22-Nov-2022

BALKRISHNA INDUSTRIES LIMITED

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 ABOUT
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DHD Industries (BKT) is a leading manufacturer in the off-highway tyre market. BKT is present in the specialty segments like
Balkrishna
agricultural, construction, industrial, earthmover, port, ATV (All-Terrain Vehicle) and turf care applications in both cross ply & radial
construction.
The company has transformed itself into a global player in the off-highway tyre industry with a 4%-5% market share in FY22. The
company has a wide range of product profile and it sells them in more than 160 countries. Presently, the company has one domestic
and four overseas wholly owned subsidiary companies (WOS). The domestic WOS is BKT Tires Limited and the overseas WOS are BKT
Europe S.R.L., BKT USA Inc, BKT Tires (Canada) Inc, BKT Exim US, Inc. They also have one step down subsidiary by the name of BKT
Tires Inc. based in USA which is a 100% subsidiary of BKT Exim US, Inc.
They have five tyre manufacturing plants- 2 in Aurangabad, 2 in Alwar and 1 in Kutch in India. Further, it has 1 carbon black
manufacturing plant in Kutch, 1 Wind farm in Jaisalmer and 1 mould manufacturing plant in Thane. The company currently has over
3,200 stock-keeping units.

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 ABOUT
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DHD Segment Wise Channel Wise Geography Wise

3% 3%
11%

31% 28%
17%

54%

66%
69% 18%

Agriculture Off-the Road tyre Others Replacement OEM Others Europe India Americas ROW

As on 31st Mar 2022, standalone

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 GROWTH
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DHD SALES GROWTH

In FY22, the net sales stood at ₹8,295 cr and grew by
43.4% YoY. The sales volume was 2,88,795 MT which
increased by 27.1% YoY. Off highway tyre (OHT)
witnessed higher offtake on account of healthy
demand across mining and agricultural markets. The
realizations saw an increase on a YoY basis.
In H1 FY23, the net sales was ₹5,277 cr as compared
to ₹3,875 cr in H1 FY22, exhibiting an increase of
36.2% YoY. Its sales volume for the same period was
1,62,025 MT v/s 1,41,356 MT in H1 FY22. On a
sequential basis (in Q2 FY23) the volumes declined
by 5.1%.
The current achievable production capacity stands at
3,35,000 MTPA for FY23 and will increase to 3,60,000
MTPA by H1 FY24 post commissioning of the Waluj
brownfield project.

5 Year CAGR: 17.0%

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DHD EBITDA GROWTH

In FY22, the EBITDA was reported at ₹2,009 cr an
increase of ~11% YoY. The company’s major raw
material is natural and synthetic rubber, carbon black
and nylon fabric & most of the raw materials and
capital equipment's are imported.
In H1 FY23, EBITDA stood at ₹870 cr (v/s ₹1,049 cr in
H1 FY22). The decline was on account of rise in input
cost, freight forwarding expenses and other
expenses.
Softening of raw material prices, decline in freight
rates and improvement in shipping constraints is
anticipated to augur well for profitability in the
coming quarters.

5 Year CAGR: 12.2%

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DHD PAT GROWTH

In FY22, the PAT stood at ₹1,435 cr and grew by
21.9% YoY on the back of increase in operating
profits and other income.
The effective tax rate during FY22 was 27.58% v/s
24.27% in FY21. Tax expenses increased because of
less provision of earlier years and increase in
deferred tax expense.
In H1 FY23, PAT stood at ₹689 cr (v/s ₹722 cr in H1
FY22).

5 Year CAGR: 14.9%

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 GROWTH EDGE METER: 3
An Edge Meter is a graded measurement of certain aspects of a company on a scale of 1 to 5, 5 denoting the highest rating. Since
judgement on equity is subjective because different people will have different expectation from their investments, it is better to study
each aspect and give an individual grading to arrive at the final evaluation of a stock.
 PROFITABILITY
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DHD EBITDA MARGIN

The EBITDA margin FY22 stood lower at ~24%. The
freight forwarding (availability of shipment a
concerning factor), logistics cost and power cost
remained at elevated levels during the year. Further,
the company continued to witness rise in key raw
material (natural rubber, carbon, fabric) costs. The
company undertook a price hike of ~15%-16% in
FY22.
In H1 FY23, the EBITDA margin was 16.5% (v/s 27.1%
in H1 FY22). The decline in margins was on account
of rise in input cost and reduction in order placement
by the dealers and distributors.

