth in existing markets, pricing power). How much has the market been growing as a whole?

4). How is the expansion going and when is the plant expected to be ready

5). Alliance tire Group (ATG) is also undertaking a $160mn expansion; how would this impact the overall market and wouldnât this put pressure on companyâs margins?

(TCX) #106

Heard on the Street: Balkrishna Industries rises as top fund houses buy stock

Jul 5, 2012, 06.41AM IST

Leading fund houses have been accumulating shares of tyres and rubber product manufacturerBalkrishna Industrieson the back of declining raw material prices. Six leading fund houses have been buying shares of the company at every opportunity over the past two days market sources said.

According to analysts, the company is likely to post good earnings, thanks to declining rubber prices. Slowing global demand and the ongoing crisis in Europe have impacted rubber pricesin a big way. RT1, the benchmark for international rubber prices, has fallen by over 20% over the past six months.

Lower rubber prices benefit tyre companies in a big way as it accounts for a major part of the operating expense. Shares of Balkrishna Industries ended 5.1% higher at Rs 271.9 on theBSEon Wednesday.

(TCX) #107

ChrysCap sells over 9% stake in Balkrishna Industries for $38M


The PE firm has pocketed modest returns on its seven-year-old investment, as per VCCircle estimates.

Private equity firm ChrysCapital has sold off most of its 9.59 per cent stake in the public-listed Balkrishna Industries Ltd, selling over nine million shares in the largest Indian manufacturer of off-highway tyres (OHT) for Rs 217 crore…

(TCX) #108

IIFL recommends 'Buy' on Balkrishna Industries

India Infoline News Service / 09:19 , Jun 05, 2012

During the post-result conference call, the management indicated that production from the greenfield project in Gujarat is likely to commence from 2QFY12

IIFL Institutional Equities, a part of the IIFL Group, one of the leading players in the Indian financial services space, recommends âBuyâ Balkrishna Industries.

According to IIFL report, Balkrishna Industriesâ (BIL) 4QFY12 net sales increased 42% YoY to Rs7.9bn, in line with estimates. However,the47% increase in PAT to Rs763m was below our estimate of Rs815m.

Thebelow-estimate PAT was primarily due to higher-than-expected raw material cost.

Duringthepost-result conference call,themanagement indicated that production fromthegreenfieldproject inGujaratis likely to commence from 2QFY12, report stated.

IIFL said, â We expect raw material expenses, primarily of natural rubber, to be largely stable and expect volume growth to improve from 2HFY12 following commencement of production fromthenew capacity."

Given stable raw material expenses and improved volume growth, we expect BIL to record 24% earnings Cagr over FY12-14. We maintain our BUY rating onthestock, brokerage added.

The report was published by IIFLâs Institutional Equities Research desk.

(TCX) #109

null Analyst Meet / AGM 04-Jun-12 null
Conference Call
Balkrishna Industries
Bhuj Greenfield capacity to commence commercial operations by end of Q2FY13
Balkrishna Industries came out with financial results for the quarter ended March 12 and conducted concall to discuss financial performance and prospects of the company. Arvind Poddar Vice Chairman and Managing Director, Anurag Poddar â Executive Director, B K Bansal Director Finance addressed the call

Highlights of the call are:

