The off-road tyre manufacturer named Balkrishna Industries ltd. (BKT tyres) has been showing a strong performance in sales and services in the March quarter. The demand is expected to increase in the agriculture segment across its major markets.
Despite the lockdown which has persisted even in the end of March, the company has acclaimed record quarterly sales led by Europe which accounted for about 58 percent of revenue.
The company's volume growth is said to be 5 percent. The revenues in the quarter were similar to the growth in the quarter a year ago considering the fact that there were discounts in the European market. The company stated some of the gains from costs of raw materials to consumers.
The management indicated that if there are no demand issues in the future then the performances in FY21 would be similar to FY20. However, the manufacturer states that the demand for the agricultural tyres (60 percent of sales) in Europe, India and USA will support the volumes.
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The European market is witnessing good growth in demand after the drought and heat wave had muted the growth for about two years. The demand in the US markets were also impacted by the trade war between China and the US in the previous year 2019. However, the demand has increased and is sustaining even during this tough times due to the COVID-19 pandemic outbreak.
Over the last three years, the growth in India has remained steady and is expected to continue further this year with increase in demand by good monsoon sales and incentives provided by the government for the sector.
Analysts expect that the replacement market will have strong demand and the customers will prefer the replacement of tyres rather than spending higher amount in replacing the vehicle.
There are margin triggers for the company even though steady growth is the key. The establishment of a new carbon black plant is believed to help add 100 to 150 basis points to the margins. The raw materials costs which are believed to be low could bring down the cost of the raw material basket. It was stated by the company that the excess sale of carbon black output in the market is resulting in good margins. The strong balance sheet with zero debt and cash of over Rs.1000 crore is a plus point and one can say that the company is moving in the right direction.