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DHD PAT MARGIN

In FY22, the PAT margin declined to 17.3% on the
back of fall in EBITDA margin.
In H1 FY23, the PAT margin was 13.1%.

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DHD ROCE
In FY22, the ROCE was 24.2%.
The company is expected to benefit from the
backward integration of the carbon black plant which
will help to aid the operating profits as operating
leverage has started to play out. This will be helpful
in improving the ROCE of the firm.

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DHD ROE
The ROE of the company stood at 22.2% in FY22.
The savings from the procurement of the carbon
black from in-house manufacturing is expected to aid
the PAT, hence improving the overall ROE of the
company.

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 PROFITABILITY EDGE METER: 4
An Edge Meter is a graded measurement of certain aspects of a company on a scale of 1 to 5, 5 denoting the highest rating. Since
judgement on equity is subjective because different people will have different expectation from their investments, it is better to study
each aspect and give an individual grading to arrive at the final evaluation of a stock.
 EFFICIENCY
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DHD CASH FLOWS

Cash inflow from operations stood at ₹908 cr. The
decline in cash flow from operations was due to
working capital adjustments.
Cash outflow from investing activities was 1,897 cr,
which included net purchase of PP&E ₹1,589 cr and
net purchase of investments of ₹352 cr.
Cash inflow from financing activities stood at ₹980 cr.
The major items were: net proceeds from long-term
borrowings of ₹1,643 cr, net repayment of short-
term borrowings of ₹932 cr and payment of dividend
of ₹560 cr.

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 EFFICIENCY
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WORKING
DHD CAPITAL CYCLE
In FY22, working capital days was 26.
The increase in working capital (expected to be at
similar levels going forward) was on the back of
growth in overall turnover, increase in lead time
because of higher shipping period & unavailability of
containers and increase in raw material cost thereby
leading to higher purchase price.
The company usually has an additional inventory
(including materials in transit) days of 30-45 days.

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 EFFICIENCY
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DHD FREE CASH FLOW

The free cash flow per share was negative at ₹27.60
in FY22.
The company anticipates to spend ₹300-₹400 cr as
capex towards the rest of FY23 and it is not
envisaging any new capex spending towards FY24.

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 EFFICIENCY
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ASSET
DHD TURNOVER RATIO
In FY22, the metric stood at 0.87x.
The increase was on the back of growth in sales and
increase in non-current & current assets which
majorly comprised of PP&E, capital work-in-progress,
investments, other non-current assets, other
financial assets, inventories & investments, trade
receivables and other financial assets.
The non-current investments majorly comprised of
non-convertible debentures, alternate investment
fund and mutual fund. Current investments majorly
included investment in government securities, equity
instruments, mutual fund and tax-free bonds.

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 EFFICIENCY EDGE METER: 4
An Edge Meter is a graded measurement of certain aspects of a company on a scale of 1 to 5, 5 denoting the highest rating. Since
judgement on equity is subjective because different people will have different expectation from their investments, it is better to study
each aspect and give an individual grading to arrive at the final evaluation of a stock.
 SOLVENCY
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DHD DEBT TO EQUITY

The metric stood at 0.36x. Total debt as on 31st Mar
2022 was ₹2,529 cr. The non-current borrowings of
₹501 cr was majorly pertaining to non-convertible
debentures. The current borrowings included
secured borrowing from bank at ₹211 cr and
unsecured borrowings from bank at ₹1,816 cr.
As on 30th September 2022, its long-term borrowings
& short-term borrowings were ₹837 cr and ₹2,336 cr,
respectively. The company would be utilizing the
debt towards working capital requirements.

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 SOLVENCY
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INTEREST
DHD COVERAGE RATIO
In FY22, the metric stood at ~213x. The company has
sufficient resources to meet its interest obligations.

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 SOLVENCY
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DHD CURRENT RATIO

The current ratio during FY22 was 1.2x.
Current assets majorly comprised of inventories,
trade receivables, investments, other current assets
and other financial assets. Current liabilities
comprised of borrowings, trade payables, other
financial liabilities and other current liabilities.

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 SOLVENCY EDGE METER: 4
An Edge Meter is a graded measurement of certain aspects of a company on a scale of 1 to 5, 5 denoting the highest rating. Since
judgement on equity is subjective because different people will have different expectation from their investments, it is better to study
each aspect and give an individual grading to arrive at the final evaluation of a stock.
 VALUATION
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DHD PE RATIO
Currently, BKT is trading at a TTM based PE of 26.86x.
BKT’s margin accretive measures coupled with focus
on improving the volumes and a healthy cash flow
generating capability has helped the company garner
a premium valuation multiple as compared to its
peers.