  • The company has reported 47% jump in the Net Profit at Rs 76.27 crore over 39% increase in the total income from operations at Rs 788.55 crore for the quarter ended March 12. Tonnage sales grew 19% growth to 36358 MT.
  • For the year, the company has posted 48% increase in the net sales at Rs 2794.82 crore; thanks to 19% increase in volumes at 133040 MT. Strong growth in the revenues has led to 45% increase in the Net Profit at Rs 268.52 crore. The company has mitigated sharp rise in the NR prices in the year and reported strong profit. Growth has come across all geographies in Europe, USA, and Asia etc.
  • However, in light of ongoing European debt crisis, the management noted that they have witnessed demand slow down in the European markets during the first two months of FY13. The share of revenues from Europe is expected to correct from 46% in FY12 to 43% in FY13. This gap is covered by healthy demand growth in American replacement market.
  • Average Rubber prices for the quarter were USD 3500 per MT. Expecting further fall in the NR prices, the company has tied up for 2-3 months production by way of forward contracts on an average of USD 3300 per MT. The company imports its all raw material products. Even considering depreciation of rupee at 56 levels against USD, the imported NR is cheaper by Rs 12-15 per Kg. Since the company exports its finished products, it enjoys nil duty imports. The company exports its tyres under Advance license scheme (with benefits of 5-6% of sales).
  • The company doesn't hedge its export book to USA as it has natural hedge by importing the raw materials. However, it has hedged European orders at around Rs 70 per Euro for the next 12 months.
  • The company plans to increase current capacity by 12000 MT through debottlenecking, there by taking the total capacity to 1,56,000 MTPA. Green field Bhuj Green field capacity is running as per schedule and is expected to commence operations by end of September 12. However, full capacity utilization from this plant will be in FY15. While first tranche of USD 175 million of the total capex (USD 275 million) was drawn (at libor + 265 bps) already, the company has tied up for the remaining portion of USD 100 million (at libor + 320 bps). The company can gain 1-2.5% improvement in margins post Bhuj expansion on the back of logistics cost and fuel cost. The share of Agriculture and OTR tyres was 64% and 33% for FY12. Post full commissioning of Bhuj plant, the mix would become equal.
  • The company is maintaining 20% price differential from the leading players in Europe and USA markets. There is no scope for the downward revision of prices in current situation.
  • The company has spent capex of Rs 623 crore for FY12. It expects to spend Rs 750 crore towards Bhuj capacity and Rs 30 crore for debottlenecking and Rs 30 crore as regular maintenance, totaling to around Rs 800-810 crore in FY13. Total achievable capacity post Bhuj expansion is 276000 MTPA. Debottlenecking process is expected to be completed by end of Q3FY13.
  • The order book of the company at end of March 12 stands at Rs 64000 MT equivalent to order visibility for 5 months of volume sales.
  • Capital work in progress at end of FY12 stood at Rs 450 crore on standalone terms.

(Donald Francis) #110

Thanks Tcx. Useful links

We were missing your contributions:) Pls participate regularly when you can.


(Atul Sethia) #111

Some queries which came up after reading the recent concall & some recent co visit notes:

  1. Some more insight on European & US mkt scenario (considering shrinkage in Europe)

  2. tentative schedule for Bhuj capex

  3. Margins going forward in Agriculture & OTR respectively (considering the mix heading towards being even going forward)

  4. Current gap in pricing compared to Michelin/Bridgestone etc… Is the gap expected to narrow down considering that co doesnt intend to reduce prices in a hurry…?

  5. Plans for paper & other legacy biz.

  6. Steps co. is taking to reduce high transit time in delivery- as it results in higher debtor days/prolonged operating cycle etc.

(Donald Francis) #112


Quick update on BKT Management Q&A

BKT can do no wrong - it appears:))

As you might have noticed from its recent (and long-standing track record) that it manages the challenges in its environment very very smoothly. RM Going up or down, and Currency fluctuations up or down.

Rubber - there is a glut (2004-5 plantations coming off age in 2012 season. So prices are on a downtrend. Company has reduced inventory to 2 months from 5 months

Forex - RM import and US$ Sales (US & RoW) neutralise each other. Euro sales realisation was on an average Rs 62-63 basis in FY12, and this year its like Rs 70 basis. They are hedged simple 1 year forward on a rolling basis on the Euro. So whether rupee goes up or down, BKT is unaffected.

Bhuj Plant - execution on track

We are at a loss - to crack open any weakness - where can BKT falter??

Please wait for Management Q&A update. May take upto 2 weeks - next week in Delhi. Other quick takes on Management Q&As in Mumbai - Vinati, Ajanta Pharma, Pls check individual threads.



