Balkrishna Industries Limited (502355) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Balkrishna Industries Limited Q3 and 9 Months 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 of 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.

Thank you, Reyo. 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 Relationships Advisers. Let me begin with performance updates. Market scenario continues to be challenging. However, our strong product profile, backed by brand investments, have led us to achieve minor sales growth on a year-on-year basis in Q3. We are confident and hold on to our forecast of achieving minor sales volume growth in this financial year. Post the completion of CapEx of 30,000 metric tons per annum of high-value advanced carbon material plant in September last year, we are undergoing testing with end customers. This advanced carbon black material is for non-tire grade carbon back to be used in plastics, ink, paint industry. The CapEx for 35,000 metric ton per annum of OTR range of tires was announced in August last year. The first phase of this CapEx is progressing as per schedule, and we expect to complete it in the first half of financial year '26. In line with our vision to achieve a global market share of 10% in off-highway tire market over the next few years, we are continuously strengthening our senior management team. In this connection, I'm happy to welcome Mr. Satish Sharma to our team as Senior President for Strategy and Business Development. He brings with him a rich experience of over 3 decades in the tire industry. With this, I now move on to operational highlights. For the quarter, our volumes stood at 76,343 metric tons, a growth of 5% year-on-year. For 9 months, volume stood at 233,211 metric tons, a growth of 11% year-on-year. Our stand-alone revenue for the quarter stood at INR 2,371 crores, registering a growth of 11% year-on-year. This includes realized gain on foreign exchange pertaining to sales of INR 31 crores. For 9 months, stand-alone revenue stood at INR 7,778 crores, registering a growth of 16% year-on-year. This includes realized gains on foreign exchange pertaining to sales of INR 111 crores. For the 9 months of financial year '25, approximately 43% of the sales came from Europe, 29% from India and 16% from Americas. The balance comes from rest of the world. In terms of channel contribution, roughly 73% was contributed from replacement segment, while OEM contributed to about 25% and the balance came from offtake. In terms of category, agriculture contributed to 59%. OTR, industrial, construction contributed to 38%, and the balance came from other segments. The stand-alone EBITDA for the quarter was at INR 639 crores, registering a growth of 9% year-on-year. The margin came at 24.8%. For 9 months, the stand-alone EBITDA was at INR 1,979 crores, registering a growth of 22% year-on-year. The margin for 9 months stood at 25.4%. Other income stood for the quarter at INR 24 crores, while for 9 months, it was INR 211 crores. Profit after tax for the quarter stood at INR 439 crores. For 9 months, we have recorded INR 1,266 crores, registering a growth of 32%. Our CapEx for this financial year -- 9 months of this financial year were at approximately INR 968 crores. Our gross debt stood at INR 3,045 crores at the end of 31st December '24. Our cash and cash equivalents were at INR 2,942 crores. Accordingly, we have a net debt of approximately INR 103 crores. The Board of Directors has declared a third interim dividend of INR 4 per equity share. This brings the total dividend for this financial year to INR 12 per share, including the earlier 2 interim dividends. With this, I conclude my opening remarks and leave the floor open for Q&A.

[Operator Instructions] The first question is from the line of Siddhartha Bera from Nomura.

Sir, my first question is slightly more color, if you can give, on the demand outlook across regions. We do see that Europe mix has come down further, implying that it probably has declined in the quarter. So any signs you are seeing there in terms of recovery? By when can we expect growth to sort of come back there? And second is, similarly, if you look at the other regions, for example, especially the rest of the world, we have seen a very strong growth in that segment. So some color there, which country is probably driving this and how to think about the outlook here?

So as I mentioned in my opening scenario, the market scenario continues to remain challenging. And as you have noticed, yes, rightly that Europe has been very challenging, and you are seeing the impact of that. However, Americas has grown and India has grown. So these are the 2 areas which we have been earlier mentioning in our quarterly calls that these are the areas of concern and focus for us, and you're seeing the response in those 2 areas.

And any color on the rest of the world, sir, which country is probably driving that and how sustainable the growth there is? Any one-offs otherwise?

