Balkrishna Industries Ltd is entering new segments – a decision that overshadowed the positives in its March quarter (Q4 of FY25) results such as the sequential improvement in off-highway tyres (OHT) volumes. Balkrishna’s shares fell over 5% on Monday.
From being a niche OHT company, Balkrishna is pivoting to the premium passenger car radial (PCR) and truck and bus radial (TBR) categories in the domestic market. A pilot launch for TBR is expected in Q4 of FY26 and for PCR in Q3 of FY27. Balkrishna eyes a 5% market share by 2030 in the new segments with revenue expected to come only from FY28.
Balkrishna expects this move to be margin non-dilutive and does not see any material impact on long-term return on capital employed. However, not all agree with the management’s view.
Nuvama Research pointed out that tyre companies in PCR/TBR segments have lower levels of profitability, with Ebitda margins of less than 15% versus Balkrishna’s margins at 25%. These companies trade at relatively lower valuation multiples (mean price-to-earnings at 15x or lower), Nuvama added.
This decision comes as Balkrishna’s OHT business continues to face demand woes and input cost pressures. Note that scaling-up the new business appears challenging as PCR and TBR customers tend to be both brand and cost conscious. Also, Balkrishna may face stiff competition in these categories from Ceat Ltd, Apollo Tyres Ltd and MRF Ltd.
The entry into new segments is a part of a larger plan where Balkrishna targets 2.2x revenue growth to ₹23,000 crore by 2030. Of this, 70% is likely to come from OHT, 10% from carbon black, and 20% from new tyre categories. The management has earmarked capital expenditure of ₹3,500 crore for the next three years to fuel growth plans.
In the near term, the OHT business is likely to remain volatile due to the levy of US tariffs and weak global demand hurting prospects in Europe and North America. The management has refrained from providing OHT volume guidance for FY26. Balkrishna now aims for a market share of 8% (versus 10% earlier) in the international OHT segment by FY30 from 6% now.
Shares under pressure
Balkrishna’s shares, after having fallen 20% in the past year, may stay under pressure as the execution risk in the new businesses keeps the earnings outlook bleak.
“We have cut FY26/FY27 earnings per share estimates by 12%/15% due to slight cut to core volume growth, and more importantly due to initial losses of the new venture,” IIFL Securities said, adding that Balkrishna’s free cash flow generation would be very low in FY26/FY27.
