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  • Company update: Balkrishna Automobiles — Buy — TP Rs.1,260

    Publish date: 3rd July, 2018

    Balkrishna Industries Limited (BKT) can rely on its strong business model to sustain its long-term momentum.

    The reasons are manifold: potentially large share gains in the mining segment, the possibility to be one of the major off-tires manufacturer globally and high EBITDA earnings over the next few years.

    Key Highlights

    • Low employee cost to sales means the company can be a major global player in manufacturing off-highway tires in the next 10-15 years. Our data show that other global players like Michelin and Trelleborg have at least a 22% higher employee cost to sales compared to BKT.
    • - The company can make significant inroads in the mining segment. As per our understanding, mining tires could be 15% more profitable than agricultural tires due to low competition. Although they have a strong presence in manufacturing agri tires, the company has taken a series of measures to step up their production of mining tires.
    • - We also believe that they can deliver 14% CAGR between FY2018-21 due to growth in the off-the-road (OTR) tires segment and increased footprint in the Original Equipment Manufacturer (OEM) segment.
    • - The company is trying to make higher-sized mining tires in the next three to five years. If they succeed, the prices can come down, resulting in higher profits. This, coupled with the current rupee depreciation and setting up of state-of-art technology, can help the company sustain 30%+ EBITDA margin.

    Valuation & outlook

    The building blocks are in place for the long run. Unless there are unforeseen hold-ups, the company has the potential to record robust profits in the next 10-15 years.

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