So I think it's sustainable in those regions, and that is all part of our overall branding and investments that we have done across the globe, which is now coming into play.

Got it. Second, sir, is on the OE side as well, while globally, we have seen companies talking about channel destocking and weak demand, our OE volumes have grown. So any particular sort of company where we have gained market share? Or do you think this segment also can see some softness going ahead? So some color there?

No, I think -- I mean OE was something that we've been focusing on, and that's why it is there, but there is no substantial increase of a player or market share. It's just a general business which is growing.

Okay. And what about the channel inventory levels now, have they gone down even further? What are the levels? And how should we think about the ramp-up there?

It is at same levels. So I think everybody is waiting and watching what happens with the -- on the geopolitical scenarios, what happens on the shipping times and cost, both. So I think there is a lot of wait-and-watch scenario for us to really comment on that.

[Operator Instructions] The next question is from Raghunandhan N. L. from Nuvama.

Sir, firstly, compared to the company expectation of marginal growth in FY '25, we have done very well. YTD growth for us is at 11%. As you indicated, brand investments have supported growth. One clarification, in opening remarks, did you indicate marginal growth for Q4 FY '25 or full year FY '25?

Full year, full year. I repeat my statement, we are confident and hold on to our forecast of achieving minor sales of volume growth in the whole financial year '25.

Understood, sir. So you still hold that concern on the challenging environment, as you highlighted even for the answer in the previous participant.

Yes, yes.

Secondly, on the cost side to Mr. Bajaj. Sir, if you can indicate on the Q3, how much was the impact of raw material cost? And what is your expectation for Q4? Another cost item, freight cost seems to have reduced in Q3. What is the expectation here for Q4?

So on raw material, we indicated that the price is going up 100, 200 points, it should impact the margins. But the major impact of that cost will be coming in the coming quarter because of the lag of the shipping time, material comes in this quarter. So that 100%, 200% cost is likely to go up in the next quarter. And coming forward, the raw material prices are stable.

Understood. And on the freight, sir?

Freight cost, whatever has been reduced that we have indicated in last time, now it is on the freight.

On the freight side. Got it, sir.

The next question is from Mumuksh Mandlesha from Anand Rathi.

Sir, in Europe, particularly, can you speak how has been the growth for the agri and the OEM segment, sir? And sir, in the near term, considering the base of Q4 last year, do you see Q4 being flattish? Or do you see some growth in Q4 also, sir?

So I can't comment on individual breakup of Europe at the moment. I don't have the numbers. Regarding the upcoming quarter, as I said, the market scenario continues to be challenging. And hence, I would not like to comment on this quarter. But for the whole year, we are confident of achieving minor sales volume growth for this financial year. So we are quite confident of that.

Got it, sir. Sir, in this quarter, the freight costs have come down. Is there any freight surcharge also being changed, sir? Has the freight surcharge also been coming down along with the freight cost, sir?

No, only the freight -- I mean freight cost has been coming down.

Okay. So the benefit is coming to our numbers?

Yes.

Okay. And sir, this quarter, the employee cost has increased by 10% Q-on-Q. Any reason for the increase, sir?

So yes, as we mentioned, the CapEx is done, which has come into play. So we have -- that has an added impact on the employee cost.

Got it, sir. And lastly, sir, what was the euro-INR rate for the Q3 quarter? And what is expected ahead, sir?

So it was 91 for the last quarter and the whole of the year. And for the balance period, we expect 92 to 93.

Next question is from Pramod Amthe from InCred Equities.

Sir, first question is, do you see any opportunity to expand into domestic tire subsegments?

Not at this stage.

Okay. And in that context, the new hirings which are made both in the strategy and in the R&D, how do they fit in?

So that's -- I mean that has nothing to do with this. So R&D, it's an ongoing business call. And for the new hiring strategy is, as I mentioned, is towards achieving our vision in off-highway.

Okay. And sir, this is with regard to the carbon black project, what is to be expected in terms of tonnage or sales contribution for FY '26, the new carbon project? And will it be day 1 EBITDA neutral or how to look at it?

