Balkrishna Industries shares plunge over 10% on poor Q3 results, weak guidance

Shares of tyre manufacturer Balkrishna Industries tanked more than 10 percent on Monday after the company projected a single-digit growth for the near term due to recessionary trends in Europe. The stock hit a day’s low of Rs 2,041 per share, down 11 percent over the last close, during the session after the management told analysts that the company expects the destocking of inventory to continue in the coming quarters.

Balkrishna Industries has reported a steep 70 percent drop in the profit after tax to Rs 100 crore for the third quarter of FY23 from Rs 339 crore in a year ago following high inventory costs.

Its total income rose by 7 percent to Rs 2,215 crore in Q3 of FY23 from Rs 2,079 crore in the year ago quarter.

The EBITDA was down 17 percent at Rs 423 crore in the quarter under review compared to Rs 507 crore a year ago. Operational margins were down at 19.1 percent in the third quarter against 24.4 percent a year ago.

The company, in an earnings statement, said that it is currently experiencing channel inventory clearance in end markets as distribution channels across global markets have excess inventory across segments.

Slow lowering of raw material prices and improvement in delivery timelines has led to a slower ordering cycle by the channel.

Balkrishna Industries is expected to face the challenges of destocking in the fourth quarter of FY23 as well while recession fears continue to hit demand.

The management, in a conference call, said that the inventory destocking would continue in the coming quarters. Finished goods stock is currently at 2.5 months against the average of of 45-60 days.

Balkrishna Industries expects the benefit of raw material inventory correction to flow in partially in the last quarter of FY23 while the benefit of low input cost and freight is expected to be at least 300bps from Q1FY24 onwards.

The company’s capital expenditure in the current fiscal so far was at Rs 1,300 crore and some minor capex is left for Q4. Its net debt stands at Rs 1350 crore. The average forward hedge rate for FY23 stands at Rs 86 and the same for FY24 stands at Rs 87, it said.

Shares of Balkrishna Industries closed 10.97 percent down at Rs 2,053.35 on BSE.