The screener shows debt of 1600 crore+ and debt equity of 1.5+ already.
Agree that the situation doesnāt seem too bad right now, but as I said, the downside risk going ahead is too high. In case things go south, I believe this could be as bad as a leveraged commodity P&L. Not saying thatās how it will be, but thatās how things could get.
Fx debt / mining exposure / softness in its core market a highly likely scenario given Europe - all three put together make me nervous. Even if it was only any two of them, there was a way to think of the maximum downside. With all three present, that becomes a bit difficult. In all likelihood, the company will emerge fine - Iāve tremendous respect for the management here, but I think the market will overreact at some point, and provide me with a better buying opportunity. I may be wrong, though (as Iāve been on many such calls expecting the stock to get cheaper, and it never does!).
I would recommend when dissecting a companyās financials, refer to the companyās results published quarterly. Also download investor presentations - in BKT case you can.
BKT long term debt at Sepā 12 is 1462.85 Cr, Equity 19.33, Reserves 1257.57, so d/e is 1.15, not 1.5+. Screener data may or may not get updated in time!Why not go to the Source?
-tcx
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The already.
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Hi Ashish,
No debate on tougher times ahead. Not the time to buy - absolutely agree with you.
Differ with the reasoning:
I may get cheaper later reasoning -I will not count on that - as results will keep showing good performance for atleast 2 quarters. Margins may show little change, not big drastic changes in 6 months.
My thinking:
Becasue there can be big risksover the medium term, if my exposure is high I should look to cut it. and the time to get in is not now. A better risk/reward adjusted time to get-in is when the demand situation improves - Esp as we have a transparent management communicating honestly. So we can keep track, positively.
Commodity company- high debt P& L --:))
This comparing with high debt commodity companies isnt it a bit far-fetched:). Commodity companies never have EBITDA levels of 20%. Commodity companies never have Interest coverage of 10x+ let alone 20x;
Just wanting to bring some balance in viewing -what is no doubt a tough situation, which as you say can surely get worse.
My personal view is that the de-stocking in the US is more in anticipation of tax raises and spending cuts in response to the āfiscal-cliffā situation. The situation itself is exaggerated and has a low probability of happening. Although, US conditions will continue to remain tough and may get tougher from here.
If I am right, this may be a 2 quarter phenomenon.
Hey Donald -
Iāve also learnt to not count on āit will get cheap reasoningā but still, old habits die hard :-). Yes, headline numbers for next two quarters may not be that bad, so the weakness will emerge only after that when the forecasted off-take for the new capacity does not materialize (if that indeed turns out to be the case). So thatās why I thought it will probably get cheaper (not necessarily cheap, though) after a couple of quarters when it starts trading on EV/EBITDA basis, than just a PE basis right (10x P/E looks great for a 30% CAGR company)
On commodity company comparison, I brought that to the fore not from the strain on BS perspective, but the steep decline in reported net income that such companies can exhibit, which I think will make the stock really volatile, especially as the company has been a steady 30% CAGR performer for an extended period. However, not to forget that it is only half the business that will exhibit that characteristic. The other half will still continue to perform reasonably well (and thatās why the BS will never be as strained as can be for leveraged commodity P&Ls).
At the same time, I am not sure if any drag from the underperformance of capacity allocated to mining segment will be a temporary phenomenon for just a couple of quarters - it could well be a temporary blip, or it could last long enough to end up straining its cashflows, especially as I think that a 3% to 4% cost of debt is on the lower side. Most companies with overseas debt report about 6% to 7% interest cost over an economic cycle (again, this is just an empirical observation, not based on hard analysis, so please correct me if I am wrong).
So relatively speaking, that P&L performance would be as volatile for BKT given its track record as consistent performer as it would be for a leveraged commodity P&L. I agree with you that there is no way one would get BKT at depressed P/B valuations that many of these commodity plays get sold at during the bottom of the cycle.
-I risksover ā
) far-fetched.
Looks like Apollo Tyres too has now started targeting "off-highway tyres (OHTs)"market and expanding Kalamassery plant in Keralawith a planned expenditure of 200 cr.
The screener shows debt and debt:equity ratio correctly fromtheoreticalperspective. The reason for lower debt equity ratio by donald is that he has deducted cash on balance sheet from the loan outstandingā¦computers canāt do that 
Ayush
Hi Ayush,
Sorry to dampen the mood, but the thing missing here in screener.in is the Half-yearly balance sheets 
I discussed this with Pratyush in the screener thread itself and he mentioned no proper source is available for the same 
Donald has calculated Debt:Equity based on the half-yearly balance sheet of Sep 30, 2012 Link: http://www.bseindia.com/corporates/AnnPdfOpen.aspx?Pname=Balkrishna_Industries_Ltd_121112_Rst.pdf%7C1 where debt:equity (1462:1277 Cr) is at 1.14x. The cash in the BS is fresh proceeds from ECB (ready to be deployed Capex spend) so that cannot be considered for net debt consideration anyways.
