Balkrishna Industries Ltd Q4 FY23 Earnings Conference Call Insights

Key highlights from Balkrishna Industries Ltd (BALKRISIND) Q4 FY23 Earnings Concall

Management Update:

• [00:04:45] BALKRISIND said the advanced Carbon Black project of 30,000 metric tons per annum is delayed and expected to be completed in 2H24.

• [00:06:30] BALKRISIND crossed the historical mark of INR10,000 crores sales for the first time in company’s history.

Q&A Highlights:

• [00:11:30] Ashutosh Tiwari of Equirus asked about the gross debt level. Rajiv Poddar Joint MD answered that it’s around INR3200 crores.

• [00:12:00] Siddhartha Bera at Nomura queried if volume growth can be expected from 1Q due to channel destocking or if it may take longer for volumes to come back. Rajiv Poddar Joint MD replied that the company sees some clearance happening from June, July.

• [00:13:29] Siddhartha Bera at Nomura asked about the drivers of volume growth in India for BALKRISIND though industry has not been growing much. Rajiv Poddar Joint MD answered that the growth is due to a mix of factors including product acceptability and performance, market share growth, branding and good brand recall in the Indian market.

• [00:14:16] Mumuksh Mandlesha from Anand Rathi asked about the expectation in terms of RM cost reduction for next quarter. Rajiv Poddar Joint MD replied that it would be around 1-2%.

• [00:16:07] Pramod Amthe with Incred Capital enquired why interest costs have increased from INR15 crores in 2Q to INR25 crores. Ravi Joshi Deputy CFO clarified that the increase in interest costs is due to an increase in EURIBOR and the rate of PCFC taken, and it will only decrease once it starts reacting.

• [00:18:17] Pramod Amthe with Incred Capital asked if manufacturers are passing on the benefit of benign RM costs to the end consumer or if it’s a fight for pricing. Rajiv Poddar Joint MD replied that the situation is being closely reviewed and if necessary, some of the reduction in raw material costs may be passed on to retain market share.

• [00:19:05] Ankit Kanodia of Smart Sync Services asked if it is correct to assume that margins will see a bump-up in 2H24 and continue to maintain a 21-22% margin in 1H24 as Europe recovers. Rajiv Poddar Joint MD answered that an improvement in margins ranging from 200-300 bps is expected for the whole year, with the bulk of it coming towards the end of the year, resulting in a bump in 2H24.

• [00:20:39] Ankit Kanodia of Smart Sync Services queried if new players are entering the market with a price differential similar to European and American counterparts or if the main competition continues to be from these regions. Rajiv Poddar Joint MD said the company competes in a quality-driven market against top players with similar quality and range, and price is not the main focus.

• [00:22:00] Nishit Jalan from Axis Capital asked about the company’s RM policy and inventory for rubber and crude derivatives, and if there was a disproportionate inventory vs. what is typically kept. Rajiv Poddar Joint MD replied that typically, the company keeps between 45 and 60 days of stock for RM, but the lag was longer than expected due to a market correction and a dip in numbers in the last 2 quarters. Shipping times got cut and the lead time for future orders came in earlier, causing a longer lag.

• [00:24:02] Nishit Jalan at Axis Capital enquired about any plans for acquisition in India or overseas, given its large capacity and historical stance on not setting up plants overseas. Rajiv Poddar Joint MD said that the company has no immediate intent to set up a plant overseas but is keeping an eye out for potential acquisition opportunities while also planning for in-house expansion.

• [00:25:44] Abhishek Jain from Dolat Capital asked about the current retail demand trend in European agriculture market and U.S. OTR market. Rajiv Poddar Joint MD answered that it’s better than the company’s wholesale sales currently in both the sectors, which is a good sign for BALKRISIND.

• [00:31:49] Raghunandhan at Nuvama Wealth asked about the company’s expectations on how demand could improve on the replacement market side over the next few quarters. Rajiv Poddar Joint MD answered that it is too early to say, but a better second half is expected with improvement in Europe.

• [00:34:48] Saif Gujar of ICICI Prudential asked about the avg. hedge rate and proportion of hedge for FY23 and 4Q23. Ravi Joshi Deputy CFO said that for the entire year it was 85.3. For 4Q23 it was 86.5, and for FY24, it is around 88, 89.

• [00:38:09] Ashutosh Tiwari from Equirus asked if the next phase of capacity expansion beyond 360,000 can be taken up at Bhuj or if a greenfield is needed. Ravi Joshi Deputy CFO clarified that there is ample room at Bhuj and it will be taken up in Bhuj.

• [00:40:22] Mumuksh Mandlesha at Anand Rathi queried about Carbon Black sales to third party in FY23 and its utilization in FY23. Ravi Joshi Deputy CFO said approx. 6%. The utilization was 85-90%.

• [00:45:27] Sunil Shah with Turtle Star asked when the company will regain its earlier phase of being debt-free with a 300 bps increase in margins and a current net debt of INR1,200 crores. Rajiv Poddar Joint MD said the company is working towards being net debt-free in about 15 to 18 months, subject to no major expansion being announced before that, as gross debt continues to decrease.