Balkrishna Industries Q4FY14 operating performance was better than estimate on account of higher than expected volume growth at 19.8% during the quarter. Strong topline led to a 450bps YoY improvement in EBITDA margins to 25.8% with EBITDA for the quarter.

1.
Balkrishna Industries
Results above estimates; outlook encouraging
May 20, 2014
PrabhudasLilladher Pvt. Ltd. and/or its associates (the 'Firm') does and/or seeks to do business with companies covered in its research reports. As a result investors should be aware that the
Firm may have a conflict of interest that could affect the objectivity of the report. Investors should consider this report as only a single factor in making their investment decision.
Please refer to important disclosures and disclaimers at the end of the report
Q4FY14 Result Update
Surjit Arora
surjitarora@plindia.com
+91‐22‐66322235
Hussain Kagzi
hussainkagzi@plindia.com
+91‐22‐66322242
Rating Accumulate
Price Rs568
Target Price Rs630
Implied Upside 10.9%
Sensex 24,377
Nifty 7,276
(Prices as on May 20, 2014)
Trading data
Market Cap. (Rs bn) 54.9
Shares o/s (m) 96.7
3M Avg. Daily value (Rs m) 174.2
Major shareholders
Promoters 58.30%
Foreign 11.00%
Domestic Inst. 16.74%
Public & Other 13.96%
Stock Performance
(%) 1M 6M 12M
Absolute 12.2 100.8 109.3
Relative 4.5 82.7 88.8
How we differ from Consensus
EPS (Rs) PL Cons. % Diff.
2015 57.6 56.1 2.7
2016 66.3 64.1 3.4
Price Performance (RIC: BLKI.BO, BB: BIL IN)
Source: Bloomberg
100
200
300
400
500
600
700
May‐13
Jul‐13
Sep‐13
Nov‐13
Jan‐14
Mar‐14
May‐14
(Rs)
Balkrishna Industries (BIL’s) Q4FY14 operating performance was better than our
estimate on account of higher than expected volume growth at 19.8% during the
quarter. Strong topline led to a 450bps YoY improvement in EBITDA margins to
25.8% with EBITDA for the quarter increasing by 61.5% YoY to Rs2.68bn (PLe‐
Rs2.52bn). Given the strong balance sheet, with ROEs in excess of 20% and strong
free cash flow in FY15E and FY16E, we maintain our ‘Accumulate’ rating on the
stock. The stock is currently trading at 5.6x FY16E EV/EBITDA and 8.6x FY16E EPS,
at a ~26% discount to Titan International. Given the superior ROEs and earnings
CAGR of ~15.0%, we assign a 1yr fwd P/E multiple of 9.5x FY16E earnings (@ 20%
discount to Titan International) to arrive at our TP of Rs630/share.
 Adj. Profit grew by 85.6% YoY led by strong operational performance: BIL
reported a growth of 33.0% in its top‐line at Rs10.4bn (PLe: Rs10.0bn), mainly
on account of 19.8% increase in volume to 40,823 tonnes. Recipe cost/kg in the
current quarter declined by 5.5% YoY to Rs118.5/kg on account of lower natural
rubber cost. As a result, raw material/sales ratio declined by 800bps YoY. This
was partially negated by 390bps YoY increase in other expenses. As a result,
EBITDA margins expanded by 450bps to 25.8%. This resulted in a 61.5% YoY
increase in EBITDA to Rs2.7bn (PLe‐Rs2.5bn). On account of strong operating
performance, PAT grew by 85.6% YoY to Rs1.5bn ahead of our estimate of
Rs1.3bn.
