Balkrishna Industries Limited ($502355)

Ladies and gentlemen, good day, and welcome to the Balkrishna Industries Limited Q4 and FY '26 Earnings Conference Call. This conference call may contain forward-looking statements about the company, which are based on 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.

Thank you, Yusuf. Good morning, everyone, and thank you for joining us today. Along with me, I have Mr. Bajaj, Senior President and Director Commercial and our CFO; Mr. Satish Sharma, Senior President and Director of Strategy and Business Development; Mr. Ravi Joshi, our Deputy CFO; Mr. Sushil Mishra, Head of Accounts; and SGA, our IR Advisors. At the onset, let me start by saying we have been resilient in a challenging external environment. While macroeconomic uncertainties continue to persist at BKT, we remain confident in our ability to deliver sustainable and profitable growth over the medium to long term. Our financial performance has remained stable, reflecting the strength of our integrated business model and disciplined cost management. We are now witnessing raw material price upticks due to supply chain disruptions and are closely monitoring the situation while maintaining a steady balance between the spleen superior product mix and price hikes to partially offset this impact. I shall now discuss the performance updates of each of our businesses. Let me first begin with our OHT business. We are pleased to report a quarter marked by continued sequential improvements in volumes, supported by gradual normalization across key markets. H2 performance was significantly better than H1. This resulted in a strong operational year for the company, where we delivered our highest ever quarterly volumes in Q4 and also the highest ever volumes annually in the financial year 2026. From an end market perspective, in Europe, H2 showed good recovery over H1, driven by easing in channel inventories. Similarly, in the Americas market, we were witnessing improving traction supported by higher channel activity. We have created a sharper focus in our go-to-market strategy for Americas in order to realize the true potential of the BKT product range in that market. India continues to outperform all markets and witnessed a sustained momentum. We are cautiously optimistic for the geography given the weather forecast of IMD for the upcoming monsoon season. I shall now share some insights of our Carbon Black business. For the financial year '26, our Carbon Black business recorded marginal revenue growth on a year-on-year basis with third-party sales at 9% of overall business. In December '25, we commissioned our new line for Carbon Black, taking the total capacity available to us at 265,000 MTPA. I am pleased to share that we have witnessed full utilization levels for the new lines, supported by a mix of internal consumption and external third-party sales. To ensure energy circularity model company increased the captive power plant capacity at Bhuj to 64 megawatts during February '26. We are now targeting the balanced part of Carbon Black capacity to come onstream in Q1 of financial year '27. In Specialty Carbon Black, we have already secured approvals for select grids across plastics pressure prices and power cables earnings. Moving to our On-Road Highway business. During the quarter, we continued to make progress on our long-term growth road map with a strong focus on product diversification and market expansion. We have entered the truck bus radio segment with the new product launches in February '26. This segment is aligned with infrastructure growth, increasing radialization trends, thereby helping us to tap the replacement market opportunities that lie for us. Further, we have relaunched the 2-wheeler tires where we have introduced select products targeting domestic market. The distribution network and channel infrastructure for the on-highway segment is being built with products being placed in the market starting April '26, along with focused marketing campaigns with Ranvir Singh, our brand ambassador, to popularize our entry in these newer segments. The early response from the market has been encouraging, reflecting acceptance of our product quality and performance. Building on this momentum, the company plans to introduce the passenger car radial or PCR tires by the end of the current calendar year following a phased and calibrated approach. At BKT, we see our entry in these new segments as a strategic adjacency that complements our existing strengths. At overall level, while macroeconomic uncertainties persist, we remain focused on the following: volume growth with margin discipline; leverage our carbon black capabilities to improve efficiency and quality; and lastly, to scale up progressively our on-highway business. Let me now share an update on the BKT brand. During the year, we undertook a repositioning of the BKT brand architecture by differentiating the corporate and the regular