We somehow need to figure out a way to look at (and compare YoY between) half yearly balance sheets, as referring to March balance sheets in the second half of the fiscal year would be meaningless.
fromtheoreticalperspective. 
Ayush
Hi Rudra,
Thanks for the suggestion. We will keep it mind to include, if possible.
Ayush
Q3/Fy-13 Results outā¦
Total Income Down 10.3% to 704.73 Cr from 785.41 Cr.
EBIDTA up 9.1% to 155.79 Cr from 142.75 Cr.
Net Profit up 2.1% to 74.41 Cr from 72.88 Cr.
EBIDTA margin is 22.1% v/s 21% (SQ-12) and 18.2% (DQ-11)
NET Profit margin is 10.6% v/s 14% (SQ-12) and 9.3% (DQ-11)
Total Raw material costs as a %ge to Income is 55% v/s 57.1% (SQ-12) and 57.1% (DQ-11)
All Other expenses to Income is 22.9% v/s 22% (SQ-12) and 24.7% (DQ-11)
(Including employee and Power & Fuel expenses)
Financial costs to EBIT is 3.4% v/s 3.8% (SQ-12) and 4% (DQ-11)
Tax Rate 32.5% v/s 32.3% (SQ-12) and 32.5% (DQ-11)
Forex loss of 14.5 Cr v/s loss of 9.68 Cr affected net profits.
9M/Fy-13 v/s 9M/Fy-12:
Total Income up 18.6% to 2411.27 Cr from 2032.31 Cr (Fy/11-12: 2788.98 Cr)
EBIDTA up 34.2% to 498.42 Cr from 371.35 Cr (Fy/11-12: 505.81 Cr)
Net Profit up 41.1% to 271.21 Cr from 192.25 Cr (Fy/11-12: 268.52 Cr)
Reported 9-month EPS 28.06 v/s 19.89 (Fy/11-12: 27.43)
Recorded TTM diluted EPS: Rs. 35.95
On 14/02/2013, stock on BSE Closed at Rs. 277.25/-
Hi All,
Noticed a deterioration in the information disclosed in the results and in the presentation. The balance sheet apparently is no longer disclosed and the amount of information in the presentation is also substantially reduced.
It may be good to check on this in the upcoming call/management interaction esp as the large capex is about to be completed in the next 6 months and hence forth the Co will have to account forthe interest on this project loan through P&L.
regards
Yes, the co has stopped giving the order book detailsā¦lol. It shows the pain in the environment. Iām yet to hear the concallā¦missed that day as was busy with MPS
Hi Ayush - Do you think this is a buying opportunity given that it trades at the lower end of its historic multiples (7x FY13). Also most of the capex is done so there is upside from the current levels.
2 news article related to off-highway tyre industry.
The CEO of an American tire maker has launched a brutal attack in writing on productivity in France, telling the government that some French workers put in only athree hoursa a day and that his company would be astupida to take over a troubled factory in the country.
Buyout firmsKohlberg Kravis Roberts(KKR), Blackstone,TPG CapitalandAdvent Internationalare set to firebidsvalued at more than $300 million to acquire majority shares inAlliance Tire Group, a Mumbai-based offroad tyre maker, said people directly briefed on the matter.
BKT Concall 18 Feb 2013. Short Notes from my side.
Opening Remarks
2 months of RM inventory @ avg 160-165/kg
demand situation seen improving in this quarter
Growth in current quarter should be 10% over last Qr
Capex completed by dec Qr -1283 Cr out of a total outlay of 1800 Cr
Interest Costs likely with total debt of 1800-1900 Cr for next year
Debt costs - 60 Cr?
yes thats the peak that can be touched
but next year will be less
Current order book 2.5 months
Capitalised already
Dec -220 Cr
Mar 500-600 Cr
Slower volumes
)- basically because of Inventory cut-down across all channels
)- so all your channels are now inventory clear? yes
Dec Qr
2000 Cr Gross Debt
1700 Cr Net Debt
After Bhuj Debt?
Should be around 2200 Cr
So @5% interest cost - 100-110 Cr?
No no Working cap @ 1.5% and Long Term Debt less than 3%
peak interest cost should not be more than 60 Cr
Capitalised Interest costs in quarters
Everything is capitalised;; whats that figure capitalised?
Dont have it right now
Depreciation Guidance for FY14
Should be around 160 Cr for the year
Realisation
can you hold it over next 2-3 quarters
difficult to say - if RM comes down further, or others offer a price cut
Even factoring in a demand revival in subsequent quarters and a somewhat optimistic 25% growth, shows there is going to be degrowth in FY14E.
