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LKP Securities
Balkrishna Ind (Buy)
Target: ₹2,707
CMP: ₹2,262.95
Balkrishna Industries (BKT) has developed a strong franchise in a highly specialised and large off-highway tyres (OHT) segment, in which it has nearly six per cent global market share. Over the years, BKT has been generating robust cash flows and return ratios, and maintained a strong balance sheet across cycles.
Post a muted performance for three years till FY20, the company started posting robust volume performance since second half of last year. With a solid competitive positioning, multiple strategic initiatives currently underway and sufficient capacity built-up, BKT is set to reap the fruits of an expected upcycle.
This should translate into a strong 18 per cent EPS CAGR, robust FCF and over 20 per cent return ratio over FY21-24. We initiate a Buy rating, with a price objective of ₹2,707 (20 per cent potential upside). Over FY19-23, BKT has undertaken multiple strategic initiatives, namely, back-ward integration into carbon black facility; revamping of its Waluj facility; and capacity expansion into large OTR tyres, etc. Leveraging these initiatives, we expect strong growth with market share gains.
We envisage 12 per cent volume CAGR over FY21-24 to drive 18 per cent EPS CAGR. Despite being in the midst of a heavy capex cycle, we expect FCF to rise from ₹560 crore in FY21 to ₹1,800 crore by FY24 on healthy operational performance.
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