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HDFC Securities Institutional Equities
Balkrishna Industries Ltd.'s Q2 FY24 profit after tax, at Rs 3.3 billion, came in line with our estimate. Margin improved 140 basis points QoQ to 24.4% (in-line) and was led by an improved mix and favorable currency.
Management has indicated that given the recent geopolitical headwinds, the recovery in global off-the-road tyre demand is likely to take longer than earlier envisaged. As a result, and given the H1 tonnage sold, Balkrishna Industries now expects FY24 volumes to marginally decline YoY.
While FY24 is likely to remain weak, we have factored in a healthy 14% YoY growth in tonnage for FY25E. Also, on the back of operating leverage benefits and a favorable hedge rate (Rs 93 for 25% of potential exports for FY25E), we have factored in 220 bps further margin improvement to 27% for FY25.
This is despite the recent increase in crude prices which may impact input costs in coming quarters.
Overall, despite factoring in most positives, the stock at 27.4 times FY25E appears expensive. Maintain 'Reduce' with a revised target price of Rs 2,201 (Rs 2,148 earlier), as we roll forward to Sept-25 earnings per share (no change in target multiple).
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