Contd…2
Key financials (Y/e March) 2013 2014 2015E 2016E
Revenues (Rs m) 31,906 35,767 41,375 48,326
Growth (%) 13.1 12.1 15.7 16.8
EBITDA (Rs m) 6,645 8,937 10,534 12,235
PAT (Rs m) 3,559 4,877 5,571 6,409
EPS (Rs) 36.8 50.5 57.6 66.3
Growth (%) 32.5 37.0 14.2 15.0
Net DPS (Rs) 1.6 2.0 3.0 4.0
Profitability & Valuation 2013 2014 2015E 2016E
EBITDA margin (%) 20.8 25.0 25.5 25.3
RoE (%) 28.5 29.5 25.8 23.3
RoCE (%) 11.8 12.9 13.2 14.6
EV / sales (x) 2.3 2.2 1.8 1.4
EV / EBITDA (x) 11.0 8.9 7.2 5.6
PE (x) 15.4 11.3 9.9 8.6
P / BV (x) 3.9 2.9 2.3 1.8
Net dividend yield (%) 0.3 0.4 0.5 0.7
Source: Company Data; PL Research

2.
May 20, 2014 2
Balkrishna Industries
 Concall highlights – Refinancing of ECBs to save Rs100‐120m of interest cost:
Management indicated refinancing of $100m ECB at LIBOR + 20bps, whereas the
$175mn ECB has been refinanced at a lower rate at 2.1‐2.2% as against 3%
earlier. The above would lead to a savings in the interest cost to the tune of
Rs100‐120m/ year. Management maintained its volume guidance of 160,000 –
165,000 MT for FY15E and 200,000 MT for FY16E. Management sounded
positive on the demand outlook for both, agricultural as well as industrial
segment (construction and mining) across geographies.
 Euro revenues hedged at Rs87/€ in FY15E as against Rs75/€ in FY14: BIL have
locked in an average rate of Rs87/€ for FY15 as against Rs75/€ in FY14. Hence,
the recent currency appreciation (Rs80/€) would not have any impact on the
profitability of the company. At the same time, on account of correction in the
raw material prices (esp. Natural Rubber), they have taken a price cut of 4‐5% in
Apr’14. Despite this, management sounded confident on maintaining the
EBITDA margins at 25‐26% range as they would enjoy higher realisations on
account of currency hedges.
 Outlook and Valuation: Balakrishna Industries (BIL) has built a substantive
export business in off‐highway‐tyres (OHT), a niche area, where it enjoys a
global market share of ~4%. BKT generates 90% of its revenues from exports. By
offering an extensive variety of OHTs (2,000+ SKUs) at prices 25‐30% lower than
the global majors (Michelin, Bridgestone), BKT has leveraged India’s low‐cost
manufacturing capabilities to a great effect. Given the strong balance sheet,
with ROEs in excess of 20% and strong free cash flow in FY15E and FY16E, we
maintain our ‘Accumulate’ rating on the stock. The stock is currently trading at
5.6x FY16E EV/EBITDA and 8.6x FY16E EPS, at a ~26% discount to Titan
International.

3.
May 20, 2014 3
Balkrishna Industries
Exhibit 1: Q4FY14 Result Overview (Rs m)
Y/e March Q4FY14 Q4FY13 YoY gr. (%) Q3FY14 FY14 FY13 YoY gr. (%)
Net Sales 10,306 7,740 (1.6) 8,673 35,357 31,731 11.4
Other Operating Income 62 53 182.5 171 410 175 134.5
Total 10,368 7,793 33.0 8,844 35,767 31,906 12.1
Expenditure
Raw Material 4,839 4,273 (12.9) 4,104 17,210 17,910 (3.9)
% of Net Sales 46.9 55.2 47.3 48.7 56.4
