>BALKRISHNA INDUSTRIES (ICICI DIRECT)

Balkrishna Industries (BIL) has reported healthy financials for Q4FY10 that were above our estimates. The topline improved 27.8% QoQ and 37.3% YoY to Rs 442.9 crore while for the full year it registered a 10.7% growth to Rs 1,394.3 crore. The margin improved by 450 bps YoY to
25% and it maintained it sequentially by reducing other expenses by 440 bps even though rubber prices hit the ceiling. The performance also improved the bottomline, tripling it to Rs 63.5 crore YoY and 33.4% QoQ on the back of a strong topline along with reduced interest charges of 58.1% YoY and 7.1% QoQ to Rs 4.1 crore and exchange rate gain of Rs 4.2 crore against a loss of Rs 6.6 crore on a YoY basis.

Improving global demand
After subdued demand in FY09, the company is witnessing a revival in demand especially in agriculture as well as the OTR segment. The company has increased its volume sales by 5% for FY10 and expects to increase it further in the current year. The rise in rubber prices resulted in
an 8-10% tyre price increase during the year by the company. However, rising rubber prices would continue to pressurise margins. Operational efficiencies, however, muted the impact.

Introducing FY12 earning estimates
BIL is planning to spend Rs 1,200 crore over FY11-13 towards expanding capacities through greenfield expansion. The revival in demand and rise in capacities would enhance its topline and bottomline. We estimate sales and profit of Rs 1,862.7 crore and Rs 242.3 crore for FY12, respectively.

Valuation
Rise in sales on the back of an improvement in demand would enhance its bottomline while softening of rubber prices would be a key trigger for bottomline enhancement. We are introducing our FY12 earning estimates wherein we are expecting a dip in rubber prices. We are revising our target price to Rs 689 by valuing the stock at 5.5x FY12E EPS and rating it STRONG BUY post the correction in stock prices.

To read the full report: BALKRISHNA INDUSTRIES