Nomura pointed out that the Balkrishna management highlighted that the demand outlook of the agriculture tyre segment, in both the EU and the US, remained encouraging, with sales having recovered to pre-Covid-19 levels in May and June, as winter crop harvests have been good, after two consecutive bad years in the past.
Commodity tailwinds will keep EBITDA margins visibility well over 30 per cent+ in the near term, according to the company. According to the management, capex spends will drop off from FY22F, with only maintenance spends, which should drive stronger free cash flow for the company.
According to Nomura, the overall Balkrishna management commentary is in line with the brokerage view of healthy growth in the agriculture segment. We have factored in 6 per cent year on year growth in agriculture but 10 per cent decline in off-road tyres (OTR) leading to flat volumes in FY21F and 15 per cent growth in FY22F. This can have further upside risks depending on the recovery, according to the brokerage.
Commodity/currency tailwinds should lead to EBITDA margins at 32.2 per cent/31.6 per cent in FY21/22F leading to healthy 16 per cent EBITDA CAGR FY20-22F. The current valuation, at 11.7 times EV-EBITDA, is attractive given healthy FCF yield of ~4 per cent and ROE of 19 per cent.
For the quarter ended March 31, 2020, the company reported consolidated sales of Rs 1372.27 crore, up 18.73 per cent from last quarter sales of Rs 1155.76 crore and up 1.20 per cent from last year’s same quarter sales of Rs 1356.03 crore. The company reported net profit after tax of Rs 264.70 crore in the latest quarter.
Promoters held 58.30 per cent stake in the company as of March 31, 2020, while FIIs held 11.93 per cent, DIIs 17. 8 per cent and public and others 11.97 per cent.
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