lines by adding tires and carbon to product branding aimed at making it more contemporary and emotional engaging while retaining its core attributes of performance and reliability. The same must have been noticed by all of you during the ongoing T20 League in India. Integrated product and brand-building initiatives across major digital and print platforms under the campaign Elevate your Drive with our brand ambassador Ranvir Singh has received strong engagement and positive customer response. These initiatives have enhanced brand recall, supported new product launches and strengthened BKT's positioning across domestic and international markets. Now let me quickly share insights on sustainability as highlighted in our FY '25 report. As part of our long-term strategy, sustainability continues to remain a core focus area at Balkrishna Industries. During '25 -- the financial year '25, we have made steady progress across our ESG priorities. During the year, our S&P Global Corporate Sustainability Assessment or the CSA score improved to 58, reflecting the steady progress of sustainability initiatives taken by us and reinforcing BKT's position among the leading Indian tire manufacturers on sustainability performance. As a part of our CSR activities, we have entered into a partnership for establishing Narsee Monjee Skill Tech University in Mumbai through a commitment of committed contribution of INR 25 crores staggered over the next few years. As a part of this initiative, a dedicated BKT School of Engineering and Technology will be set up, reinforcing the company's focus on promoting skill-based higher education aligned with our industry needs. Lastly, an important development as a part of commitment to governance, transparency and global best practices, the Board has approved the appointment of Deloitte Haskins & Sells, Chartered Accountants LLP as joint statutory auditor on the recommendation of the Audit Committee and subject to approval shareholders at the ensuing AGM. Moving on to our ongoing and new CapEx programs. As a part of our ongoing CapEx plans, we have completed the following: a new line of carbon black facility in Bhuj, taking our capacity to 265,000 KTPA, increase the power plant capacity on Bhuj from 40 to 64 megawatts. In February '26, we completed Phase 1 of the commercial vehicle radial tire project with a CapEx of INR 750 crores, adding fungible capacity of 800 tires per day for CVR and OHT. We are now working on the completion of the balance Carbon Black project, which will take our overall capacity to 360,000 KTPA or and Phase 2 of the commercial radial vehicle tire project and also the PCR tire project, which is scheduled to launch in FY '27. These projects are expected to be completed as per schedule. The Board of Directors has approved an additional CapEx of INR 2,000 crores, which will support capacity expansion and infrastructure development across both OHT and on-road tire categories. AI-enabled automation across on-highway tire category and also the company's sustainability initiatives. This spend is intended to drive long-term cost efficiency, enhance operational resilience, improve sustainable performance and create scalable platform for future growth. With this, I now move on to operational highlights. For the quarter, our OHT sales volume stood at 85,280 metric tons, a growth of 5% year-on-year. For the financial year '26, our volumes stood at 317,356 metric tons. Our stand-alone revenue for the quarter stood at INR 2,894 crores, registering a growth of 2% year-on-year. This, however, includes a realized loss on foreign exchange pertaining to INR 47 crores. For the financial year '26, stand-alone revenue stood at INR 10,656 crores, registering flattish performance on a year-on-year basis. This, however, includes realized loss on foreign exchange pertaining to sales of INR 164 crores. The stand-alone EBITDA for the quarter was at INR 663 crores with a margin of 22.9%. The margin was particularly impacted towards the end of the quarter on account of headwinds faced due to geopolitical scenario and its impact on supply chain. For the financial year '26, the stand-alone EBITDA was at INR 2,423 crores, registering a degrowth of 10% on a year-on-year basis. The margin, however stood at 22.7% Profit after tax for the quarter was recorded at INR 295 crores, while for financial year, we have recorded a PAT of INR 1,222 crores. Our CapEx spend for the year was INR 2,800 crores approximately. As on 31st March, the gross debt and cash and cash equivalents were INR 4,049 crores and INR 3,154 crores, respectively. Accordingly, we have a net debt of INR 895 crores. The Board of Directors has recommended a final dividend of INR 4 per equity share, subject to shareholder approval at the upcoming AGM. This is in addition to the INR 12 that we have paid per share for the previous 3 quarters. With this, I now conclude my opening remarks and leave the floor open to Q&A. Thank you.

