Balkrishna Industries Ltd (NSE: BALKRISIND) Q2 2025 Earnings Call dated Oct. 26, 2024
Corporate Participants:
Rajiv Poddar — Joint Managing Director
Analysts:
Jinesh Gandhi — Analyst
Mumuksh Mandlesha — Analyst
Raghunandan NL — Analyst
Siddhartha Bera — Analyst
Abhinav Ganeshan — Analyst
Basudev Banerjee — Analyst
Sriram R — Analyst
Ajox Frederick — Analyst
Presentation:
Operator
Ladies and gentlemen, good day and welcome to the Balkrishna Industries Limited Q2 and H1 FY ’25 Earnings Conference Call. This conference call may contain forward-looking statements about the company which are based on the beliefs, opinions and expectations of the company as on the date of this call. These statements are not the guarantees of future performance and involve risks and uncertainties that are difficult to predict.
[Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Rajiv Poddar, joint Managing Director. Thank you, and over to you sir.
Rajiv Poddar — Joint Managing Director
Thank you. Good morning, everyone, and thank you for joining us today. Along with me, I have Mr. Bajaj, Senior President Commercial and CFO; Mr. Ravi Joshi, Deputy CFO; Mr. Sushil Mishra, Head Accounts and SGA, our Investor Relations Advisors.
Let me begin with performance updates. The second quarter panned out as per our expectations. We are all witnessing macro challenges accentuated by recessionary fears in USA. Geopolitical tensions and inflationary raw material scenario coupled with high freight costs. This has resulted in a weak demand scenario across our major markets, barring India where we continue to witness stable demand environment. We expect this weakness in international markets to continue for the remainder of the year. In spite of these challenges, we believe we will be able to achieve a minor sales volume growth in the financial year ’25 as guided in our previous earnings calls.
We have completed the capex for 30,000 metric ton per annum of high value of advanced carbon material and commissioned this plant in September. This is for the non-tire grade carbon black which will be used in plastics, inks, paints and other special industries. During the last board meeting, we had also announced a tire capex. We have now begun the implementation of the first phase of this capex, which is towards the OTR range of tires. We expect this completion of phase 1 in the first half of financial year ’26.
With this, I now move on to operational highlights. For the quarter our volume stood at 73,298 metric tonnes, a growth of 4% year-on-year. For H1, volume stood at 156,867 metric tonnes, a volume growth of 14% year-on-year. Our standalone revenue for the second quarter stood at INR2,465 crores, registering a growth of 10% year-on-year. This includes realized gain on foreign exchange pertaining to sales of INR29 crores. For the first half of this year, standalone revenue stood at INR5,207 crores, registering a growth of 19% year-on-year. This includes realized gain on foreign exchange pertaining to sales of INR18 crores.
For the first half of this year, 44% of sales came from Europe, 29% from India, 16% from Americas and the balance from rest of the world. In terms of channel contribution, 73% was contributed from replacement while OEM contributed to 25% and the balance coming from offtake.
In terms of category, agricultural segment contributed to 59%, while OTR industrial construction contributed to 37%, and the balance came from other segments. The standalone EBITDA for the quarter was INR619 crores registering a growth of 13% year-on-year percent. The margin came at 25.11%
For the first half of this year, the standalone EBITDA came at INR1,333 crores, registering a growth of 29% year-on-year. The margin for the first half was at 25.6%. Other income stood at INR105 crores while for the first half of this year it was INR187 crores. Profit after tax stood for the quarter at INR350 crores registering a growth of 4%. While for the first half of this year, we have recorded INR827 crores of profit registering a growth of 28%.
Our capex spends for the first half of this year were INR540 crores. Our gross debt stood at INR3,062 crores at the end of 30th September ’24. Our cash and cash equivalents were INR2,994 crores. Accordingly, we have a net debt of approximately INR68 crores.
The board of directors had declared a second interim dividend of INR4 per share. This brings the dividends to INR8 per share including the first [Indecipherable].
Before I conclude and leave the floor open for opening questions, I would like to wish all of you a very happy advance Diwali. Thank you.