(Vivek Gautam) #113


(Subash Nayak) #114

Govind rubber has a very high Debt level. Majority of the Operating Profit goes into interest payment. Now they are planing to do 850cr (750cr for Dahej plant, and 100 cr for modernization). Seems to me a case of debt funded growth, which can fizzle out very quickly with worsening of any factor which can effect its operating profit.

(Vivek Gautam) #115

How are the latest results of BKT?

Also read today in chairman address of JK tyres about their new plant of OTR tyres coming on stream at Mysore. What could be its implication ? How is BKT facing slowdown abroad ?

(Donald Francis) #116

7 August BKT Industries Concall Transcript ( My quick notes)

1). Pricing - No pricing change in last 3-4 months

2). RM

Rubber - 135 down to 126 Rs/Kg

prices will soften further

Carbon Black & Nylon - not much changes

2). Order Book - run rate increased 10-11 K MT to 13-13.5 K MTper month. Some slowdown. Customers are taking cautionery steps- reducing tehir own inventory levels (like we hav done onRubber)

3). titan in Us, michelin in Eu - slowdown

effects will be minimal on us. as our business model is towardsreplacement market.

so sticking to guidance -160-165 K MTPA- oh yes. v much

4). Agri : OTR -new plant 55:45 in new plant ; 70:30 in oldplants

5). Capex -895 till june; FY13? another 500 Cr; balance will beincurred in FY1`4

6). Other Exp - variable in nature; increases in proportion tovariation in Sales. Exchange loss of 17 Cr on Sales & purchase transactions- thats more like a one-time hit; rest are variable in nature

7). Rm - prices on declining trend. No posssibility of priceincrease.

8). Eu situation vs Capex expansion - we will go ahead. confident to maintainguidance. Current situation - is going on for almost 4years.There may be impact on order flow…but our focus onreplace markets impact will be minimal

9). better Realisation - On account on better currency realisationrubber average cost - around 3500 $ per tonne. will come downto $3200 levels

10). OEm seg effected first in a recession situation. Peoplecontinue to operate the existing equipment - for which theyneed to keep buying replacement tyres.

11). mining & Construction - bullish - by Titan & others.

SKUs fro MIning mostly ready. Chopanki & Waluj plant we have smallcapacity OTR …we are just enhancing thisOut of total 30-35% is OTR. Mining will be around 9-10% . withnew plant OTR share will go to 45%

12). capex 600-700 Cr in FY13. another 500-600 in FY14.

13). Hedging

Exports 90% ; imports is 50% . Net exposure is 50% in Euro.rolling basis ----forward covers for next 12 months. euro 71rs; and $ 52-53;BS : no hedging: repayment is 3 yeras later

20 Cr forex loss - purely notional. On the working capitalborrowings

13). Radial share will go upto 35% from 25% earlier.

14). Titan or MIdas expansions. Dont have much idea about our

peers. Dont think they are expansing in any big way

15). Global otr market 8 bn $. growing at 4-5%

16). FY14-15 picture :ebitda groos - 18-21% - tragetspat front - around 9-10%

So you dont seea ny declines? No

17). 70:30 agri & OTR-capacities fixed; biasd & radial - again fixed. Butcan be changed with additional equipment. radial & biasdifference tyre cost - 10-15%.

18). Cost of plant on TPD basis ; hard to say, but ball park - 4 cr per TPD cost.

19). debt - 1600 CR - cash of 100 cr. net borrowings 1500. termloan is 850 Cr; balance is working capital

20). 200 distributors across 120 locations.

21). Rubber inventory of 2 months - average cost $3500 per tonne

22.Any impact of carbon black anti-dumping- No, we are not impacted by that.Scheme of advanced licensing - we can do duty free imports.

23). Q2 - margisn to improve definitely. RM going down to 3200$.

24). Target margins - are at 20% for the year

(Donald Francis) #117

My impressions

1). Results are good. Margins have expanded.