[Operator Instructions] First question is from the line of Raghunandhan from Nuvama Research.

For FY '26, how much was the contribution of U.S. to volume? And considering that now the tariff is 10%, will we see U.S. going back to 10% of volume in FY '27?

That is our ambition, and that is what we are targeting for the year.

And how much was it in FY '26, sir, broad approximately, if you can indicate?

It was just short of 10%, but close to that number.

Understood. On the commodity basket, how much was the impact in Q4 and the expectation for Q1? And if you can also indicate how much price hike has been taken so far?

So price hike, we have taken between 3% to 5% already across various geographies, and we are targeting around 2% in the coming -- in this very month towards the end of this month. And we'll have -- we'll continue to watch this and maybe we may have to take further price hikes. Regarding the impact, I'll hand over to Mr. Bajaj.

Raw material prices has gone up by approximately 4%, 5% for the last quarter, the quarter which we ended.

And what would be the expectation for this quarter, sir, that is June quarter?

Quarter, it should -- approximately, it may go up around 7% to 8% more.

Understood, sir. And when you say 7% to 8%, it is as a percentage of revenue or the raw material basket increasing by 7% to 8%?

This is the raw material -- on raw material prices. So does that answer your question?

Yes. On the freight cost, how much was the freight cost in Q4 as a percentage of revenue given the geopolitics? And how do you see it for the future?

It was about 4.5% to 5%, and we expect it to go up marginally the way things are, subject to no further disruption.

Got it, sir. One question...

Sorry to interrupt Mr. Raghunandan, may we please request you to rejoin the queue for the follow-up question. Next question is from the line of Siddhartha Bera from Nomura.

Sir, first question is on this outlook. You said that in the second half, you have seen a pickup in Europe as well as North America is also improving. Given this backdrop for the next year, would it be possible to give some volume guidance, how much are we expecting for the OHT business? And on that, I mean, given that we have now started CV radial tires also, some color there, how much are we expecting to sort of sell in FY '27?

So we stopped giving guidance due to the geopolitical scenarios and uncertainties. But we are, of course, expecting growth, but we don't give guidance on that.

And about the CV radial tires?

The business has just begun, and we are hopeful to reach our stated vision by 2030, and we are working towards that.

Understood. Sir, on the CapEx side, so you said additional INR 2,000 crore CapEx, which has been announced now. So with that, how much are we expecting the total CapEx for FY '27?

In this financial year, about between INR 1,500 crores to INR 1,800 crores.

Next question is from the line of Pramod Amthe from InCred Capital.

So if I have to look at your presentation, Slide 16, you are talking about overall CapEx till FY '29 of INR 6,800 crores. This includes the recent announcement of INR 2,000 crores?

Yes.

And where is this incremental INR 2,000 crores going into? Because your vision was anyway put out for FY '30. Is it going into some surprises in CapEx cost or you are adding more malls? What is that revision of almost 30% in CapEx?

As I'll read my commentary again, the Board has approved additional CapEx of INR 2,000 crores, which will create capacity extension and infrastructure development across both OHT and on-highway tire categories, AI-enabled automation across on-highway tire categories and the company's sustainability initiatives. This spend is intended to drive long-term cost efficiency, enhance operational resilience, improve sustainability performance across the company and also create a scalable platform for the future growth.

So it's a combination of both CapEx and the productivity improvement, if I heard you right?

Yes. Yes, sir.

Okay. And second one, since the capacity is coming on stream now for CV almost ready and par should be end of the year, what is your current distribution network? How much you plan to increase by end of the year? Can you give some sense?

I'm Satish Sharma. The primary distribution in the form of distributors is nearly complete for both the categories and the number of dealerships will be added as per the ramp-up of sales.

