Balkrishna Industries key export markets have reported robust demand (Feb’21 industry exports grew 24% YoY). The latest industry export data (Feb’21) maintained a balance with agri (Ag) demand (up 23% YoY), while OTR (off-the-road) grew at 25%. The latest data continues to support the V-shaped demand rebound: YTD/QTD industry exports are up 11%/27% YoY respectively. On a regional basis, in Feb’21, growth was led by the US (up 39% YoY), followed by the RoW region (up 36%) while the EU grew 12% (base effect). The pace of export growth in Q4 currently remains ahead of consensus expectations.

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As Balkrishna Industries reaches peak utilisation in FY23E (assuming 18% revenue CAGR over FY20-FY23E), ICICI Securities expect the strong RoICs of >25%, justifying its valuation premium vis-à-vis peers. Maintain BUY rating on the stock. Balkrishna Industries share price today Rs 1660, Rs 55 or 3.5%.

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Overall export growth continues as OTR rebounds:

Agri and OTR segments together grew at a healthy 24% YoY in Feb’21. On an end-product basis, growth sustained in Ag tyres (up 23% YoY) and contributed 68% of total exports (down 22bps YoY). On the OTR side, momentum is picking up with 25% growth YoY in Feb’21 which potentially signals steady increase in mining, construction offtake.

Agri exports continue on growth trajectory, OTR too enters growth cycle:

After the initial covid-induced demand shock (23% decline YoY) in Q1 FY21, exports posted a V-shaped recovery of 32% growth in Q2 and reported 15% growth in Q3 hit by the second wave. This has led to the overall industry clocking 11% growth YTD. ICICI Securities believes the outlook for global Ag exports remains strong under the rising commodity price environment. OTR demand is also likely to be supported by infrastructure/mining investments in FY22 as commodities outlook remains firm.

ICICI Securities expect healthy FCF generation of Rs 20 bn over FY22E/FY23E even after factoring in Rs20bn of capex over the same period. ICICI Securities maintains target price of Rs 1937 (unchanged target PE multiple:22x FY23E). Maintain BUY rating on Balkrishna Industries.

Balkrishna Industries Key downside risk:

Meaningful change in demand outlook