Balkrishna Industries Limited (BALKRISIND.NS) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Balkrishna Industries Limited Q3 and 9 Months FY '26 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 on 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, Steve. Good morning, everyone, and thank you for joining us today. I would firstly like to wish all of you a very happy New Year. Along with me, I have Mr. Bajaj, Senior President and Director, Commercial and our CFO; Mr. Satish Sharma, Senior President and Director, Strategy and Business Development; Mr. Ravi Joshi, our Deputy CFO; Mr. Sushil Mishra, Head of Accounts; and SGA, our IR advisers. Let me begin with performance updates. The geopolitical and macroeconomic environment continues to remain challenged, and the situation with U.S. tariffs remain unchanged. Despite these headwinds, we delivered a strong sequential improvement during the quarter. Our overall sales volume increased by around 15% quarter-on-quarter. In the U.S. market, despite the ongoing tariff situation, our strong product quality, brand positioning and by sharing the tariff impact with our channel partners, this has enabled us to regain some of the sales momentum. India continues to outperform all markets. The positive momentum witnessed in Q2 post the GST reduction has sustained into Q3 as well. This has been supported by broad-based demand across channels and product segments in India. For Europe, it is important to note that the EUDR norms, which were to get implemented from 1st January '26, the same has now been deferred by 1 year and is now likely to be implemented from 1st Jan '27. I would like to take this opportunity to thank and congratulate the Government of India for their remarkable efforts on signing the landmark FTA with the EU. We believe this will allow for further seamless trade between the 2 geographies. Let me now share some other key highlights. Aligned with our core value of giving back to the society, we have dedicated a state-of-the-art sports injury and rehab center at KEM Hospital in Mumbai. This 15,000 square feet facility is amongst the largest of its kind in a government hospital in Western India. Further, BKT has featured on the wall of giving at Tata Memorial Hospital in Mumbai. This is in recognition of its long-standing commitment to supporting access to high quality by us. This has been evidenced based on -- this is an evidence-based and affordable cancer care center. In addition, as a testament to our comprehensiveness efforts on the ESG front, we have established an S&P Global Corporate Sustainability Assessment score of 58. This placed us amongst the leading tire manufacturers in terms of sustainability performance. In the sports engagement, I'm happy to share that BKT Tires is the official partner with all the 5 women's IPL teams, franchises in a landmark multi-team deal for '26 season. This partnership will expand our cricket footprint via our association with every Women's Premier League team of India, thereby strengthening -- further strengthening our brand visibility and reinforcing our commitment to sports and also to women's sport. Let me update you on the CapEx front. During the quarter, we have commissioned a new line of carbon black, taking the total capacity to 265,000 metric tons per annum. All remaining CapEx is progressing as per schedule. With this, I now move on to operational highlights. For the quarter, our volumes stood at 80,620 metric tons, a growth of 6% year-on-year. For 9 months, volumes stood at 231,536 metric tons, a minor degrowth of 1% year-on-year. Our stand-alone revenue for the quarter stood at INR 2,682 crores, registering a growth of 4% year-on-year. This includes realized loss of ForEx pertaining to the sales of INR 47 crores. For 9 months, the stand-alone revenue stood at INR 7,762 crores, registering flat on a year-on-year basis. This includes a realized loss on foreign exchange pertaining to sales of INR 117 crores. The stand-alone EBITDA for the quarter was at INR 605 crores, a margin of 22.5%. For 9 months, the stand-alone EBITDA was at INR 1,760 crores, registering a degrowth of 11% year-on-year. However, the margins for H1 stood at 22.7%. Profit after tax for the quarter was recorded at INR 375 crores, while for 9 months, we have recorded a PAT of INR 927 crores. Our CapEx spend for the 9 months of this financial year was approximately INR 2,200 crores. As on 31st December ' 25, the gross debt and cash and cash equivalents were INR 3,649 crores and INR 3,012 crores, respectively. Accordingly, we have a net debt of about INR 637 crores. The Board of Directors has declared a third interim dividend of INR 4 per equity share in addition to the INR 8 already paid in the previous 2 quarters. With this, I now conclude my opening remarks and leave the floor open to Q&A.

[Operator Instructions] First question comes from the line of Mumuksh Mandlesha with Anand Rathi.

Sir, firstly, on the -- we have seen Europe market turning positive this quarter expecting some good growth this quarter. And I think some of the markets like Germany seems to have done well. I just want to understand, you also mentioned about macro challenges, but still we have seen a very good growth in the Europe. What could the factors that led to the rebound, sir?

So I think overall, we are anticipating the season to begin from this year. So that could have been the course. And as I mentioned in my earlier comments during the last quarter that a lot of the destocking had leveled out. So it could be due to that.

So going ahead, sir, I mean, considering macro challenges, should Europe be a flattish kind of demand, sir?

It's too early to make a call on the long-term basis.