2). Q2 Results should be better - primarily because of lower RM; and Forex loss on Sales/Purchase transactions may not be there (can be considered one-off in nature - actual sale/forward coming due in the quarter vs SPOT purchase during the Qr). Someone knowledgable on this can dissect this better?

3). Forex loss -20 Cr - purey notional; on the Working capital borrowings

4). Expansion on Schedule. Production at Bhuj to start in Sep. expect 25000 MT for half year. Sales guidance FY13 160000-165000 MT intact. EBITDA can be 20% as indicated by Management. PAT will be more like 9%

I don’t see much to worry about. BKT is in a sweet spot. Let me get down to capturing back the Management Q&A we did last month - so all of you can appreciate just how sweet a spot that is:)

Pls excuse the delays - just caught in too many activities


(Amit) #118

I read through the thread and found it very informative. As I understood, the key determinant for BKT value (and continued performance) is the price differential it enjoys as compared to the other players (specially the international ones), something that’s stated to be in the range of 25% or so today.

But I could not really find an analysis on the drivers of this price advantage, outside the 7% or so difference in the employee cost. Has there been any discussion on where does the balance 18% or so come from, and its continuity?

(Donald Francis) #119

Hi Amit,

Thanks for your perceptive queries.

Yes this aspect has not been analysed much. Its difficult to put a finger on it! But there are enough clues if you have followed the detailed questioning in the MAnagement Q&As.

What I have understood that the real differentiator is in the manufacturing process that BKT has refined over the years. Maintaining a low-volume, large variety 2000-3000+ SKUs product range requires a very different kind of factory, with different man ufacturing than in large volume commercial tyre manufacturing.

BKT has refined this over the years and has got better at it. Some of the biggies have exited this market altogether. Only Alliance can pose a serious challenge to the sustainability- they have the knowhow but they can only reach where BKT has in 5 years. This is as BKT maintains a manufacturing challenge, there are no shortcuts, ramping up beyond 30000 MT a year is very very difficult. one has to go at iot in the sloiw steady way.

Besides the market is huge. at $13-14 Bn annually , growing at 4%-5%, BKT has only a 5% market share. It will easily go to a 10% market share in next 5 years, growing at the rate it is. There is no one coming close in terms of capacities - with the advantages that BKT has. So it will keep taking away market share from the biggies for the next 5 years - without really troubling any of the biggies either.

Disc: I have significant holdings and my views are biased.

(Donald Francis) #120

Hi Guys,

Sorry for the delay. The much awaited BKT Management Q&A update.

As usual, we came away very impressed. It seems the Management is on top of most of the challenges and poised to harness the opportunities in front of it.

This looks like a good candidate even for fresh allocations, at current levels.

Please go through the Q&A carefully. Why is an investment into Balkrishna Industries NOT a no-brainer? The only RISK is a sudden demand-crash (given the continuous capacity build-up). We have tried to quiz this aspect extensively from the management, and I for one could not pick holes in the Management’s defense. They are very very confident of the 160000-165000 MTPA Sales guidance for the year. Q1 results have confirmed that confidence. Q2 will need watching.

My sense is, it will keep growing at 30% plus levels for the next 2-3 years. From current 5% market share, it may easily go to a 10% market share in next 5 years, my conservative projections indicate.

Like the natural skeptics to have a go. I can find no holes:).

1). The Euro region slowdown is a smoke-screen, it has not affected the replacement market, which is BKT’s business model.

2). The Agri segment constitutes 63% of BKT Sales - has always been evergreen, it is recession-proof. Farmers may not buy enough new equipment for sure, but they will continue to operate existing equipment - which if needs replacement tyres - they will buy.

But then I am an Optimist always, and am probably biased on this story. But I sure like to bet where the odds lie. **In this case the odds seem to be stacked very much in favour of BKT.**FY13 growth is very much protected??

Like to know why NOT? Strong Views Invited :slight_smile:. Let’s spar on this and dissect this one RISK threadbare.


Disc: I have significant holdings. My views are biased.