LKP Research has given Buy recommendation for Balkrishna Industries with a target price of Rs. 2539 in its research report issued on May 17, 2022

LKP Research’s research report on Balkrishna Industries

Balkrishna Industries (BKT) posted a strong set of numbers in Q4 FY22 especially at the topline which grew by 36% yoy and 17% qoq at ₹23.8 bn on the back of 13.4% yoy and 9.7% growth in volumes. Second lever for this solid topline growth were the ASPs which expanded by 22.8% and 9.2% yoy and qoq respectively. This growth came on the price hikes taken in Q3 & Q4 and the product mix tilted towards replacement segment. However, increased RM basket costs and supply constraints restricted margin growth, as EBITDA margins came in at 21%, down 80 bps qoq and 1000 bps yoy on high base of last year. Apart from RM costs hike, other expenses too zoomed up on higher freight and power costs in the quarter. These impacted profitability. Below the operating levels, depreciation costs went up by 13% yoy as the new capacities are in ramping up stage. Net profits remained almost flat yoy while growing by 13.7% qoq to ₹3.73 bn. During FY22, topline grew by 43.6%, while margins came in at 23.9% as RM costs hike and supply side constraints impacted business throughout the year. PAT grew by 22% yoy to ₹14.1 bn.

Outlook

We therefore value BKT at 21x on FY24E earnings as compared to 17.7x current PE. We maintain a BUY rating on the stock with a target of ₹2,539.

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