Balkrishna Industries Ltd:Annual Report 2023-24 Analysis

Balkrishna Industries Ltd. (BKT): A Comprehensive Overview #

About the Company #

Year of Establishment and Founding History #

Balkrishna Industries Ltd. (BKT) was established in 1987 by Mr. Balkrishna Poddar.

Headquarters Location and Global Presence #

The company’s headquarters is located in Mumbai, India. BKT has a significant global presence with sales in over 160 countries across five continents.

Company Vision and Mission #

(Information not publicly available - typically found in official company documents)

Key Milestones in Their Growth Journey #

• 1987: Establishment of Balkrishna Industries Ltd.
• Early years: Focus on manufacturing tires for two and three-wheelers.
• 1995: Shift in focus to off-highway tires.
• 2000s: Expansion into international markets.
• Ongoing: Continuous capacity expansion and product innovation.

Stock Exchange Listing Details and Market Capitalization #

BKT is listed on the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE). Ticker symbols are BKT on both exchanges. Market capitalization fluctuates depending on market conditions. Consult financial websites for current market capitalization figures.

Recent Financial Performance Highlights #

Consult financial websites for recent financial statements (annual reports, quarterly results) to obtain up-to-date information on revenue, profit, and key financial ratios.

Management Team and Leadership Structure #

(Specific names and titles of key management personnel can be found on the company’s official website). The company operates under a board of directors structure.

Notable Awards or Recognitions #

(Information not publicly available - typically found in press releases or official company announcements)

Their Products #

Complete Product Portfolio with Categories #

BKT specializes in off-highway tires. Their product portfolio includes:

• Agricultural Tires: Designed for tractors, harvesters, and other farm equipment.
• Industrial Tires: For forklifts, construction vehicles, and material handling equipment.
• Construction Tires: For earthmovers, graders, and other construction machinery.
• Earthmoving Tires: For heavy-duty equipment in mining and quarrying.
• Port Tires: For equipment used in port and logistics operations.
• ATV Tires: For all-terrain vehicles.
• Lawn and Garden Tires
• Forestry Tires

Flagship or Signature Product Lines #

(Information not publicly available - typically found in marketing materials or investor presentations)

Key Technological Innovations or Patents #

BKT has focused on developing tires with specific tread patterns and compounds for optimized performance in various applications. Specific patent details can be found through patent databases.

Manufacturing Facilities and Production Capacity #

BKT has multiple manufacturing facilities located in India. They have been consistently investing in expanding their production capacity. Specific production capacity figures can be found in annual reports or investor presentations.

Quality Certifications and Standards #

(Information not publicly available - typically found on official company website or product brochures)

Unique Selling Propositions or Technological Advantages #

BKT’s strengths include:

• Wide Range of Applications: Tires for a diverse range of off-highway vehicles.
• Cost-Effectiveness: Offering competitive pricing in the off-highway tire market.
• Global Distribution Network: Strong presence in numerous international markets.
• Focus on Niche Markets: Catering to specific needs of different industries.

Recent Product Launches or R&D Initiatives #

(Information not publicly available - typically found in press releases or official company announcements)

Primary Customers #

Target Industries and Sectors #

BKT primarily serves the following industries:

• Agriculture: Farmers, agricultural equipment manufacturers.
• Construction: Construction companies, equipment rental firms.
• Industrial: Manufacturing plants, logistics companies.
• Mining: Mining companies, quarry operators.
• Ports: Port authorities, logistics providers.

Geographic Markets (Domestic vs. International) #

BKT has a strong international presence, with a significant portion of its revenue coming from exports.

Major Client Segments (agricultural, industrial, residential, etc.) #

(Information not publicly available - typically found in annual reports or investor presentations)

Distribution Network and Sales Channels #

BKT utilizes a global network of distributors and dealers to reach its customers.

Major Competitors #

Direct Competitors in India and Globally #

Key competitors in the off-highway tire market include:

• Michelin
• Bridgestone
• Goodyear Tire & Rubber Company
• Trelleborg
• CEAT Tyres
• Apollo Tyres

Comparative Market Share Analysis #

(Market share data is dynamic and needs to be sourced from industry reports or financial analysis.)

Competitive Advantages and Disadvantages #

• Advantages: Cost-competitiveness, wide product range.
• Disadvantages: Brand recognition compared to established global players.

How They Differentiate From Competitors #

BKT differentiates itself through a combination of competitive pricing and a focus on providing tires for a wide range of niche applications within the off-highway sector.

