INSUBCONTINENT EXCLUSIVE:
ET Intelligence Group: The volume visibility of Balkrishna Industries, a manufacturer of offhighway tyres (OHT) used in mining and
agriculture applications, is likely to improve considering a strong demand outlook in its export markets given the encouraging commentary by
major companies including Caterpillar and Michelin.
The US-based Caterpillar raised it earning guidance by 23% to $10.25-11.25 per share for
the current year following investments by several mining customers in new projects as well as for replacement of existing tyres
Balkrishna is one of the OHT suppliers to Caterpillar.
Michelin, a French tyre manufacturer, also expects speciality tyres sales volume to
Its revenue from the speciality tyres segment rose by 22% in the dollar terms in the first quarter of 2018.
The global OHT market is worth
$12 billion and consists of off-road tyres (OTR) and agriculture tyres
Balkrishna Industries exports nearly 90% of its output overseas
Agriculture applications contribute nearly two-thirds to its sales volume while the rest is derived from the OTR segment which includes
construction, mining and industrial applications
Balkrishna Industries has a market share of about 3% in the OTR segment and 10% in agriculture segment globally.
The improved traction in
the OHT segment will support volume growth in the long-term and help the company gain market share
Its products are 20-30% cheaper than the global peers.
For FY18, the company has guided for a volume of 190,000-195,000 tonnes after the
September quarter results, which implies volume growth of 10-13% year-onyear
In the first nine months of FY18, the volume grew by 15% to 145,211 tonnes
Analysts expect volume growth of 16% and 15% for FY19 and FY20.
The higher volumes may translate into better operating margin before
depreciation (EBITDA margin) on account of higher utilisation of its factories
The new unit of Bhuj, which can produce 140,000 tonnes of OHT every year, is one of its most efficient plants
Hence the increasing production from the Bhuj plant in the total volume may improve margin.
Besides this, the company is setting up black
carbon plant with annual capacity of 60,000 tonnes with an investment of ?150 crore
This will result in backward integration since its operations require 50,000 tonnes of carbon black.
The backward integration could add
around 100-150 basis points to the margin
In the first nine months of FY18, it had EBITDA Margin of 29.8%.