Salaries & Wages 407 314 55.9 360 1,386 1,075 28.9
% of Net Sales 3.9 4.1 4.2 3.9 3.4
Power and Fuel 331 262 5.5 285 1,170 1,153 1.4
% of Net Sales 3.2 3.4 3.3 3.3 3.6
Other Exp. 2,113 1,285 (11.4) 1,806 7,064 5,124 37.9
% of Net Sales 20.5 16.6 20.8 20.0 16.1
Total Expenditure 7,690 6,134 6,555 26,830 25,262
EBITDA 2,679 1,659 61.5 2,289 8,938 6,644 34.5
EBITDA Margin (%) 25.8 21.3 26.4 25.0 20.8
Depreciation 479 321 49.0 425 1,650 1,077 53.2
Net Exchange Difference (Gain)/Loss (21) (32) ‐ (5) 57
Net interest 99 35 185.1 59 255 200 27.7
Non Operative Income 31 11 193.4 52 138 42 229.5
Exceptional
PBT 2,153 1,345 60.0 1,857 7,175 5,352 34.1
Tax Total 611 494 23.7 619 2,293 1,794 27.9
Tax Rate‐Total (%) 28.4 36.7 33.3 32.0 33.5
Rep.PAT 1,542 851 81.1 1,238 4,882 3,558 37.2
Extraordinary Expenses (21) (32) ‐ (5) 57
Adj. profit 1,521 819 85.6 1,238 4,877 3,615 34.9
Operating Metrics
Sale Tonnage (MT) 40,823 34,061 19.9 33,901 142,810 138,339 3.2
Realisation in Rs per Kg 254 227 11.8 261 250 231 8.6
Recipe (RM) cost in Rs per Kg 119 125 (5.5) 121 121 129 (6.9)
EBITDA per kg 66 49 34.7 68 63 48 30.3
Source: xxx

4.
May 20, 2014 4
Balkrishna Industries
Income Statement (Rs m)
Y/e March 2013 2014 2015E 2016E
Net Revenue 31,906 35,767 41,375 48,326
Raw Material Expenses 17,910 17,210 20,256 23,770
Gross Profit 13,996 18,557 21,119 24,556
Employee Cost 1,075 1,386 1,597 1,831
Other Expenses 6,277 8,234 8,988 10,490
EBITDA 6,645 8,937 10,534 12,235
Depr. & Amortization 1,077 1,650 2,100 2,500
Net Interest 200 255 420 500
Other Income 42 138 300 330
Profit before Tax 5,410 7,170 8,314 9,565
Total Tax 1,794 2,293 2,744 3,156
Profit after Tax 3,617 4,877 5,571 6,409
Ex‐Od items / Min. Int. (57) 10 — —
Adj. PAT 3,559 4,877 5,571 6,409
Avg. Shares O/S (m) 96.7 96.7 96.7 96.7
EPS (Rs.) 36.8 50.5 57.6 66.3
Cash Flow Abstract (Rs m)
Y/e March 2013 2014 2015E 2016E
C/F from Operations 5,501 5,111 6,525 6,812
C/F from Investing (9,594) (7,277) (2,000) (500)
C/F from Financing 3,181 (399) (3,996) (3,606)
Inc. / Dec. in Cash (911) (2,564) 529 2,705
Opening Cash 3,574 2,663 99 627
Closing Cash 2,663 99 627 3,333
FCFF (164) 1,256 1,522 3,316
FCFE 3,848 5,086 (1,978) (1,184)
Key Financial Metrics
Y/e March 2013 2014 2015E 2016E
Growth
Revenue (%) 13.1 12.1 15.7 16.8
EBITDA (%) 31.3 34.5 17.9 16.1
PAT (%) 32.5 37.0 14.2 15.0
EPS (%) 32.5 37.0 14.2 15.0
Profitability
EBITDA Margin (%) 20.8 25.0 25.5 25.3
PAT Margin (%) 11.2 13.6 13.5 13.3
RoCE (%) 11.8 12.9 13.2 14.6
RoE (%) 28.5 29.5 25.8 23.3
Balance Sheet
Net Debt : Equity 1.3 1.3 0.8 0.4
Net Wrkng Cap. (days) 78 89 79 80
Valuation
PER (x) 15.4 11.3 9.9 8.6
P / B (x) 3.9 2.9 2.3 1.8
EV / EBITDA (x) 11.0 8.9 7.2 5.6
EV / Sales (x) 2.3 2.2 1.8 1.4
Earnings Quality
Eff. Tax Rate 33.2 32.0 33.0 33.0
Other Inc / PBT 0.8 1.9 3.6 3.5
Eff. Depr. Rate (%) 6.0 7.6 8.0 8.2
FCFE / PAT 108.1 104.3 (35.5) (18.5)
Source: Company Data, PL Research.