But it needs to be significant if I'm not wrong?

It will be in line with the...

Sorry, I didn't get it.

It will be in line with the sales ramp-up.

Okay.

Next question is from the line of Arjun Khanna from Kotak Mutual Fund.

Sir, the first question is on the American piece. So there is a refund of the reciprocal tariffs. Just want to understand, have we filed for the refund? Will we get part of it or will the importer distributor get? If you could throw some color on this matter, sir?

So in U.S., we are importer on record. So whatever process is required, we have already filed. But as of now, we have not received anything.

Fair. And what is the quantum that we would have filed, sir?

Quantum, as of now, I'm not handy with the number.

Sure. And since you're importer of the record, ideally it should come back to us. That's the fair understanding? Or do we need to pass part of it to our dealer distribution?

So as a fair practice, obviously, we are supposed to pass back part of it, what was recovered from the customers.

The second query is regarding the 2-wheeler tires segment, which we have done a lot of marketing also on. What would our capacities be at this point in time?

Presently, we are having a capacity of about 100,000 tires a month. And again, it will go up as per the market response.

Sure. And in terms of our outsourcing arrangements, what is the peak scale-up that we can do on this front?

At the moment, we don't see it as a limiting factor.

Okay. Perfect. Sir, just the last query is on the PCR side, which we have endeavored to launch by the end of this calendar year, as mentioned in the opening remarks. In the presentation, you've talked of premium positioning. Could you help us understand what does this mean? Are we planning only on certain inch rim sizes? Are we looking at a premium to the market leader, which I understand is Bridgestone? Or if you could just explain a little bit on the product positioning?

Yes. What it implies is that we are not discounting our products. We'll be in line with the market leaders. That's what it means.

Next question is from the line of Sagar Parekh from Renaissance Investment Managers.

My question is on the on-highway tire strategy. So just wanted to make some sense. Could you firstly give us a qualitative aspect of how you are planning to scale up your on-highway overall? What would be the peak revenue between TBR, PCR and 2-wheelers? And currently, how many distributors are on board? If something on the qualitative side would be helpful.

So our stated vision is INR 5,000 crores revenue by 2030. We are holding on to that position. The distribution, like I said, the primary distributors are all complete. We are about 90% in all for these categories. And the dealerships will be expanded as per the sales ramp.

Right. And how would be the margins in this versus our off-highway?

As we have mentioned in the past, we are, as a company, looking to keep a sustained EBITDA levels, which we will continue to do.

So 23% to 25% is sustainable in your view, in spite of the on-highway scale up?

That is the company as a whole, yes, it is. That is we are yet maintaining our position.

Right. And in terms of like near term, if I have to look at FY '27, because of the raw material cost pressures, is it fair to say that near term, there could be some margin pressure? Or do you think that the price increases would fully mitigate the impact of the RM pressure?

So at this moment, we are seeing the pressure to come. We are evaluating the situation and see how much we can pass on. But at this moment, we may have some price pressures.

Next question is from the line of Vijay Kumar Pande from Axis Capital.

A couple of questions...

Mr. Vijay, your voice is very low.

Am I audible now?

Yes, please go ahead.

So sir, I wanted to check on the TBR tires, so do you expect this segment to start generating revenue from this quarter? Or will it be only in the later part of this year or later part of FY '27? If you can just let us know this.

The impact will be very insignificant in the first quarter, but thereafter, it will start gaining in prominence.

Okay. And secondly, sir, in terms of the export demand. in Europe, certain overseas players, they are guiding for flattish to mid-single-digit growth. So is our expectation also around that level to grow for FY '27? Or will it be lower? Because I just want to understand the dynamics in play there.

So, as I mentioned earlier, we don't give -- it's too volatile to give any guidance, and we'll continue to monitor. We are -- all we can say is that we are geared up to support the market as and when required. We are doing everything that we need to do to make sure we are in the best position to get market share whenever the market is there. And this was firmly demonstrated in H2 of this last financial year.