So the specialty carbon business is very less, 30,000 tons, and it is initially there. Samples are being given and tested. So it will get time to ramp up.

Okay. And anything on the profitability side?

Probably it will par with the industry, maybe slightly better.

Okay. And so in that sense, it will be still below the corporate average? Is that the fair assumption?

Can be.

The next question is from Abhishek Jain from AlfAccurate Advisors.

Congrats on a decent set of numbers. Sir, in the U.S. market, we have seen a very impressive growth in this quarter. So just wanted to understand, what is the outlook? Is there any concern on the tariff side in the U.S.? And what is the current structure of the tariff?

So too early to comment. We'll have to wait and watch what comes, then only we can comment. Otherwise, at the moment, we can't comment what he will do.

And what is the current structure?

What is the current?

Structure of the tariff in the U.S. from Indian tariff?

There is no tariff fee.

Okay. And sir, how much percentage of the volume comes from the Mexico and Canada in overall U.S. volume?

I don't have the breakup of geography, which -- so I can't share that with you. [indiscernible] Americas, which I have shared.

The next question is from Jinesh Gandhi from AMBIT Capital.

A couple of questions from my side. One is, did we take any price hikes in this quarter on the...

We can't hear you, your voice is very muffled.

Yes. Is it better now?

Slightly, yes.

Yes. So did we take any price hike in 3Q?

No.

And in fourth quarter so far, any price hikes or prices have been stable?

Sorry?

Price hikes in -- any price hikes in fourth quarter so far, in January so far?

No.

No, okay. Second question pertains to the advanced carbon black 30,000 ton capacity. So what could be the peak revenue potential from this plant? And should we expect that to play out in FY '26 or it will take a little longer to ramp it up?

It may take a little more time also and difficult to make out currently because there are many products, so which product will be developed fast. So price depends on product to product. So maybe 2 quarters later, we will be able to give you the projections.

Got it. Got it. And lastly, any sense on what should be the CapEx for FY '26 or we'll have to wait for -- I mean, as we finalize it?

At the moment, we have got that first phase of the 35,000 metric ton of OTR range of tires, which is ongoing. So at the moment, only that is lined up.

Next question is from Abhinav G. from SBI Pension Funds.

Just wanted some clarification on 2 things. First is on the ROW market, if you can just mention geographically which countries are these? And also on your channel side, when you say others, are we talking about mining tires? Or what is that, if you can just clarify?

On the ROW, it is everything apart from Europe, Americas and India. So it is Africa, Middle East, Asia, Australia and New Zealand. So I mean, geography, those are -- that is what is covered. On the others, we have some -- mining is coming under OTR set of tires. But it is your smaller golf carts and ATVs and all of that. So that is all what is -- I mean, some other solids and all which are there, which contribute in that.

Okay. So that is quite clear. One more thing, just wanted to understand, now this on the European deforest regulations, last time we had mentioned that, that has got postponed by 1 year. So are we getting any clarity that it will get applicable Q3 next year? Or is this still work in progress? And do we see any channel fill-in before these regulations kick in? What's the take there?

It is not Q3. It is deferred to 1st Jan of next year. But apart from that, there is no further update on that.

Next question is from Ravi Gupta from InCred Equities.

My question is...

We can't hear you at all.

Is it clear now?

Yes.

So as Trump elected in the U.S.A and the recession fears for the U.S.A. has been eased, also the concern over geopolitical tension also eased, does this give you confidence to achieve double-digit volume in FY '26 as we have done in this 9 months?

I think it's too early. Let things start rolling out. We are hopeful and we are ready, as I mentioned earlier also, we have production capacity. We are doing all our investments. We are developing products. We are focusing on everything that we can do. As soon as the scenarios improve, we will be able to do. But we are fingers crossed and we are hopeful things -- I mean, everybody prays for things to improve. So let's see. But it's too early what happens in the market scenario, who -- where things get resolved, no other geopolitical scenario should turn up. So it's too early to comment.

Next question is from Ajox Frederick from Sundaram Mutual Fund.