Year on year EPS growth for FY13E may be camouflaging the real picture! let's look beyond that. I would like to err on the conservative side, and wait for demand revival to be seen on the ground. Many things can go wrong. Large Quantum of Debt can make things worse. Her's a look at the ground situation so far in FY13
| Q12013 (MT) | Q22013 (MT) | Q32013 (MT) | 9M2013 (MT) | Q-o-Q Variance | |||||
| Europe | 16650 | Europe | 15977 | Europe | 14298 | Europe | 45.00% | 46925 | -10.51% |
| RoW | 5551 | RoW | 5572 | RoW | 5561 | RoW | 16.00% | 16684 | -0.20% |
| America | 9250 | America | 10771 | America | 6049 | America | 25.00% | 26070 | -43.84% |
| Asia | 5550 | Asia | 4831 | Asia | 4218 | Asia | 14.00% | 14599 | -12.71% |
| Total | 37001 | 37152 | 30125 | 100.00% | 104278 | -18.91% | |||
Fresh positions are not advised at this stage. If there is significant exposure to BKT, that should certainly be reduced/exited. Small/Minimal exposure may not matter.
And here's the Optimistic projections (25% growth) for a change! As mentioned before even this scenario shows de-growth. Should serve to highlight what can happen if demand slowdown continues.
| Balkrishna Industries | 2007 | 2008 | 2009 | 2010 | 2011 | 2012 | 2013E | 2014E |
| Growth | 12.96% | 26.84% | 10.88% | 43.65% | 40.30% | 12.73% | 25.00% | |
| Net Sales | 877.66 | 991.38 | 1257.47 | 1394.30 | 2002.88 | 2809.98 | 3167.63 | 3959.54 |
| EBITDA | 182.07 | 234.56 | 202.83 | 398.40 | 370.70 | 493.49 | 668.45 | 752.31 |
| EBITDA Margins | 20.75% | 23.66% | 16.13% | 28.57% | 18.51% | 17.56% | 21.10% | 19.00% |
| Depreciation | 36.00 | 43.83 | 56.52 | 66.22 | 74.44 | 83.14 | 102.82 | 158.38 |
| Depreciation/Sales | 4.10% | 4.42% | 4.49% | 4.75% | 3.72% | 2.96% | 3.25% | 4.00% |
| EBIT | 146.08 | 190.73 | 146.31 | 332.18 | 296.26 | 410.35 | 565.63 | 593.93 |
| Interest* | 17.02 | 26.81 | 37.65 | 18.66 | 21.22 | 12.13 | 25.49 | 59.39 |
| Interest/Sales | 1.94% | 2.70% | 2.99% | 1.34% | 1.06% | 0.43% | 0.80% | 1.50% |
| PBT | 129.06 | 163.92 | 108.66 | 313.52 | 275.04 | 398.22 | 540.14 | 534.54 |
| Taxes | 45.91 | 57.09 | 37.94 | 104.80 | 89.38 | 129.69 | 178.25 | 176.40 |
| Tax rate | 35.58% | 34.83% | 34.92% | 33.43% | 32.50% | 32.57% | 33.00% | 33.00% |
| PAT | 83.14 | 106.83 | 70.72 | 208.72 | 185.66 | 268.53 | 361.90 | 358.14 |
| Net margins | 9.47% | 10.78% | 5.62% | 14.97% | 9.27% | 9.56% | 11.42% | 9.05% |
| # of Shares | 1.93 | 1.93 | 9.67 | 9.67 | 9.67 | 9.67 | 9.67 | 9.67 |
| EPS | 43.01 | 55.26 | 7.32 | 21.60 | 19.21 | 27.78 | 37.44 | 37.06 |
| Adjusted EPS | 8.60 | 11.05 | 7.32 | 21.60 | 19.21 | 27.78 | 37.44 | 37.06 |
| EPS growth | 28.48% | -86.76% | 195.14% | -11.05% | 44.64% | 34.77% | -1.04% | |
| P/E | 9.07 | 6.73 | 6.80 | |||||
| P/Sales | 0.87 | 0.77 | 0.62 |
Invite discussion from those invested/interested/tracking.
Hi Donald,
I have a small holding and not planning to exit.
can you foresee 3-5 years from now, where BKT will be? Do you have confidence that BKT will be able to maintain the margins and able to grow @10% in next few years?
Appreciate your feedback.
Thanks
Q22013 (MT) | Q32013 (MT) | 9M2013 (MT) |
| Q-o-Q Variance
Europe | 16650 | Europe | 15977 | Europe | 14298 | Europe | 45.00% | 46925 | -10.51%
RoW | 5551 | RoW | 5572 | RoW | 5561 | RoW | 16.00% | 16684 | -0.20%
America | 9250 | America | 10771 | America | 6049 | America | 25.00% | 26070 | -43.84%
Asia | 5550 | Asia | 4831 | Asia | 4218 | Asia | 14.00% | 14599 | -12.71%
Total | 37001 |
| 37152 |
| 30125 |
| 100.00% | 104278