And sir, this INR 2,000 crore CapEx, which we plan to do, this will be entirely for FY '27 or it will be segregated between next 2 years? It will be staggered over the next few years.

Next question is from the line of Joseph George from IIFL Capital.

Am I audible?

Yes, please go ahead.

Yes. So my question is in relation to the CapEx guidance that you have put out, INR 6,800 crores. So 2 questions on that. One is, does this amount, INR 6,800 crores include anything that you have already spent? Or is that the number that we should think of from FY '27 to '29? That is the first question. Second question is -- sorry?

So to answer the first question first is, yes, this is including what we have already spent.

So how much of the INR 6,800 crores have you already spent?

Around INR 3,000 crores.

Okay. So only INR 3,800 crores is left for the remaining 3 years, which is '29?

Yes.

Okay. And the second part of the question is, this is entirely project CapEx? Or does it include maintenance as well? And if it doesn't include maintenance, how much should we think of maintenance per...

This is only project and maintenance is about INR 200-odd every year, which will be extra, which is also in the past has been always mentioned extra.

Next question is from the line of Yash Agrawal from Nirmal Bang Securities.

I just wanted to understand in the carbon black business, if you could share the split between captive consumption and the external sales. Additionally, what are the expected revenue contribution and EBITDA margin for this business?

30% we are consuming locally from the current capacity around 70% is sold in the market and margins are as per industry average.

And also, the second on your revenue growth guidance by 2030. As we have mentioned in the PPT, like the 5-year CAGR is 17%. And since in FY '26, last year sales versus last year sales was flat. So can you assume that the 4-year CAGR would be above 20% to reach our revenue growth expectation?

As the projects come on board, as the projects and capacities come on board, you'll see the jumps coming up. So that is why it would be closer to the second part of the stated 5-year vision.

Next question is from the line of Siddharth from iThought Wealth Analytics LLP.

My first question is, like what is the company's thought on the on-highway tires segment, like long-term thought process behind entering this segment?

Long-term thought is that -- I mean we are entering into an adjacent business, which we see as a growth intensive, which provides sufficient growth levers to the company.

Okay. So like you will be able to make the same kind of return on capital in the off-highway and on-road?

As we have mentioned, we look at it as a company as a whole, and we have maintained we will be able to keep our sustained levels of EBITDA between 23% and 25%. That is our endeavor.

Okay. My second question is, like what is BKT's positioning in U.S. and Europe in the VF tire category?

In what ways are you asking?

Like what is BKT's market position? Who is the #1? Who is the #2 like that? Where does BKT stand there?

We have positioned ourselves as a premium player in that category. That's what we can answer for that.

Next follow-up question is from the line of Raghunandhan from Nuvama Research.

Sir, on the EUR/INR, what was the realization for Q4? And what is the hedge rate for FY '27?

INR 99 for this quarter for euro.

And how do you see the hedge rate for FY '27, given that current price is about INR 111?

It will be higher than this year, but it is not fully so we are unable...

But we should get a better realization compared to 99. Hopefully, that will act as a support.

Definitely better.

Understood, sir. And just a clarification. The TBR capacity you mentioned was 800 tires per day. Would that be right, sir?

That is for the Phase 1.

How much will it increase to?

About 3,800.

About 3,800.

So 800 tires per day now, and it will increase to 3,800 tires per day. Is that understanding correct?

Yes, yes.

Got it. And on the PCR tires, how much capacity will be starting with in this year?

So we will start around the end of the year, calendar year, as Rajiv mentioned. And in the first phase, we should be getting to 6,700 tires.

6,700 tires per day capacity, correct?

Yes.

And on the channel inventory, would the channel inventory be at normal levels currently? Or do you see that there was destocking which happened in FY '26 and that would be an opportunity to do some restocking this year?

No, we see it at normal levels.