Questions and Answers:
Operator
Thank you very much, sir. [Operator Instructions] Our first question is from the line of Jinesh Gandhi from AMBIT Capital. Please go ahead.
Jinesh Gandhi
Yeah. Hi sir. Quickly two questions. One is, in previous call we talked about increase in RM cost, increase in freight cost, and in turn margins in that context should have come substantially lower. But it seems you done an exceptionally good job on margin management. So, any price hikes taken and if you can quantify the impact of RM costs in this quarter and upcoming quarter.
Rajiv Poddar
We have taken the price hikes in Q2, not in the last quarter.
Jinesh Gandhi
Yeah. What would be the price hike in 2Q?
Rajiv Poddar
So, the impact would be coming [Speech Overlap] The impact of that will come in Q3, and it will be to the two — I mean very marginal, maybe about 1 to 2%.
Jinesh Gandhi
Okay. And RM impact in 2Q, can you quantify that? How much impact we saw?
Rajiv Poddar
In Q2 to Q3, RM impact may be the similar. Whatever increase we have taken.
Jinesh Gandhi
In 2Q, it was how much? On the commodity basket, what kind of increase we saw?
Rajiv Poddar
3% to 4% on the raw material, and if on the sales price it will be half approximately.
Jinesh Gandhi
Right. Got it. Got it. And last question is on demand outlook. So, you talked about continuing in second half as well. This is the impact which you are seeing on the retail demand or it is still inventory correction which is taking place. I believe inventory correction was largely done, but if retails are weak then, is there further inventory correction which we have seen?
Rajiv Poddar
At the moment it is mainly demand outlook.
Jinesh Gandhi
Okay, Got it. So, inventory is comfortable?
Rajiv Poddar
Yes.
Jinesh Gandhi
A few more questions, I’ll fall back in queue.
Operator
Thank you. Our next question is on the line of Mumuksh Mandlesha from Anand Rathi Institutional Equities. Please go ahead.
Mumuksh Mandlesha
Yeah. Thank you, sir, for the opportunity and Happy Diwali. Sir, there’s been an increasing production stops for European players. Is it due to weak demand or they are losing market share? And also, we have seen a lot of M&A activities in this space in Europe market. How do you see that playing in terms of pricing and market share sir?
Rajiv Poddar
Hello. So, I think on the other players in Europe what they are doing we can’t comment. And on M&A, I mean there is no impact as we had mentioned. We are also waiting and watching.
Mumuksh Mandlesha
Got it, sir. In terms of OEM demand which was very weaker this quarter, any improvement of traction there you see in the Q3 quarter?
Rajiv Poddar
We are working towards it but not seeing in the immediate future.
Mumuksh Mandlesha
Got it. Sir, in terms of EUDR regulation, how’s the preparation for the supply for the regulation? I just want to check the date of implementation for the regulations. Is any change there?
Rajiv Poddar
So, there is a change in the EUDR regulation. European Union is postponing it for one year. But it has to be passed in the parliament, which is likely to happen in November. So, all said and done it is likely to be postponed for earlier, but we are ready with the EUDR production. We can do anytime and as and when it is implemented.
Mumuksh Mandlesha
Got it, sir. And sir, lastly what was the Euro INR rate for Q2 and what do you expect for H2 and FY ’26 sir?
Rajiv Poddar
So, last quarter it was 91 and next quarter we are expecting — rest of the year we are expecting 92.
Mumuksh Mandlesha
Got it sir. Thank you so much for the opportunity.
Operator
Thank you. Our next question is from the line of Raghunandan NL from Nuvama Research. Please go ahead.
Raghunandan NL
Thank you, sir, for the opportunity, and the performance has been very good considering the challenging circumstances. Sir, firstly on the demand side, can you speak about the distributor inventory levels? Is it higher than normal levels? And specifically, if you can comment about how you are seeing the agri demand in replacement for Europe and North America.
Rajiv Poddar
So, the demand, I mean, at the inventory level we are seeing it to be at normal levels, but as I mentioned the demand is slowing down. So that is what the challenges, which you are working towards.