Sir, my question is on rest of the world. We seem to be doing very well quarter-on-quarter. So can you help me understand what exactly is driving this? And you mentioned that it is sustainable as well. So which country is driving it or some more color, basically, on the rest of the world?

I mean it's very difficult to give a breakup of a particular country. It's all over. I mean, as I mentioned, there's a product profile which helped us get these numbers. There is the brand investments which are going on across the globe, which is now -- we've always mentioned that, that will play up and help us be recognized, which is coming in. So these are the things. It's very difficult to say A country or B country or C country, it's all over. It's a mix of things which is -- mix of geographies in the rest of the world which has come. We've always mentioned about Americas being an area of focus for us, and you're seeing the changes. We mentioned India is an area of focus. The branding, because we are based in India, is more visible to all of you. So that is helping us get recognition.

But sir, has...

All these countries, the base is also lower than in Europe. So that is also helping see the numbers in percentage go up.

Understood, sir. So your branding budget for rest of the world has increased phenomenal versus the others?

No, no, no. It is what we have always had the same branding. But it starts -- it takes a few years for it to start getting recognized.

Okay. Okay, sir. Got it. And sir, secondly, on the overall outlook, you mentioned the marginal growth. But right now, we are running at very strong rates, right? So I mean, again, except for Europe, others are also doing well. So where is this concern coming from for the year?

So as you can see, our largest geography yet continues to be Europe. And the concern is from Europe, how that will play out.

Next question is from Viraj from SiMPL.

Just 2 questions. First, and I think you made a commentary on the OE demand in Europe and the rest of the markets, North America, I missed that. Can you just give some perspective what else that you're reading in terms of OE demand in ag and the mining, construction space? That is one. And second, the concern for Europe, can you just elaborate more in terms of what are the dynamics playing out there?

So if I've understood your question correctly, you're asking me for what is my breakup. So I'll repeat my commentary. For the 9 months, 43% of sales has come from Europe, 29% has come from India, 16% has come from Americas and rest has come from -- balance has come from rest of the world. In terms of channel contribution was your second question. So 73% came from replacement segment, 25% came from OE and the balance came from offtake.

No, sir. Actually, I was asking what is the OE demand trends you're seeing currently across major markets, Europe and North America? That is the first question.

Flattish, stable and flattish.

So going forward, what is the communication you're giving both in the aftermarket and the OE demand in major markets, North America, Europe, in both agriculture and construction, mining segments?

As I said in my opening commentary, the market scenario continues to be challenging. We are hoping that same thing. So we are also waiting and watching to comment on anything in the future.

Okay. And in terms of -- sorry?

However, that said, we are confident to hold to our forecast that we have made at the start of the year of achieving minor sales volume growth in this financial year.

And in terms of the whole supply chain lead times being longer because of the Red Sea, given that, that is now easing, do you see any issues in terms of higher inventory levels or any of that? Because the last few months, we've also seen a lot of higher order placement from the channel. So do you see any of those issues surfacing again?

No, not at this stage.

Next question is from Ganesh Nagarsekar from Bharat Bet Research.

So my question was regarding our Americas demand. So broadly, you said you've been seeing some improvement there. So could you kind of highlight the top 2 drivers for that? And going into the next few quarters, do you see that trend continuing? Or what's your kind of visibility into that?

So the top 2 drivers has been the focus that we've been doing over the years in terms of product for Americas, in terms of infrastructure for Americas. So that is now kicking in. Going forward, we are quite hopeful that this should stabilize and continue to grow over there. I mean the American market should stabilize, and we should see some growth from rest of -- I mean the whole of America.

Understood. And just one second question. So on CapEx for the year, I think we had guided INR 800 crores to INR 1,000 crores. And I think 9 months, we are at INR 970 crores. So broadly for the year, what is the kind of spend that we're looking at? And for next year, if you could kind of provide some guidance as such?

Roughly about between INR 1,100 crores and INR 1,200 crores for next year.

Next question is from Ankit Kanodia from Smart Sync Services.

