Balkrishna Ind (Buy)
CMP: Rs 266
Target: Rs 325
Balkrishna Industries’ Q3FY13 top line of Rs 700 crore (down 11 per cent y-o-y) came in below our and consensus estimates. The disappointment was primarily due to 15.2 per cent dip in volumes, which was somewhat compensated by better realisation and favourable currency movement.
The company clocked 30,125MT volume with average realisation of INR234/KG (up 4 per cent y-o-y). Softening rubber prices enabled it to post 22.1 per cent (up 430bps y-o-y) EBIDTA margin, ahead of our 21.5 per cent estimate. Overall, management reiterated that the slowdown in Europe and US is impacting volumes and the company’s order book, which shrunk to 2.5 months. However, BKT believes demand will not dip further and is positive of achieving the lower end of its FY13 volume guidance. We cut our FY14E earnings 6.3 per cent to factor in slowdown in Europe and US, and lower visibility due to decline in order book. We like the company’s low cost business model and believe new capacity equips it to cater to a broader product spectrum.