Balkrishna Industries Limited (502355) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Balkrishna Industries Limited Q1 FY '27 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 may involve risks and uncertainties that are difficult to predict. [Operator Instructions] Please note that this conference is being recorded. I would now like to hand the conference over to Mr. Rajiv Poddar, Managing Director. Thank you, and over to you, sir.

Thank you, Manav. Good morning, everyone, and thank you for joining us today. Today, along with me, I have Mr. Satish Sharma, Senior President and Director of Strategy and Business Development. Our new CFO, Mr. Saroj Khuntia; Mr. Sushil Mishra, our Head of Accounts; Mr. M. Bajaj, Special Adviser to Chairman and Managing Director; along with SGA, our IR advisers. Let me begin by introducing Mr. Saroj, our new CFO. Saroj is chartered account. With more than 24 years of experience across corporate finance, strategy, treasury management, capital markets, taxation, governance, risk management, M&A and finance transformation. Prior to joining us, Saroj served as Vice President, Finance at CG Power and Industrial Solutions. Earlier, he held CFO positions at Mahindra, Mahindra Electric Mobility and Mahindra Retail. Among other leadership roles within the Mahindra Group. Prior to that, he was associated with IBM and Hindustan. Let me now begin my remarks on the quarter performance. Q1 started on a positive note for us. We delivered our highest quarterly sales volume in OHT segment. This performance is despite the challenges across many international geographies and end markets as well as within the supply chain of the world. As guided earlier, we are closely monitoring supply chain disruptions and have taken price hikes along with certain increases along -- increasing efforts towards a superior product mix to partially offset this impact. Further, we have launched our own road products in the TBR and 2-wheeler segment in the market. Let me start with highlights of our OHD business. We continue the momentum of previous quarter. Well into Q1, we reported our highest ever sales volume. We delivered 16% sales volume growth year-on-year basis. This performance was led by decent uptake in the -- in our end markets and segments. In Europe, we witnessed a stable environment. We are working with channel partners across the key markets to further up our market share in this large and jokey geography for us. India performed exceptionally well despite of a high base from last year. Our marketing efforts, along with superior product range is helping us gain market share. Going in CapEx in India is also adding to our performance. In Americas, with the tariff rate settling at 10% levels, we have seen a better performance led by the U.S.A. With a sharper go-to-market strategy and stable end markets, we expect growth momentum to sustain. In Americas, we have a long runway of growth in the times to come, given the brand positioning for BKT and the focus on high-quality products for that market. For upcoming quarters, we would like to highlight geopolitical uncertainty with supply chain impacts on both availability of materials as well as the costs, availability of vessels, containers and freight costs as well. These, along with weather challenges in Europe and the sketchy monsoon, which is expected in India as key variables towards near-term performance problems. I will now share some insight into our carbon black business. I'm happy to share that we have appointed Mr. Ashish Kumar data as Business Head for Carbon Black effective July 3, '26. He brings along with him 36 years of cross-functional leadership experience across chemicals, coatings, polymers and spends for both domestic and international businesses. He joins us from LuprisolAdvance Matias, a Berkshire Healthy Company where as Business Director for South Asia and South Africa. He carefully carried full responsibility of P&L for the region's performance of coatings business for them. Over his carrier, he has held senior leadership positions in Toyo Inc., Valspar, DIC India and Charlie Martins and began his career as an R&D chemist at Asian Paints. A graduate of the institute of ICT, Mumbai, with the degree in polymer technology, Ashish also holds an MBA from NMIMS and has completed execution education at Hard. This strong rounding in chemical and polymer technology, combined with deep P&L and commercial leadership knowledge positions him well to lead our growth in the carbon black business. Let me now share some business highlights of this vertical. For Q1 '27, our Carbon Black business recorded decent volume growth on a year-on-year basis with third-party sales at around 10% of overall business. In this quarter, we commissioned our Phase II of Carbon Black plant, taking the total capacity to -- taking the total capacity to 360,000 KTA. For the Energy circularity model, we have also increased our captive power plant to 64 megawatt. Going forward, we expect geopolitical challenges to impact the pricing and supply of carbon black on the back of increased crude prices. We expect some price increases to offset the raw material inflation. The demand continues to be robust in this segment. Moving on to our on-highway business vertical. With setting the distribution network and channel infrastructure in April, we went live with our go-to-market strategy. We have started supplies in the first radial segment and are seeing positive response from the trade in this segment. Our foray in this segment will help us diversify our product range as well as take advantage of the opportunities of the -- on the back of infrastructure creation in India. Our 2-wheeler types tyres product portfolio has been introduced with select products targeting drastic market. Even here, we are widening encouraging reports and responses from end users. In June, we launched our 24/7 journey assistance program named as YOU FORWARD, aimed at reaching to the end users of 2-wheeler riders across India. This initiative marks the company's move beyond product offerings to product on route support services, positioning itself as a mobility partner throughout a rider's journey. To promote this initiative, we rolled out our first digital campaign featuring veteran-ing actor Rakesh Bedhi. Very clearly, we are moving on our stated path of high-quality and product differentiation strategy for our own on-highway portfolio, and we are witnessing increasing customer acceptance of this policy. Our entry into this new segment is a strategic adjacency that complements our existing strengths. Having seeded the business in Q1, we expect a gradual ramp-up in -- starting in Q2. Having said that, segment currently continues to be small, and therefore, we will refrain from share revenues or volume details at this juncture. At overall level, while macro uncertainties persist, we remain based on the following: volume growth with margin discipline, leverage our carbon black capacities to improve efficiency and quality, and progressively scale up our own habit business. Moving on to our new and ongoing CapEx. As a part of our ongoing CapEx plan, we have completed the following, a new line of carbon black that was facility, which was commissioned in -- but taking our capacity to INR 368 crores, sorry -- taking our capacity to 660,000 KPA at a capital outlay of INR 800 crores. Also, we increased the power capacity at good from 40 megawatts to 64 megawatts at a capital outlay of INR 125 crores. All the balance CapEx projects which are amounting to approximately INR 3,000 crores are progressing as per schedule. With this, I now move on to operational highlights. For the quarter, our segment volume stood at 93,770 metric tons, a growth of 16% year-on-year. Our stand-alone revenue for the quarter stood at INR 3,409 crores, registering a growth of 24% year-on-year. This includes realized loss of foreign exchange pertaining to the sales of INR 36 crores. The stand-alone EBITDA for the quarter was at INR 703 crores with a margin of 20.61%. The margin was particularly impacted on account of raw material prices due to partial situation globally and its impact on supply chain. The impact was partially offset by certain price hikes during the quarter. Further, India's contribution has increased to overall 40% of the volumes, which has impacted the margin slightly. Profit after tax stood for the quarter at INR 432 crores. We expect better flow-through from EBITDA to PAT as we steadily scale up our volumes in on-highway segment and the benefit from the improved trajectory of our core OHC business. Our CapEx for this quarter stood at approximately INR 1,000 crores. As on 30 June '26, gross debt and cash and cash equivalents were approximately INR 4,690 crores and INR 2,965 crores, respectively. Accordingly, we have a debt of approximately INR 1,725 crores. The euro rate for the quarter was around. The Board of Directors has recommended a first interim dividend of INR 4 per equity share. With this, I conclude my opening remarks and leave the floor open for Q&A.

