Hold Balkrishna Industries; target of Rs 740: ICICI Direct

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ICICI Direct's research report on Balkrishna Industries

Balkrishna Industries (BIL) reported weak Q4FY19 results. Standalone revenues for the quarter were at Rs 1,351 crore (up 9.7% YoY) wherein volumes grew 2.5% YoY to 55,388 MT. EBITDA rose 8.3% YoY to Rs 320 crore with attendant EBITDA margins at 23.7% (down 31 bps YoY & 127 bps QoQ), primarily tracking a 296 bps sequential increase in raw material costs as a percentage of sales although operating leverage benefit mitigated some of the adverse impact. Consequent PAT came in at Rs 184.7 crore (down 4.6% YoY). The company declared a final dividend of Rs 2/share for FY19.

Outlook

We expect sales, EBITDA and PAT to grow at 7.8%, 14.3% & 6.5% CAGR, respectively, over FY19-21E. We feel that with modest growth on the horizon and gradual revival in margins, current high valuation multiples have room for some correction. We value the company at 16x its FY21E EPS of Rs 46 to arrive at a target price of Rs 740 per share. We maintain our HOLD rating on the stock. We derive comfort from BIL’s debt free balance sheet, healthy double digit return ratios and ~8% CFO yield.

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