Balkrishna Industries has reported a drop in revenues by around 40% following poor performance in the second quarter of 2014-15. The tire company’s net profit declined 17% year-on-year and 22% sequentially. The decline in net profit was mainly due to volume decline in Europe which accounted for about 50% of sales and discounts by customers to compensate for lower natural rubber prices.

Balkrishna Industries We could not capitalize on the fall in natural rubber prices in the second quarter as the company had large stocks of rubber to buy at higher prices. Rising employee cost is another factor after the Gujarat plant part of the new tire commissioning plant (150 homes produced annually) One lakh tires.

The recent price correction has raised the valuation of Bakrishna Industries to a reasonable level. In addition to falling prices, analysts are optimistic about improving fundamentals for the niche company. The Pujai plant is expected to be fully operational by April 2015 out of the factory year. This will help the company transition to larger radial tires (expected to expand from 35 inches to 57 inches) and make its tire portfolio more comprehensive. Radial tires have 3-4% higher mobility. With the construction of the new plant, radial tire sales are expected to increase from about 30% currently to more than 40% over the next three years.

Balkrishna Industries plans to increase its off-highway tire placed in the next three years (OHT) global market share from 5% from 5% to 8% in the next three years. To achieve this goal, the company recently planned to set up warehouses in the United States and other overseas markets to increase penetration. Lower global agricultural prices have reduced demand for new tractors (OEM) Tire demand is down), but existing tractors continue to run (replacement tire demand is normal and accounts for about 80% of total sales). Sales of new tractors are expected to improve due to the recent stable performance of the US agricultural sector. Bakrishna Industries, which derives about 90% of its revenues from exports, will also benefit from the significant depreciation of the rupee over the last six months.

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