[Operator Instructions] Our first question comes from the line of Raghunandhan from Nama Research.

Congratulations on the strategy, sir, and to the entire team. Firstly, on the -- in the off-highway segment, India, Europe, America are showing improvement. Can you highlight current market share in these markets and specific efforts you are focusing on to increase share? Also, please share dealer inventory levels, whether they are normal or higher than normal levels, given the uncertain environment.

So India market share is around close to 18%, 19%. U.S. is about 3% to 4%. And we are working -- the end user levels of inventories as per normal, there is no buildup or there is no shortage at the moment. So it's a normal.

And do you the above 8% market share, that would be a fair statement.

Roughly around the range.

For Q1, can you indicate the commodity impact and the price hike, which was taken? Also, if you can indicate the expectation of commodity inflation impact in Q2 and how much more price hikes you are planning?

So we have taken on a price hike of about 5% scattered across the various quarter -- various parts of the quarter, you will see the full pass-through coming in this quarter. Going forward for the price hikes, we are yet working on the market scenario. We have not yet announced anything further than that at the movement.

And raw material basket or commodity inflation for Q1 and Q2, how much would that be? Because some of the mass market companies have indicated impact of us more than 20% raw material basket increase?

So partly, it has come already in Q1, and the party will come in Q2 and some will go into Q3 also. Around 5% on raw material will be in the Q3, which will be impacting on our sales price approximately 30%. And part of the debt will be offsetted by the price increase already taken by yes, which will be fully applicable on this quarter.

Just a clarification, 5% of revenue will be the impact in...

5% price -- on the material prices increased by 5% on the cost basis of the raw material. The impact on the sales price is approximately 3%. Out of that, we are expecting 2% -- it may impact 2% of our margins in the coming quarter.

So in quarter -- understood, sir. And just the last question for what is the hedge rate for you started the year with 102 where spot price is higher at 110. For full year FY '27, should we get a better rate? I mean, it can also act as a support to your margin.

We are expecting a better rate, but we do not share the exact rates.

Noted, sir. And can you share Q1 freight rate as cost of revenue and freight rate percentage of revenue? It used to be around -- around 5%.

We have our next question from the line of Mumuksh Mandlesha from Anandrathi.