Raghunandan NL
Got it sir. And anything specific on the agri side where you are seeing any kind of — or by when do you hope things could improve on the demand side?
Rajiv Poddar
It’s a little early to comment on that. We are watching and being actively present in the market, so we are keeping an eye for that.
Raghunandan NL
Understood sir. On carbon black revenue, how was it in the current quarter, and how do you expect it to increase going ahead with the new capacity being operational?
Rajiv Poddar
So new capacities for the specialty carbon. So, this has come only in September. So, in the coming quarter you will see the impact of this one. And currently we are selling approximately 50% of our carbon produced in the market.
Raghunandan NL
Got it sir. And how much would that be in revenue?
Rajiv Poddar
It is less than 10%, still it is less than 10%.
Raghunandan NL
Got it sir. And lastly before I fall back to the queue, given that you have a better euro realization for H2 and you also have the benefit of a 1% to 2% price hike which will come in Q3, how do you see the margin range broadly for the full year? Would you expect, given that first half you have done 25.5%. How do you see the full year range?
Rajiv Poddar
We expect the similar around 25% as we told in the last call also, it will be around 25%.
Raghunandan NL
Got it sir. I’ll fall back to the queue sir, for remaining questions.
Operator
Thank you. Our next question is from the line of Siddhartha Bera from Nomura. Please go ahead.
Siddhartha Bera
Yes, thanks for the opportunity. Sir, first question is on this demand side again, I mean if you look at OE or replacement, where do you see bigger challenge in terms of recovery, and what will probably drive that? If you have some color for the next year, what things we should look forward to.
Rajiv Poddar
Sorry, can you repeat the question? We could not pick it up.
Siddhartha Bera
So, I was asking about like where is the bigger challenge in terms of demand OE replacement? Where do you see bigger stress, and what will drive that recovery? If you have some insight, what should we look forward to for the recovery to play out?
Rajiv Poddar
So, at the moment demand is weak all over. Export replacement, OE, overall in Europe and North America is weak. And I think we are also waiting and watching. It’s very difficult to pin one point and pinpoint to one thing and say this is what will drive the recovery or something. There are a lot of factors currently affecting geopolitical situations, tensions. And also, we are waiting and watching.
Siddhartha Bera
Got it. Have we seen any sort of pickup in exports or market share gain for Indian players in U.S. compared to China? Have we sort of seen any sort of trend like that?
Rajiv Poddar
No, no, no.
Siddhartha Bera
Okay. Okay. So, on the cost side then if you can highlight freight cost of late seems to have come down a bit. So, shall we expect normalization in freight cost in the second half from where we are in Q2 or do you think it will take longer?
Rajiv Poddar
No, we are expecting freight to hold at these levels for a while. But let’s see, at this moment we are not seeing any reduction, further reduction.
Siddhartha Bera
Okay. Okay. And so lastly on this other expense, this quarter there has been a decline on a Y-o-Y basis. So, is it that some costs have not come in quarter or if you can throw some color on why it is down?
Rajiv Poddar
Yeah, it is because of decrease in promotional expenses. Last quarter, there was a major expenditure in IPL. So, this quarter there was no such expenses. And apart from this, there was also reduction in production also.
Siddhartha Bera
Okay. So, this should normalize as and when you start this promotional expense. That is what we are assume. Okay. Lastly on the capex side, the first half we did about INR500 crores. So, you have guided earlier for INR700 crores to INR800 crores for the year. So, what is the updated guidance if you have for the year?
Rajiv Poddar
So, between INR800 crores and INR1,000 crores.
Siddhartha Bera
Okay sir. Thanks a lot. I’ll come back in the queue.
Operator
Thank you. Our next question is from the line of Abhinav Ganeshan from SBI Pension Funds. Please go ahead.
Abhinav Ganeshan
Good morning, sir. Thanks for taking my question. I wish you a very happy Diwali, and congrats on a great set of numbers. I just had two questions. First one is regarding our volume. So, we have done 1.56. So, can we estimate that we will be able to match our FY ’23 high volume of 3.02 lakh tonnes?