Industry Challenges and Opportunities #

• Challenges: Fluctuations in raw material prices (rubber, carbon black), intense competition, economic slowdown in key markets.
• Opportunities: Growing demand for agricultural and construction equipment in emerging markets, increasing adoption of technology in off-highway vehicles.

Market Positioning Strategy #

BKT positions itself as a value-driven player in the off-highway tire market, offering a comprehensive range of products at competitive prices.

Future Outlook #

Expansion Plans or Growth Strategy #

(Information not publicly available - typically found in annual reports or investor presentations)

Upcoming Products or Innovations #

(Information not publicly available - typically found in press releases or official company announcements)

Sustainability Initiatives or ESG Commitments #

(Information not publicly available - typically found on official company website or sustainability reports)

Industry Trends Affecting Their Business #

• Technological advancements in agriculture and construction equipment.
• Increasing demand for sustainable and fuel-efficient tires.
• Growth in infrastructure development in emerging economies.
• Focus on precision agriculture and smart farming.

Long-Term Vision and Strategic Goals #

(Information not publicly available - typically found in annual reports or investor presentations)

Comprehensive Performance Overview #

3-Year Trend Analysis of Key Financial Metrics #

• Revenue from Operations: Decreased to ₹9,36,887 lakhs in FY 2023-24 from ₹9,75,953 lakhs in FY 2022-23, following a rise from ₹8,26,671 lakhs in FY 2021-22 (standalone).
• EBITDA: Increased to ₹2,70,459 lakhs in FY 2023-24 from ₹2,05,364 lakhs in FY 2022-23, reflecting improved operational efficiency.
• Net Profit: Increased to ₹1,47,149 lakhs in FY 2023-24 from ₹1,05,740 lakhs in FY 2022-23, indicating stronger profitability.
• Earnings Per Share (EPS): Increased to 74.37 in FY 2023-24 from 55.80, indicating improved profitability and value for shareholders.
• Return on Net Worth: Increased to 17.48% in FY 2023-2024 from 14.86% in previous year.
• Debt-Equity Ratio: Improved to 0.34 in FY 2023-24 from 0.43 in FY 2022-23.
• Operating Margin Improved from 11.95% to 16.90%.
• Net Profit Margin: Increased to 15.57% in FY 2023-24 from 11.12% in FY 2022-23.

Business Segment Performance #

• Off-Highway Tires: This segment constitutes 92% of the company’s total turnover, demonstrating its core focus and specialization in this area.

Geographic Segments #

• Exports: Contributed 73% of total revenue in FY 2023-24.
• Europe: Represented a major export market.
• North America: Represented a major export market.

Major Strategic Initiatives and Their Progress #

• Bhuj Plant Expansion: The advanced carbon black project (30,000 MTP) and mould manufacturing facility are progressing and are expected to be completed by H1 and Q1 of FY 2024-25, respectively.
• Mergers: BKT Tires Inc merged with BKT Exim US, Inc, and the surviving Company has been changed to BKT Tires Inc. Scheme of Amalgamation of BKT Tyres Limited with Balkrishna Industries Limited, with Hon’ble National Company Law Tribunal application filed.

Risk Landscape Changes #

• Increased Operational Risks: Equipment obsolescence is mitigated through continuous monitoring, upgrades, and preventive maintenance.
• Raw Material Price Volatility: Addressed through strategic sourcing, though specific strategies are not detailed in provided data.
• Market Risk: Company mitigates market risk by expanding presence in different markets.
• Cybersecurity Risk Company adopted Security operations control and technologies to safeguard IT Data and applications.

ESG Initiatives and Metrics #

• Environmental: Investments in energy-efficient technologies and renewable energy sources. Focus on reducing specific power consumption, steam coal consumption, and air compressor energy consumption. Specific quantified metrics are provided for waste management and emissions.
• Social: Emphasis on employee-centric culture with programs for employee well-being, health, and safety. Specifics include training programs, health surveys, and medical check-ups.
• Governance: Maintenance of a comprehensive internal control framework, adherence to policies, and continuous improvement through audits and reviews. Emphasis on cybersecurity with the adoption of a Cyber Security and Data Privacy Policy. CSR Spending for FY 2023-24 was ’ 3,406.52 Lakhs.
• Sustainability Reporting: The Company Published Business Responsibility and Sustainability Report (BRSR) in line with SEBI.

