The company's estimated capex for FY24 is Rs 900 crore, which includes a new mould manufacturing capacity in Bhuj worth Rs 300 crore and the balance will be spent on new product development and giant tires to widen the product basket.
27 Oct 2023 | 14890 Views | By Shruti Mishra
Balkrishna Industries, one of the leading manufacturers of over-the-highway (OHT) tyres under the brand name Balkrishna Tyres (BKT), has scaled up its capital expenditure budget by an additional Rs 300 crore, revising it to Rs 900 crore for the ongoing fiscal. This represents a 50% jump over the company’s original ...
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Balkrishna Industries, one of the leading manufacturers of over-the-highway (OHT) tyres under the brand name Balkrishna Tyres (BKT), has scaled up its capital expenditure budget by an additional Rs 300 crore, revising it to Rs 900 crore for the ongoing fiscal. This represents a 50% jump over the company’s original capex target of Rs 600 crore for FY24, a top official said.
Of this, the routine maintenance capex was estimated to be Rs 250-300 crore. Given the aspirations of growth and better control over quality, the company has decided to take up a new project for mould manufacturing capacity. This will be a standalone new project at Bhuj, entailing a capex spend of Rs 300 crore and the balance will be spent towards new product development and giant tires to widen the product basket.
According to Rajiv Poddar, Joint Managing Director of the company, this new mould manufacturing capacity will be reached by the first quarter of FY25.
"We have completed a capex of Rs 595 crore in the first half of the current fiscal year. A new investment in mold manufacturing capacity would enhance the number of stock-keeping units (SKUs) and give it control over the quality of the products. This would enable better quality control over finished products and reduce lead time," Poddar said over a recent call. The mould capacity will be for new moulds and SKUs, which currently stand at 100 units.
He further added that the company envisages a new capacity expansion project at Bhuj in small patches as it needs additional capacities to enhance its market share in global markets.
BKT already operates a molding plant in Dombivli (near Mumbai). However, the company is setting up a new molding facility in Bhuj as 60% of its production is coming from there. “Going forward, we will be doing small expansions to utilise logistics benefits,” Poddar said.
Financial Performance:
During the July-September quarter, BKT reported a decline of 15% in its topline at Rs 2,253 crore on a year-on-year (YoY) basis. Meanwhile, the company’s profit after tax (PAT) stood at Rs 347.4 crore in Q2 FY24, down 9%, as compared to Rs 382 crore in the same quarter a year ago.
Notably, the company encountered a volume contraction of 11% at 70,585 MT on a YoY basis in Q2 FY24, primarily due to challenging demand conditions prevailing in international markets. However, its EBITDA margins have exhibited a noteworthy improvement, rising by 760 bps on a YoY basis, attributed to reduced freight costs and a better product mix.
As a result of the market's normalised inventory levels, the company anticipates stable demand in the international market going forward. The Indian market is offering a long-term growth opportunity to the company, and it is looking to expand its market share from 4-5% to 10% in the OTR tyre segment in the medium term.
This is in line with its target for global market share. Its global market share of 10% would be driven by new product launches like solid track tyres, etc. The management assumes a steady raw material cost trend and targets sustaining EBITDA margins between 26-28%.
Volume Performance:
At present, the company’s manufacturing capacity has reached 360,000 MT per year. The volume performance of the Mumbai-based tyremaker in H1FY24 has been impacted due to ongoing destocking in the export markets, heat waves, and recessionary fears.
The company’s total volumes in H1 FY24 stood at 137,794 MT, compared to 301,181 MT in FY23. BKT is a global player present in Europe, the US, and India. While European markets account for 50% of the company's sales, the US and India account for 18% and 21% of sales, respectively. It has a distribution network that supports sales in 160 countries. The company has three manufacturing plants in India – in Aurangabad, Bhuj, Bhiwadi, and Chopanki.