Missed opportunity? This tyre manufacturer turned Rs 10,000 to over Rs 2 crore in 20 years

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A perfect tyre for your vehicle can save a lot of your money. Likewise, those who have invested in this tyre stock have amassed huge gains.

Data shows the tyre sector on Dalal Street has given robust returns in the past 20 years with Balkrishna Industries leading the pack, rallying 2,17,727%. The adjusted share price of the company was at Rs 1,633.70 on March 3, 2021 against Rs 0.75 on March 2, 2001.

The growth in share price indicates that an investment of Rs 10,000 in Balkrishna Industries in 2001 would have now become over Rs 2.17 crore.

The consolidated net profit of the company has grown to Rs 944.98 crore in FY20 from Rs 2.44 crore in FY01. Likewise, net sales of the company advanced to Rs 4,782.48 crore from Rs 145.30 crore during the same period.

Brokerage ICICI Securities is positive on Balkrishna Industries with a price target of Rs 1,937.

“We believe, as Balkrishna India approaches peak utilisation in FY23, RoCEs would continue to remain strong (around 24-25%) as margins (32-33%) have multiple levers (product mix, backward integration, better EUR hedge rates and operating leverage),” the brokerage said.

Other major players including JK Tyre, TVS Srichakra and MRF have also gained 2,476%, 5,389% and 9,855%, respectively, during the same period. In the recent past, JK Tyre reported best ever consolidated revenues of Rs 2,770 crore in Q3, registered a growth of 21.7% QoQ driven by robust replacement demand, strong growth in exports and overseas market.

Despite the rising cost of raw materials, the consolidated EBITDA margin of the company also improved 250 bps QoQ to an all-time high of 18.1%.

Overall, the last one and half year stood highly challenging for the domestic tyre industry. Before Covid-19 led a slowdown in H1FY21, sluggish economic activities led to the steepest fall in tyre demand in last two decades in FY20.

However, with automobile demand recovering swiftly in H2FY21 and growth momentum to remain strong in FY22 and FY23, it presents an encouraging scenario for the domestic tyre industry.

Market watchers are bullish on the tyre industry. Edelweiss Wealth Management in a report said, “Tyre industry has been on an investment spree, adding more than 2x gross block during FY15-20 period and it is expected to further increase at a CAGR of 6% till FY23. Post this capex cycle and no significant expansion post FY23, we believe the industry will see improvement in financial performance. Hence we continue to maintain a bullish stance on the sector.”

In general, tyre demand is highly correlated with the automobile cycle and specifically the commercial vehicle (CV) cycle. Edelweiss believes, with economic activities firing all cylinders, tyre replacement demand will witness strong growth in the initial phase, post that original equipment makers growth will catch up.

“Further, on the back of supportive government policy towards curbing imports, we estimate around 16% CAGR in overall tyre demand for FY21-23 period,” Edelweiss said.