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Thursday, September 24, 2009

Balkrishna Industries Ltd:Future growth outlook and prospects

Scripscan: Balkrishna Industries Ltd
Bse code:502355
Cmp:375

Story:Balkrishna Industries Ltd (BIL), world's premier manufacturer of pneumatic tyres for special applications was incorporated on November 20, 1961. It focuses on the production of off-highway tyres that includes agricultural, industry, material
handling, forestry, lawn and garden, construction and earth moving tyres. Thecompany operates mainly in the business segment of tyres which by virtue becomesits core business. It’s other businesses are fabric processing andpapermanufacturing which has been transferred to its subsidiaries BKT Synthetic Ltd. and BKT Paper Mills Ltd. BIL mainly serves the agriculture segment in Europe. In Europe the farms are largeand method scientific. As per Michelin estimates, it is expected that the radialisation in agriculture business - Europe will increase to 81% by 2012. This will act as a growth impetus for the company in near future.BIL operates in a niche segment of manufacturing and exporting Off-Highway Tyres. The company has a global market share of around 3%, which has been achieved through a range of around 1800 products. The company is looking forward to enhance the breadth of its offering, so that it becomes a single-source supplier to a range of customers worldwide.BIL has strong global positioning which enables to ship its products to any corner of the world. Most of BILs export volume goes to Europe, followed by the US, Australia, the Middle East and Asia. Altogether it has 1700 SKUs offering a widerange of products. They sell around 10–12 per cent of the sales volume to vehicleOEMs, with the rest being sold to the aftermarket. In addition to distributors, thecompany also has their own representatives in the UK, US & Italy.BIL leverages its strong product line and lower labour costs to compete with other global players in overseasmarkets. It uses India's combination of engineering skills and low labor and production costs to build its market share. On the labor side, the cost of Balkrishna's workers is just 5% of sales, compared with 33% for Western players. This helps the company to enjoy high operating margins as compared to itscompetitors. At current market price of Rs. 375/-, the stock is trading at P/E 4.5 its fy11 earnings.A great value buy for 3-5 years horizon.

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