India’s agri tyre export revenues rose 49% y-o-y in August (from 44% y-o-y in July). Construction/Mining (OTR) segment growth also accelerated to 19% y-o-y in August (from 8% y-o-y in July). Growth in agri tyre exports to Germany moderated to 39% y-o-y (~120% y-o-y in June-July), but there was strong improvement in exports to France/UK/Italy at 83%/88%/64% y-o-y US exports recovered to 37% y-o-y in August (after a decline in July).
Balkrishna Industries (BIL) generates ~80% of its revenues from exports and stands to be a key beneficiary of the current recovery. By geography, EU’s share of BIL’s revenues is ~50% (key countries are Germany, France and the UK; Italy <5%) and America’s is ~18% of overall revenues.
Also, agri tyres contribute ~61% of BIL’s revenues, while ~35% is from the off-the-road (OTR) segment. We expect BIL’s volumes to benefit from the strong traction in the agri segment, both in India and exports geographies. Hence, our estimate of 5% y-o-y growth in overall volumes for BIL is above consensus. Of this, we expect ~11% growth in the Agri segment (YTD exports are up 12% y-y, implying 10% y-o-y growth for the rest of FY21F) and a 5% decline in OTR (YTD exports -12% y-y, implying flat growth for the rest of FY21F).
The stock is currently trading at ~11.5x EV-Ebitda and ~19.6x P/E on FY22F estimates, which we believe is attractive, given the strong growth outlook and high double-digit return ratios, unlike peers. Our FY21F/22F EPS estimates are ~12% above Bloomberg consensus, and we maintain our ‘buy’ rating on the stock.
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