Management Outlook #

• Optimistic Growth Outlook: Despite global economic challenges, management is optimistic about growth, particularly in the “Off Highway Tire” segment.
• Focus on R&D and Innovation: Strong emphasis on research and development to support product differentiation and adaptation to market trends.
• Customer-Centric Approach: Commitment to meeting evolving customer demands and enhancing satisfaction.

Detailed Analysis #

Balance Sheet Analysis of Balkrishna Industries Limited #

3-Year Comparative Analysis (Consolidated) #

(₹ in Lakhs)

Significant Changes in Major Line Items (>10% YoY) #

(₹ in Lakhs)

• Non-Current Assets: Increased by ₹ 62,077, driven primarily by additions to property, plant, and equipment, and investments.

• Current Assets: Increased by 18.23% mainly due to increased Cash and Bank Balances and Other financial asset.

• Other Equity: Increased by ₹1,29,689 mainly due to an increase in retained earnings of company.

• Non-Current Liabilities: Decreased by ₹27,118 representing repayment of loans.

• Current Liabilities: Increased by ₹31,117

Working Capital Trends (Consolidated) #

• Working Capital: Increased from ₹ 57,868 lakhs in 2023 to ₹ 98,362 Lakhs in 2024, indicating improved short-term liquidity.
• Current Ratio: Improved slightly from 1.17 to 1.27, still indicating a reasonable ability to cover short-term obligations.

Debt Structure and Maturity Profile (Consolidated) #

(₹ in Lakhs)

• A significant portion of non-current borrowing is unsecured.
• Secured borrowings have increased showing increased investment in assets.

Maturity Profile as at 31st March, 2024 (based on contractual cash flows) #

Off-Balance Sheet Items (Consolidated) #

• Contingent Liabilities:
  • Disputed claims for excise, sales tax, customs, service tax, and GST: ₹ 12,738 lakhs in 2024, up from ₹ 12,507 lakhs in 2023.
  • Guarantees given by the Company’s bankers: ₹ 8,624 lakhs.
  • Corporate guarantees given by the Company: ₹ 48,405 Lakhs.
  • Standby Letter of Credit issued by the Company’s Banker:₹430 Lakhs
• Commitments:
  • Estimated contracts remaining to be executed on capital account (net of advances): ₹96,635 lakhs in 2024 compared to 56,271 in 2023.

Balkrishna Industries Limited - Financial Analysis (FY23-24) #

Revenue Breakdown #

Segment Revenue #

• The company operates in a single reportable segment: “Off-Highway Tires.”

Geographic Revenue (Standalone) #

• Export Revenue: ₹6,39,557 Lakhs (FY23-24), representing approximately 73% of total revenue. Year-over-year growth: -13.89%
• Domestic Revenue: Year-over-year Growth: 21.86%

Geographic Revenue (Consolidated) #

• Export Revenue: ₹6,75,373 Lakhs in FY23-24. Year-over-year growth: -11.02%
• Domestic Revenue: ₹2,61,513 Lakhs in FY23-24. Year-over-year Growth: 20.56%
• Europe: FY23-24 revenue was ₹3,99,530 Lakhs. Year-over-year growth: -10.03%
• North America: FY23-24 revenue was ₹1,70,905 Lakhs. Year-over-year growth: -12.47%
• Others: FY23-24 revenue was ₹1,04,938 Lakhs. Year-over-year growth: -12.31%

Cost Structure Analysis (Standalone) #

• Cost of Materials Consumed: ₹4,40,445 Lakhs (FY23-24)
• Employee Benefits Expense: ₹44,125 Lakhs (FY23-24)
• Finance Costs: ₹10,893 Lakhs (FY23-24)
• Depreciation and Amortization: ₹64,378 Lakhs (FY23-24)
• Other Expenses: ₹2,17,900 Lakhs (FY23-24)

Margin Analysis (Standalone) #

• Gross Profit: ₹2,54,287 Lakhs (FY23-24)
• Operating Profit (PBIT): ₹1,89,909 Lakhs (FY23-24)
• Net Profit After Tax: ₹1,43,761 Lakhs (FY23-24)

Margin Analysis (Consolidated) #

• Operating Margin: 28.86%
• Net Profit Margin: 15.7%
• Gross Margin: 27.66%

EPS Analysis (Standalone) #

• Basic and Diluted EPS: ₹74.37 (FY23-24)

Cash Management: Financial Analysis #

Cash Flow and Liquidity Analysis #

Detailed OCF, ICF Components (Standalone & Consolidated) #

Standalone: #

• OCF: Increased to ₹205,247 lakhs in FY 2023-24 from ₹141,433 lakhs in FY 2022-23, primarily due to improved profit before tax and positive adjustments for working capital changes, specifically a significant decrease in inventories.
• ICF: Decreased to ₹(146,790) lakhs in FY 2023-24 from ₹(177,204) lakhs in FY 2022-23. This was driven by, reduced Sale of Investments.
• FCF: Cannot be calculated, data regarding Capex is classified into tangible/intangible, and not given as whole.