Rajiv Poddar
As I mentioned in my opening remarks, that we believe we will be able to achieve a minor sales volume growth over the financial year ’25. So, this is what we are holding to.
Abhinav Ganeshan
So, if you can — so it will be like a low single digit number. That would be fair to assume.
Rajiv Poddar
I cannot comment on that. I can give you what the guidance is. You can pick up, I mean you can put the number whatever you feel. But our volume guidance is in that line.
Abhinav Ganeshan
Yes, that was useful. And one more question is with raw material cost that is natural number and even crude oil being a little lower in the current quarter. So, can we see some of that benefits flow through for us in Q3 and Q4, if [Indecipherable]
Rajiv Poddar
There may not be any immediate relief for this price going down because we are the importers. So, our raw materials are in already in pipelines. This impact if petrol prices are getting reduced will be in the fourth quarter.
Abhinav Ganeshan
Okay, that was useful. Thank you. That’s all from my side.
Operator
Thank you. Our next question is from the line of Basudev Banerjee from CLSA. Please go ahead.
Basudev Banerjee
Hello. Hello.
Rajiv Poddar
Mr. Banerjee, we can’t hear you. Maybe we’ll take you back again later.
Operator
Sure. So, we’ll move on to the next question which is from the line of Jinesh Gandhi from AMBIT Capital. Please go ahead.
Jinesh Gandhi
Yes sir. Two follow ups. One is, you said you don’t expect freight cost to further reduce. However, we have seen sequential increase in freight costs. So, from the second quarter level, should there be reduction in freight costs than second half or that 7.4% of sales is where it should sustain based on the current visibility.
Rajiv Poddar
There will be marginal reduction from the second quarter to third quarter.
Jinesh Gandhi
Okay. Okay. And secondly on the tax rate. So, we have seen a reduction in tax rate on Q-o-Q basis, and seems to be quite low. Is there any one-off in that, any tax write backs which is for the prior period. And otherwise, how should we look at tax rate from a full year perspective?
Rajiv Poddar
Tax rate includes so many things. Like there are a lower tax income also like an investment. And apart from this there are other, you can take it like unrealized action gain loss that we can add or less in the tax calculations. So that is the reason.
Jinesh Gandhi
Okay, so about 23%, 24% is there. It should be overall.
Rajiv Poddar
Yes.
Jinesh Gandhi
Got it. Got it. Great. So, thanks and all the best.
Operator
Thank you. [Operator Instructions] Our next question is from the line of Sriram R who’s an individual investor. Please go ahead.
Sriram R
Yeah. Thank you for the opportunity. So, with you know this is India China border dispute being resolved, do we get to see some investments from Chinese players into our sector or are we open to forming JVs with them? What is your sense?
Rajiv Poddar
We don’t see any such investment. And we don’t know. If an opportunity comes, we will evaluate it at that time. But currently we don’t have any particular opportunity to evaluate.
Sriram R
But are you open to forming JVs with them or you know, if you can elaborate on it.
Rajiv Poddar
We can’t comment on that. If an opportunity comes, we will evaluate it and then take a call. But we cannot comment before and after. You know, we cannot speculate on that.
Sriram R
Okay. Thank you. Thank you.
Operator
Thank you. Our next question is from the line of Ajox Frederick from Sundaram Mutual Fund. Please go ahead.
Ajox Frederick
Hi sir. Thanks for the opportunity. So sequentially the realization has gone up. And you mentioned that you have not taken price hike during the quarter. So is it due to the mix, improved mix we are seeing increased realization?
Rajiv Poddar
Yes, it’s a product mix and hedge rates. Both.
Ajox Frederick
Understood, sir. Yeah. Thank you, sir. That’s it for me.
Operator
Thank you. [Operator Instructions] As there are no further questions from the participants, I now hand the conference over to Mr. Rajiv Poddar for closing comments.
Rajiv Poddar
Thank you once again to all the participants, and we look forward to seeing you next quarter. And once again wishing you a very, very happy Diwali. Thank you.
Operator
[Operator Closing Remarks]