Balance Sheet Abstract (Rs m)
Y/e March 2013 2014 2015E 2016E
Shareholder's Funds 14,190 18,826 24,304 30,602
Total Debt 20,744 24,574 21,074 16,574
Other Liabilities 999 1,000 1,100 1,100
Total Liabilities 35,932 44,400 46,478 48,276
Net Fixed Assets 22,232 28,058 27,958 25,458
Goodwill — — — —
Investments 329 4,265 4,265 4,265
Net Current Assets 13,370 12,077 14,255 18,553
Cash & Equivalents 2,663 98 628 3,333
Other Current Assets 15,228 16,320 18,218 20,469
Current Liabilities 4,520 4,341 4,591 5,249
Other Assets — — — —
Total Assets 35,932 44,400 46,478 48,276
Quarterly Financials (Rs m)
Y/e March Q1FY14 Q2FY14 Q3FY14 Q4FY14
Net Revenue 8,159 8,396 8,844 10,368
EBITDA 1,787 2,024 2,289 2,679
% of revenue 21.9 24.1 25.9 25.8
Depr. & Amortization 353 393 425 479
Net Interest (128) 5 7 68
Other Income 171 44 52 31
Profit before Tax 1,548 1,619 1,857 2,153
Total Tax 524 524 619 611
Profit after Tax 1,024 1,095 1,238 1,542
Adj. PAT 1,038 1,095 1,238 1,521
Source: Company Data, PL Research.

5.
May 20, 2014 5
Balkrishna Industries
Prabhudas Lilladher Pvt. Ltd.
3rd Floor, Sadhana House, 570, P. B. Marg, Worli, Mumbai‐400 018, India
Tel: (91 22) 6632 2222 Fax: (91 22) 6632 2209
Rating Distribution of Research Coverage
26.2%
52.4%
21.4%
0.0%
0%
10%
20%
30%
40%
50%
60%
BUY Accumulate Reduce Sell
% of Total Coverage
PL’s Recommendation Nomenclature
BUY : Over 15% Outperformance to Sensex over 12‐months Accumulate : Outperformance to Sensex over 12‐months
Reduce : Underperformance to Sensex over 12‐months Sell : Over 15% underperformance to Sensex over 12‐months
Trading Buy : Over 10% absolute upside in 1‐month Trading Sell : Over 10% absolute decline in 1‐month
Not Rated (NR) : No specific call on the stock Under Review (UR) : Rating likely to change shortly
This document has been prepared by the Research Division of Prabhudas Lilladher Pvt. Ltd. Mumbai, India (PL) and is meant for use by the recipient only as
information and is not for circulation. This document is not to be reported or copied or made available to others without prior permission of PL. It should not be
considered or taken as an offer to sell or a solicitation to buy or sell any security.
The information contained in this report has been obtained from sources that are considered to be reliable. However, PL has not independently verified the accuracy
or completeness of the same. Neither PL nor any of its affiliates, its directors or its employees accept any responsibility of whatsoever nature for the information,
statements and opinion given, made available or expressed herein or for any omission therein.
Recipients of this report should be aware that past performance is not necessarily a guide to future performance and value of investments can go down as well. The
suitability or otherwise of any investments will depend upon the recipient's particular circumstances and, in case of doubt, advice should be sought from an
independent expert/advisor.
Either PL or its affiliates or its directors or its employees or its representatives or its clients or their relatives may have position(s), make market, act as principal or
engage in transactions of securities of companies referred to in this report and they may have used the research material prior to publication.
We may from time to time solicit or perform investment banking or other services for any company mentioned in this document.