Consolidated: #

• OCF: Increased to ₹208,264 lakhs in FY 2023-24 from ₹144,793 lakhs in FY 2022-23. Improved profitability and working capital management.
• ICF: Decreased to ₹(147,554) lakhs in FY 2023-24 from ₹(178,309) lakhs in FY 2022-23. This was driven by, reduced Sale of Investments.
• FCF: Cannot be calculated, data regarding Capex is classified into tangible/intangible, and not given as whole.

Working Capital Management Efficiency (Standalone & Consolidated) #

Standalone: #

• Inventory turnover ratio slightly decreased.
• Trade receivables turnover ratio decreased, indicating a slower collection of receivables.
• Trade payables turnover ratio also decreased, indicating potentially longer payment periods to suppliers.

Consolidated: #

• Identical trends in inventory and trade payables turnover as Standalone.
• Slightly different Trade receivables turnover due to intercompany transactions.

Dividend and Share Buyback Trends #

Standalone & Consolidated: #

• The company has a consistent track record of dividend payments.
• Total dividend payout (interim and proposed final) for FY 2023-24 is ₹16 per share (800%), same as in FY 2022-23.
• No share buyback activity is mentioned in the provided information.

Debt Service Coverage #

Standalone: #

• Debt Service Coverage Ratio (DSCR) decreased significantly from 298.88 in FY 2022-23 to 130.46 in FY 2023-24. This indicates a lower, but still very strong, ability to cover debt obligations with operating profits, driven by increase in Interest cost.

Consolidated: #

• Debt Service Coverage Ratio (DSCR) decreased significantly from 144.16 in FY 2022-23 to 93.10 in FY 2023-24. This indicates a lower, but still very strong, ability to cover debt obligations with operating profits, driven by increase in Interest cost.

Liquidity Position and Cash Conversion Cycle #

Standalone: #

• Current Ratio increased slightly from 1.20 in FY 2022-23 to 1.28 in FY 2023-24, demonstrating a stable, although tight, ability to cover current obligations with current assets.
• Cash Conversion Cycle could not be calculated.

Consolidated: #

• Current Ratio increased slightly from 1.17 in FY 2022-23 to 1.27 in FY 2023-24, demonstrating a stable, although tight, ability to cover current obligations with current assets.
• Cash Conversion Cycle could not be calculated.

Segment-wise Financial Analysis of Balkrishna Industries Limited #

Profitability Ratios (3-Year Trend) #

• ROE: FY22: 18.48% ; FY23: 14.86% ; FY24: 17.48%. A decline is observed between FY22 and FY23, with an increase in FY24.
• Operating Margin: FY22: 20.26%; FY23: 11.95%; FY24: 16.90% .A decline is observed between FY22 and FY23, with an increase in FY24.
• Net Profit Margin: FY22: 15.07%; FY23: 11.12%; FY24: 15.57%. A decline is observed between FY22 and FY23, with an increase in FY24.

Liquidity Metrics #

• Current Ratio: FY23: 1.20; FY24: 1.28. An improvement in the current ratio is observed.

Efficiency Ratios #

• Inventory Turnover: FY23: 10.77; FY24: 10.26. A slight decrease is observed.
• Trade Receivables Turnover: FY23: 8.25; FY24: 6.60. A decrease is observed.
• Total Asset Turnover
  • FY23: 0.84
  • FY24: 0.72

Leverage Metrics #

• Debt-to-Equity Ratio: FY23: 0.43; FY24: 0.34. A decrease is observed, indicating reduced financial leverage.
• Interest Coverage Ratio: FY23: 32.80; FY24: 18.43, decrease is observed.

Working Capital Ratios #

• Net Working Capital Turnover: FY23: 14.77; FY24: 11.21, showing a decrease.