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DHD DIVIDEND YIELD

In FY22, the company declared three interim
dividends of ₹4/share along with one special
dividend of ₹12/share and a final dividend of
₹4/share taking the total dividend to ₹28/share.
The dividend pay-out ratio stood at 37.71% in FY22.
It paid first interim dividend of ₹4/share in August
and second interim dividend of ₹4/share was
approved by the Board in November.

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 VALUATION
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DHD KEY LEVELS

Balkrishna Industries has had a phenomenal run
since making a low of ₹694 in Mar 2020.
The stock had consolidated in the range of ₹1500-
₹1850 between Nov 2020 and Apr 2021. It gave a
breakout above the higher end of the range in May
2021 and went on to make a high of ₹2724 in Sep
2021. Post which the stock has seen some cooling
off, taking support at the ₹1900 mark on multiple
occasions.
₹1900-₹2100 will continue to act as a strong support
while a move beyond ₹2700 would be required for
fresh upside.

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 VALUATION EDGE METER: 4
An Edge Meter is a graded measurement of certain aspects of a company on a scale of 1 to 5, 5 denoting the highest rating. Since
judgement on equity is subjective because different people will have different expectation from their investments, it is better to study
each aspect and give an individual grading to arrive at the final evaluation of a stock.
 QUALITY
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DHD MANAGEMENT
The management plans to double the global market
share from ~5.5% to 10%. They would continue to
expand their capacities to achieve this mission,
supported by strategic endeavors towards enhancing
market reach, improving penetration in the US
markets, expanding product portfolio, strengthening
distribution channel in the Indian markets and
increasing utilization levels. Besides, they will
continue to build their brand visibility by associating
with several sports events across the globe.
It is optimistic about the growing demand of tyres
particularly in the OHT segment. The revival in
demand is linked to the output and investment in the
advanced economies as they are expected to cross
the pre-pandemic levels which would drive up
volume in FY23.

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SHAREHOLDING
DHD PATTERN
The promoter group holds 58.29% stake in the
company.
FII shareholding decreased from 14.3% in Q1 FY23 to
12.96% in Q2 FY23.
DII shareholding increased from 11.17% in Q1 FY23
to 18.91% in Q2 FY23.
The non-institution shareholding decreased from
16.24% in Q1 FY23 to 9.83% in Q2 FY23.
Top Public Shareholding:-
Life Insurance Corp of India 3.87%
HDFC Large & Mid Cap Fund 2.69%
Kotak Equity Opportunities Fund 2.46%
Government Pension Fund Global 1.64%
Mirae Asset Equity Savings Fund 1.62%

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 QUALITY
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DHD SECTOR POTENTIAL

Auto Industry:
• The automotive sector grew by 27% YoY in FY22. The sales increase was witnessed across all the categories, including personal
automobiles, commercial vehicles, two and three-wheelers and tractors and it approached pre-pandemic levels due to pent-up
demand. Despite the recovery in demand, the automobile industry experienced challenges in the second half of the year as a
result of a semi-conductor shortage and an escalation in steel prices.
• According to Moody’s India, the Indian automotive market, is expected to rise by 10% in FY23, owing to strong underlying demand
reflecting the global economic recovery and shift in consumers’ preference for personal vehicles over public transportation.
Tyre Industry:
• India is the fourth largest market for tyres globally after China, Europe and the United States. The Indian market has currently
been witnessing increased radialisation of tyres, especially in buses and trucks. The demand for tyres is primarily catalyzed from
two end user segments- OEMs and the replacement segment, with replacement market dominating the space.
• ICRA estimates the domestic demand growth in volumes for the tyre industry is expected to be ~13%-15% for in FY23 and is
expected to maintain a growth rate of 7%-9% between 2022-2025 period. Tyre exports have witnessed a noticeable increase in
FY22, owing to increased acceptability of Indian tyres in abroad markets and healthy demand from destinations such as the United
States and European countries. The industry is further expected to witness a capex of over ₹20,000 cr between 2022-2025 period
owing to increasing off-take across both Indian and global markets.

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COMPETITIVE
DHD LANDSCAPE
Balkrishna Industries Limited is India’s leading Player
in the global Off-Highway Tire (OHT) Market. BKT is
present in the off-highway tyre segment, which is a
niche segment catering to mostly the agriculture,
construction, industrial segments etc. Other tyre
manufacturers are mostly present in the general
highway segment tires which has a lot of competition
in India. The company now has capabilities to
develop over 3,200 SKUs and its ability to provide
such a wide range of SKUs is its inherent strength.
However, BKT manages to surpass the competition
due to its presence in different segments as well as
mostly in the export markets (~82% in FY22).
Also, the return ratios profile of BKT is on the higher
side of ~20-24%, as compared to the other players in
the industry which shows the better return
generation capability of BKT for its stakeholders.

