>BALKRISHNA INDUSTRIES (ICICI DIRECT)

Rubber led margin expansion…

Balkrishna Industries reported meagre 1.9% to Rs 302.9 crore for Q1FY10 as against our expectation of Rs 330 crore. The growth remain muted due to cowed demand as volume fell by 4% but thanks to rupee depreciation, realization were at Rs 160,000 per tonne Vs Rs 140,750 per tonne in Q1FY09 restricting the fall in revenues. The softening of rubber prices brought substantial expansion in EBITDA margins; EBITDA margin was at 29.3% from 23.9% in Q1FY08. The quarter reported fall in interest outgo as well as foreign exchange gain of Rs 15. 9 crore (loss of Rs 30.6 crore), muted the adverse impact of rising depreciation, net profit surged 264% to Rs 52.3 crore.

Incorporating the improved realization as well as lower rubber prices, we are revising our financial estimates for FY10 and FY11. Accordingly net sales are revised from Rs 1,281.7 crore and Rs 1,276.8 crore to Rs 1.299.2 crore and Rs 1,497.2 crore for FY10E and FY11E respectively. Net profit also revised from Rs 71.4 crore and Rs 79.8 crore for the same period to Rs 194.7 crore and Rs 213.4 crore respectively.

Valuations
Remarkable improvement in EBITDA margins as well as favourable rupee dollar/ Euro currency movement would help company improve its bottomline in coming year even though topline growth to remain subdued due to slowing global demand. According to revised earning estimates, we are revising our target price to Rs 402 (4x FY10E, cautiously lower PE multiple as currency movement has crucial role to play) and rating to PERFORMER. At CMP of Rs 344, the stock is trading at 3.4x and 3.1x its FY10E and FY11E EPS.

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