Most of my questions have been answered. Sir, I just had one question. What I mean is that over the last 3, 3.5 years, our stock price has almost been plateaued. We are at the same level. And from a business perspective, from peaking the volumes in FY '23, the volumes came down, and now we are slowly seeing the volumes inching up. And given that the strong cash flows we have, the kind of cash we have on books and the high dividend payout, at the Board level, do we also discuss about a possible buyback at some point of time?

No, not at this stage.

Any reason you would want to share why you are not looking at...

We are constantly investing in the CapEx and the growth of the company, whether it is in terms of promotion, in terms of product mix, in terms of setting up new capacities, so which will continue. So we will use the money for those purposes.

Next question is from Sonal Gupta from HSBC Mutual Fund.

Just on this -- I mean just overall on the European market side, could you give us a sense of like on a calendar year, say, CY '24 versus '23, what sort of a decline would you have seen in the market on the underlying basis?

Minor degrowth is there. I don't have the exact numbers, but it is a very minor degrowth, what I recollect.

Okay. So -- okay. And in terms of channel inventory also, I mean, is it above normal? Or where do you see it currently?

It is at normal levels.

Normal levels. And just lastly, on the India side, I mean like we continue to do extremely well in India. So I mean like in the markets that we are catering to, I mean, roughly, what sort of market share would we now have in India?

So overall in both the off-highway -- off-highway would be similar to international levels of 6% to 7%. Agri would be closer to 10%, and the others are growing up. So -- but approximately 6% to 7%, I would say, for the whole off-highway business.

Got it. So could you -- I mean off-highway and agri, what is the others? Sorry, which are the segments you're looking at?

So industrial, construction, mining is there in the off-highway business. So those sectors is lower. Agri is at 10%, and those sectors would be between 3% and 4%. But cumulatively, in the whole Indian market, we would be at about 6% roughly, between 6% and 7%, but closer to 6%.

The next question is from Lokesh Manik from Vallum Capital.

My question was in 2015, India, we were doing sales volume of about 20,000, 25,000 tons, and we've been able to scale that successfully today to about 80,000, 90,000 tons. 3 to 5 years down the line, do you see the same trajectory for rest of the world or for U.S., whichever your focus area is?

For Americas, for sure, we are focusing, and we believe there is tremendous area of growth which will continue. Rest of the world, we are looking at it geography by geography. So it will be difficult to give you a generic answer for that.

Would it be fair to understand U.S. would be implemented first and then rest of the world would follow after 5 years?

Both are going to happen simultaneously. It's not that we'll do this first and that second. Both are going to happen simultaneously.

But 5 years, you see the market for 80,000 tons for each of these geographies for BKT?

For...

5 years down the line, yes, U.S. and rest of the world.

Rest of the world, we'll have to club it up separately. I mean we can't give you a clubbed answer because so many geographies put together. We'll have to -- I mean, if any one particular geography becomes big, then we will separate that out into another one and leave the rest of the world separate.

Fair enough. Just a corollary to that, within the rest of the world, do you see any market having that size potential like India or U.S. in your view?

Yes. I mean Asia has, Australia has, also Africa. There are a lot of -- I mean all the geographies have, so it's very difficult to say this one or that one. But all the geographies have, but it's just where we will start -- we are working on all, so which one reacts faster is what we can do.

Next question is from Chirag from Keynote Capitals.

Most of my questions are answered. Just a couple of them. One is that, sir, what is our revenue for the -- for 9M from carbon black?

Approximately 9%. Less than 10%.

Okay. And secondly, just wanted to know, currently from the advanced carbon black, we are targeting 3 industries, right, plastic, ink and paint. Any thoughts of getting into -- or the carbon black that we are going to manufacture, are there any usage of this product into lithium-ion batteries?

Not yet.

We'll take that as the last question. I would now like to hand the conference back to the management team for closing comments.

Thank you once again for -- to everybody for your time, and we look forward to meeting you in the next quarter. Thank you.

Thank you very much. On behalf of Balkrishna Industries, that concludes the conference. Thank you for joining us. Ladies and gentlemen, you may now disconnect your lines.