Got it, sir. Sir, on America volumes, sir, how much would be now, U.S., sir? And has the volume started there? And any impact of tariff on the margins, sir?

Overall, Americas is being there in the investor presentation. The exact U.S. sales is down as compared to previous year, but the exact numbers are not handy.

And any impact of tariff, sir, in our margin numbers, sir?

Yes, obviously, because we have shared with distributors, but the large portion is being borne by them.

Got it, sir. Sir, on the CapEx side, this year already, we have done INR 2,200 crores, which was the guidance last year for the year. Can you update what is the CapEx for the full year now? And also any expectations for next year?

So maybe about INR 300 crores, INR 400 crores more in the current financial year, and the balance would be in the next year.

Got it, sir. And sir, on the commodity side, sir, how do you see the trend there? And if you can share the Euro-INR rate for the Q3? And how do you see the hedges ahead?

So the euro rate for Q3 was at approximately INR 97.

And how do we see ourselves?

It should marginally improve from here.

Got it. And on the commodity side, sir, how do you see the trend ahead?

So oil is going up, moving and natural rubber is also moving up, but it is too early to say what will be the impact.

The next question comes from the line of Siddhartha Bera with Nomura.

Sir, my first question is, again, on this Euro-INR rate. I mean, we had close to INR 91 last year, and it has gone up to INR 97 now. So can you talk about how the European realizations have been because it's a significant improvement on the hedge rates, but we have not seen much change in our ASPs or margins. So some thoughts there. And current rate is significantly higher. So are there significant hedges, which leads to a lower rate for you for next year? Or why are you sort of indicating only modest increase for next year?

So firstly, the Europe share has gone down. So that has had an impact. Also, as we maintain that we always have a forward booking, forward hedge. So that is also playing out. And for next year also, the same hedge would be continuing.

Okay. But in terms of European realizations, have they remained stable? Or has there been any change in that also? Hello?

Yes, realizations are same. There has not been a significant movement on that.

Having said -- Siddhartha, having said that, the last quarter's realizations were around INR 91, INR 92. This quarter is INR 97. And still, we are giving that it will improve from here. But because if you see in last 10 months, the euro have run up from INR 90 to INR 110, even after December, for last 20 days -- 20, 25 days, it has run up by INR 5. So because we are running forward positions, so we are saying that the entire gain will not be captured in the rates.

Okay. Okay. Got it. And sir, on the India business now, I mean, we have seen a pretty strong growth consistently now for the last few years. This quarter seems to be even stronger. So anything here which is driving this? I mean, apart from the industry growth, any customer additions or any market share gain, if you can talk about? And how do you think this plays out for the next year?

As I mentioned in my opening comments, the positive impact by the government's role in reducing GST has driven the sentiments, and that is what is driving in the entire auto sector, and we are getting the benefits of that.

Understood. And...

Also the good rains, which were there in the season, have led to better demand.

Okay. And does higher India share have a negative impact on the ASPs or margins? Or there is no much change, if you can just guide us?

Yes, it does have a slightly lower ASP. But if you see after all that also with the enhanced level of India, the EBITDA levels are at par with what they've been in the past. So it is nullifying the overall effect.

Got it, sir. Sir, last question is on the CV foray. We had talked about that the pilot will start from this quarter. So any thoughts now, how should we think about the ramp-up to be next year? What percentage of our volumes can come from the CV segment?

So as we have mentioned in my opening comments, the -- all the projects are going as per schedule. So the CV will also come up in this quarter. You should -- we'll make the announcements as once we are ready. So we're not anticipating any delay on that. As far as the ramp-up goes, we have a plan which we are working to. It would be too early to sort of give any light on that at the moment. But we are quite confident of keeping our long-term vision of 2030, and we are working towards that. It will be too early to comment on a quarterly basis what will be the impact, but we are quite confident of our long-term vision.

The next question comes from the line of Raghunandhan with Nuvama.

Sir, firstly, with reference to the...

I'm sorry -- yes, sir, there's a lot of background disturbance. And can you please use your handset?

Is it better now?

Yes, better.

Firstly, sir, with reference to the Europe trade deal, can you indicate what is the existing duty? And how much reduction in duty can be anticipated because of that deal?

Current duty is 4%, and it is not very clear what will be the duty after this duty unless we see the entrance of the agreement.

Got it, sir. And in the rest of the world regions, which markets are mainly facing decline, sir?

So I think it is -- Southern part of America would be there. And Asia also a little bit.

Got it, sir. And how much would be the freight cost as a percentage of revenue in Q3? And how do you see the outlook forward?

I think it's around 5%, and we look at it to be stable at the moment.

Got it, sir. Last quarter, I think it was over 6%. So there has been an improvement here. It is positively supported...

It fluctuates depending on which country has got more of the exports and where it has gone. But this is the range -- is going to be in this range only. There's not going to be significant movement upward or downward.