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DHD FUTURE OUTLOOK

• In FY22, the company’s new plant located at Waluj commenced production from Sep 2021. The erstwhile plan was to shut down
the old Waluj plant after the new plant becomes operational. Considering the growing demand scenario and the strong outlook,
the board of directors at their meeting held on 11th Nov 2021, decided to continue operations of the old plant after suitable
upgradation of machinery at a capex of ₹350 cr. However, the board of directors at their meeting held on 13th May 2022
recommended to keep this capex investment on hold and continue the operations of the old plant in order to have unhindered

• 8
production and cater to the strong demand and quicker production scheduled demanded by end customers.
The board had earlier intended to replace the old Waluj plant by the newly commissioned greenfield plant, but given the
subsequent business outlook, it was decided to continue operations at both the plants along with modernization of the old plant.
The board has now decided to revert to its earlier decision of ceasing operations at the old plant. The earlier approved capex of
₹350 cr for modernization of the old plant will now be utilised at the new plant site to bring in economies of scale. This will be
done as a brownfield project, which is expected to be completed by H1 FY24. The Waluj location will accordingly have an overall
capacity of 55,000 MTPA at a single site.
• It has completed modernization, automation and technology upgradation capex at Rajasthan & Bhuj plant. Through this it is
envisaged that better productivity would show up resulting in margin uptick.
• It expects commissioning of 55,000 MTPA carbon black capacity along with power plant during December 2022. The project of
advanced carbon material for 30,000 MTPA will be commissioned in Q4 FY23. The project capex cost stood at ₹650 cr. Carbon black
currently contributes ~5% towards company’s turnover.

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 QUALITY EDGE METER: 4
An Edge Meter is a graded measurement of certain aspects of a company on a scale of 1 to 5, 5 denoting the highest rating. Since
judgement on equity is subjective because different people will have different expectation from their investments, it is better to study
each aspect and give an individual grading to arrive at the final evaluation of a stock.
 FINAL
ABOUTEDGE
THE MATRIX
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DHD
Edge Meter Aspects Grade
Growth 3
Profitability 4
Efficiency 4
Solvency 4
Valuation 4
Quality 4
TOTAL 23

The maximum grade for a company could be 30. Any company above grade 20
is worth considering. A grade below 15 is considered to be poor.
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DHD

THANK YOU
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equity involves individual judgements, this analysis should be used for only learning enhancements and cannot be considered to
be a recommendation on any stock or sector. Our knowledge team has limited understanding and we all are learning the art and
science behind this.

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DISCLOSURES
DHD
Neither Kredent Infoedge P Ltd. nor any of its associates have any financial interest in the subject company.
Neither Kredent Infoedge P Ltd. nor any of its associates have actual/beneficial ownership of one percent or more securities of the subject company, at the end of
the month immediately preceding the date of publication of the research report or date of the public appearance.
Neither Kredent Infoedge P Ltd. nor any of its associates has, any other material conflict of interest at the time of publication of the research report or at the time of
public appearance.
Neither Kredent Infoedge P Ltd. nor any of its associates have received any compensation from the subject company in the past twelve months.
Neither Kredent Infoedge P Ltd. nor any of its associates have managed or co-managed public offering of securities for the subject company in the past twelve
months.
Neither Kredent Infoedge P Ltd. nor any of its associates have received any compensation for investment banking or merchant banking or brokerage services from
the subject company in the past twelve months.
Neither Kredent Infoedge P Ltd. nor any of its associates have received any compensation for products or services other than investment banking or merchant
banking or brokerage services from the subject company in the past twelve months.
Neither Kredent Infoedge P Ltd. nor any of its associates have received any compensation or other benefits from the subject company or third party in connection
with the research report.
Neither Kredent Infoedge P Ltd. nor any of its associates was a client during twelve months preceding the date of distribution of the research report.
Neither Kredent Infoedge P Ltd. nor any of its associates has served as an officer, director or employee of the subject company.
Neither Kredent Infoedge P Ltd. nor any of its associates has been engaged in Market making for the subject company.
Kredent Infoedge P Ltd. shall provide all other disclosures in research report and public appearance as specified by the Board under any other regulations.