Last question. In your opening remarks, you alluded to improving product mix and price hikes as your efforts to support the margins. If you can elaborate on that, how is the product mix improving for us?

So we are moving more towards the high-end radialized products, the specialized products like IFF technology products. So we are working on those as a product mix.

And what would be the share, sir, of radial tires in our mix?

I don't have that handy with me.

Next question is from the line of Hardik Sarda from Mirae AMC.

My question is regarding recycling of tires. So how much of the content is -- I mean, from percentage point of view is required to be used in raw materials -- Am I audible?

No, no, it's not. Your voice is coming muffled.

Is it clear now, sir?

Better.

Yes. So my question is from a recycled point of view. So as a total raw material cost or content, how much is your -- how much is the percentage of recycled content?

We are as per industry norms.

So is it -- so from a government policy point of view, is it stringent? Or how is the on-ground replication of the policy?

See, government doesn't mandate anything on the recycled product to be used in the tires. Whatever mandate is there related to it is EPR when the producer is supposed to buy the certificate from the recycler, which is we are buying as per the norms. Hope that helps.

Okay. Yes, yes. And does it affect the performance of the tires?

No. Why should it? Otherwise, why would we use it?

Yes. No, I thought from a circular economy point of view, so that clears.

Sorry to interject. Again, I'm repeating, government doesn't mandate any recycled product to be used in the tire. Hope I'm clear. Government only mandate to buy certificate, not the material. And those certificates are being used as per the -- bought as per the norms. -- if I'm not using any recycled product or there is no mandate, then now it will affect the performance, right?

Okay. Got it. Understood. Sir, you just have to buy the credits and not the recycled product.

Next question is from the line of Sriram R. from Sampada Capital.

So what will be the value proposition for us in the on-highway business? Like in terms of retail pricing, what will be the average cost advantage versus the other players?

I mean it will be at par with the industry. What do you expect me to tell you on this?

Yes, sure.

Please go ahead.

No, no. In terms of retail pricing, whether we will be like 15% cheaper than the market leader, something on those lines. I mean, what are your thoughts on that?

Our price positioning is at par with the market leaders.

On par with the market.

Okay. Okay. And so then how do you expect to gain market share over there? What is your route to entry?

We have faith on our product quality and the value proposition that the product and the other operations excellence points, which are embedded in our strategy. It's to -- I mean, in this earnings call, possibly we can't be explaining all those points to you.

Okay. And you did mention that we need to incur about INR 3,800 crores of CapEx. So what will be the source of funding for the same, sir?

It will be a mix of both. We are yet working on it.

Okay. So then in that case, like we have about INR 4,000 crores of debt in the books. So can we assume that it's peak debt that we have in the books today?

Sorry?

Can we assume that INR 4,000 crores is our peak level of debt? Or will it go?

We can't assume anything. It's a volatile world. It's a moving world. Projects are being announced. So we can't assume anything. We'll keep on making announcements as and when we make changes to it.

Next question is from the line of Vijay Kumar Pande from Axis Capital.

Sir, just a follow-up. I wanted to understand about the other expenses. So the other expenses have moved significantly in this quarter and also for full year. So if you can just highlight what is driving that? And how do you see that going forward?

So as I mentioned in my opening remarks, this was our highest ever quarter and best number. So it is in line with that increased production, the other expenses to make those conversion costs, et cetera, which has taken -- which has been accounted for. So there is no theoretical jump. It is just the increased numbers because of the increased production.

Next question is from the line of Siddharth from iThought Wealth Analytics LLP.

My question is answered.

Ladies and gentlemen, we will take this as the last question for the day. I now hand the conference over to the management for the closing comments.

Thank you, everyone, for taking time out and joining us. We look forward to meeting you next quarter. Thank you.

Thank you so much, sir. On behalf of Balkrishna Industries Limited, that concludes this conference. Thank you all for joining us, and you may now disconnect your lines. Thank you.