Just first on the Europe demand this quarter was a good growth. Just kind of elaborate what is driving the incremental demand? And do you expect a good double-digit growth to continue for the rest of the year?

So to begin with the base last year was lower. So that is 1 thing. And then, of course, they have had a good monsoon, good season, which is also impacting their agriculture segment.

Got it, sir. And sir, just any update on the refund of the U.S. duty, sir? Anything came this quarter, sir?

Too early to share details on that. We'll keep you posted as and when things progress.

Got it, sir. And finally, sir, on the CapEx side, what is your estimate for this year, sir?

Additional balance of -- I mean, additional about between INR 1,500 crores to INR 2,000 crores.

So totally around INR 3,000 crores, right, so full year.

Yes.

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

Ones on a good set of numbers. Sir, first question on Europe. So while we see that the last year's base was quite week and we did grow strongly in the first quarter. But increasingly, I think there are -- there's talk about the adverse heat waves impacting the crop. So do you see any risk to this growth with this adverse weather because in the past we had seen sometimes impact from these events.

It's too early to get back to -- I mean to take a call whether it would have been impacted because they've also had a good monsoon to counter that. So sure to make those kind of comments.

Understood. And in terms of the freight increases, we -- have we seen the entire impact of the phase increase in the current quarter? Or do you think the freight rates can move up further in the coming quarters, and you need to maybe pass it on also with the price hike?

There will be some part -- I mean, if the scenario continues at this we had a dip in the middle and then again back up, we would have subsided. But if the same are continues, there may be some increase which will come across, and we will see how best we can pass it on.

Okay. So as of now, the visibility is that it remains at a similar level as in first quarter. You don't see any big change now in the current quarter?

We may see some change in the scenario continues the way it is now with the stop in the fee process. So we may see some impact coming.

Okay. Understood. And sir, lastly, on the CapEx side, did you mention for this FY '27, we will have about INR 3,000 crores of total CapEx spend.

Yes, as already spent in between INR 1,500 crores to INR 2,000 additional to be spent in this financial year.

Okay. And in the past, we had shared, I think, about maybe about INR 4,000 crores over the next 3 years in terms of CapEx. Does that mean a large part is front ended and it should come down meaningfully next year? Or how do you see the CapEx stems now given this plan?

Yes. I mean you put the numbers together, you will come to that conclusion. Total INR 3,000 crores is less. And if we are spending INR 1,500 crore to INR 2,000 in this financial year, balance would be, of course, descending.

Understood. Understood. Got it, sir. And lastly, on the India business, I mean, India off-hirbusiness also has, I would say, grown very substantially in the last few years. Any further scope of increase. I mean, on-highway will be an added factor now to India, also, we understand. But if I just keep that aside and if I look at only the off fiber segment, do you see there is possibility of much stronger growth continuing even in this segment also for India in the next few years?

Yes.

Any idea, sir, where it is coming from? Is it market share gains? Or is it more about product as which we were not serving earlier. Some color there about how and why it is coming through?

So if you look on -- you'll have to break this down into 2 parts. If you look at it as a percentage base, if the exports pick up the way they used to be, then you will see the numbers come down. But overall, on a stand-alone actual number basis, India will continue to grow. There are yet pockets which we are within the off-highway space, which we need to cater to which we are working and moving in that direction. It's a mix of product mix and mix of new segments within the off-way space, which we are not catering to.

We'll move on to the next question from line of Krish Mehta from P&M Holdings.

Congratulations on a great set of numbers. So I just had a clarification on the CapEx. If you look at the plan until 2030 to get INR 23,000 crores of top line, what would the total capital expenditure be. Just to clarify on that.

CapEx is INR 6,800 crores. Out of that, we have spent roughly INR 3,800 crores, INR 3,000 is balanced. Out of that, we are estimating in this financial year to spend between INR 1,500 crores to INR 2,000 crores.

We have our next question from the line of Vijay Pandey from Axis Capital.

Congratulation for the set of numbers. I wanted to understand about the direct certainly in the Indian market, particularly in the... Yes. Sir, I wanted to understand about the dynamics in play, especially on the Indian business side because we have recorded very significant growth over the last 3 quarters in India, particularly coming from the agricultural segment. But then also like our OE mix is remaining broadly the same. So I just want to understand how the factories and how -- what is driving this growth? And how do we see the growth going forward? Is it coming from the Capita business coming from the Construction and Infrastructure objectiveness? Can you please explain?

Coming from all the sectors, industrial construction as well as agri.

Okay. And so replacement or on the oil side -- is it a combination of both replacement.

Also on the mining sector is also helping us add this growth.

Okay. And secondly, sir, I wanted to take because of the price increases, was there any impact of the pay bank, especially in the case of Europe, because of the prices increasing because...

We can't follow your question. I'm sorry, can you repeat it?