Mid-cap Tyre Stock Declares 200% Dividend Has A Buy Rating

Stock-broking firm Anand Rathi has given a buy rating to Balkrishna Industries, a leading tyre manufacturer company stock. The company has declared a dividend of 200% while announcing its March quarterly numbers. The tyre manufacturer is a niche player in global off-highway tyres and would likely double its market share, although it posted muted earnings.

The stock-broking firm believes that the stock price will rally to Rs 2,630 from the current levels, based on its evaluation of the company stock.

March Performance

Balkrishna's Q4 adjusted EBITDA fell 14% yoy to Rs 4.95 billion, which was in line with the consensus estimate of Rs 4.95 billion. The revenue also declined 4% yoy to Rs 23.2 billion, broadly in line with the consensus Rs 23 billion estimates, as pointed out by Anand Rathi.

The volumes declined 6% yoy to 72,676 tons and realizations grew 1% yoy to Rs 319,862/unit. The EBITDA margin slipped 240bps yoy to 21.3%, but qoq was up 220bps driven by lower raw material costs and freight rates.

The gross margin contracted 540bps yoy to 49.3% (but qoq expanded 60bps). Freight cost declined 810bps y/y to 5.7%. Interest cost was Rs 250 million against Rs136 million reported in the previous quarter. Depreciation grew 30% yoy to Rs 1.52 billion. Accordingly, adjusted PAT declined 32% y/y to Rs2.56bn, slightly below the consensus Rs 2.62 billion estimates.

Management Guidance

Management expects better demand from its end markets. Surplus channel stocks are resolved by July 23. Europe to normalize in FY24, while the Americas and India will continue on their FY23 performance trajectory. FY24 margin to improve led by lower RM costs, better hedge rates, and normalised freight costs.

The brokerage house shared that the company is a niche player in global off-highway tyres and over the years, it has consistently outpaced the underlying industry and gained market share driven by a favourable quality-price mix and industry consolidation. Management expects its global market share to almost double to 10% in 5-6 years.

Valuation & Rating

Anand Rathi, expect 26% and 32%, EBITDA and PAT CAGRs over FY23-25 led by lower input/freight costs and a volume rebound. "We believe Balakrishna Industries is a strong investment bet for the medium term. We recommend a Buy at a 12-month target price of Rs 2,630, 25x FY25e P/E", the firm added.

Dividend Details

Besides the results, the Board recommended payment of a final dividend of Rs 4 per equity share (200%) on the equity shares of face value Rs 2 each for the year ended 31" March 2023, subject to the approval of the shareholders of the company at the ensuing Annual General Meeting.

The company did not share the record date or book closure details yet.

Share Price Movement

The latest closing price of this mid-cap tyre stock is Rs 2226.25, it was down 2.33% over the previous day's closing price. In the last one year, the stock has given a negative return of 4.85% but in the last three years, it has managed to generate a whopping return of 106.97%.

Disclaimer

The stocks have been picked from the brokerage report of Anand Rathi. Greynium Information Technologies, the author, or the brokerage house will not be liable for any losses caused as a result of decisions based on the write-up. Goodreturns.in advises users to consult with certified experts before making any investment decision.