Balkrishna Industries Limited Financial Analysis: FY24 #

Revenue and Profitability #

• Overall Revenue: FY24 consolidated revenue decreased to ₹9,36,887 Lakhs from ₹9,75,953 Lakhs in FY23, a decline of 4.00%.
• Overall EBITDA: Increased to ₹2,70,459 Lakhs in FY24 from ₹2,05,364 Lakhs in FY23, signifying a growth of 31.69%.
• Overall Net Profit: Increased to ₹1,47,149 Lakhs in FY24 from ₹1,05,740 Lakhs in FY23, reflecting a growth of 39.16%.
• Margins: Operating margin is 16.90% vs 11.95 % and Net profit margin is 15.57% Vs 11.12%.

Market Share and Competitive Position #

• Balkrishna Industries is a significant player in the ‘Off-Highway Tire’ segment, with a wide product range of over 3,200 SKUs.
• The company’s specialization in niche segments (Agricultural, Mining, Construction, Industrial, etc.) has contributed to gains in market leadership.

Key Products/Services Performance #

• The primary product category is ‘Off-Highway Tires’, covering specialty segments like Agricultural, Mining, Construction, Industrial, and others, in both cross-ply and radial constructions.
• The Company operates in a segment characterized by wide product range, low production volumes, consistent demand, and technological changes.

Geographic Distribution and Market Penetration #

• Export Revenue: Approximately 73% of the company’s revenue is derived from exports.
• Geographic Breakdown: Major export markets include Europe and the USA, with a presence in over 130 countries. Domestically, the company has a PAN India presence.
• Market Penetration Efforts: The company is focusing on deeper penetration into existing markets and expanding its distributor and dealer network.

CAPEX Investment #

• FY24: 15.57% of total CAPEX in specific technologies.
• FY23: 16.68% of total CAPEX in specific technologies.
• Focus areas of CAPEX are Energy efficiency, water reduction equipment, environment monitoring systems, Improvement of safety infrastructure, use of Electric vehicles, renewable energy.

Operational Efficiency Metrics #

• Inventory Turnover: FY24 is 9.27 (times), slightly decreased from 9.84 in FY23.
• Trade Receivables Turnover: FY24 is 7.27 times, lower than 8.72 in FY23.
• Trade Payables Turnover Ratio: 10.15 for year ending March,2024 and 12.13 for year ending March,2023.
• The company implemented operational improvements such as Variable Frequency Drives (VFDs), energy-efficient motors, air and steam leakage reduction, and process automation.

Growth Initiatives and Challenges #

• Growth Initiatives:

  • Expansion into the Ultra Large Earthmovers & Mining Radial Tires market.
  • Transition from Bias to Radial Tires.
  • Infrastructure investments, including a Carbon Black Plant and Captive Power Plant at Bhuj.
  • R&D investments focused on sustainable raw materials and product innovation.

• Challenges:

  • Global economic slowdown, ongoing wars, and potential stagflation impacting external demand.
  • Competitive pressures within the industry affecting market share and pricing.
  • Raw material price volatility and supply disruptions.
  • Talent attrition and retention of skilled manpower.
  • Geopolitical and regulatory risks, including cybersecurity threats.

• Increased demand of vehicles globally presents growth opportunities, but effective management of challenges is essential.

Risk Assessment: Off-Highway Tires #

Strategic Risks #

• Severity: High
• Likelihood: High
• Trend: Stable
• Mitigation Strategies: Focus on niche markets, investment in R&D for product differentiation, and strategic infrastructure investments.
• Control Effectiveness: Partially Effective
• Potential Financial Impact: Negative, with pressures on exports and potential revenue reduction.

Operational Risks #

• Severity: High
• Likelihood: High
• Trend: Increasing
• Mitigation Strategies: Preventive maintenance, equipment upgrades, and investments in modernization. Strategic sourcing and supply chain management.
• Control Effectiveness: Partially effective
• Potential Financial Impact: Negative. Increased operational costs due to raw material price volatility.

Financial Risks #

• Severity: Moderate to High
• Likelihood: High
• Trend: Stable
• Mitigation Strategies: Natural hedge, use of forward contracts.
• Control Effectiveness: Moderately Effective
• Potential Financial Impact: Potentially Negative. Fluctuations can impact profitability, although hedging strategies are in place.

Compliance / Regulatory Risks #

• Severity: Moderate
• Likelihood: Low
• Trend: Stable
• Mitigation Strategies: Responded, asserting compliance with relevant rules.
• Control Effectiveness: To be determined
• Potential Financial Impact: Potentially Negative. Could result in penalties.

Emerging Risks #

Climate Change #

• Severity: Medium
• Likelihood: High
• Trend: Increasing
• Mitigation strategies: Assessing risks, robust strategies to build resilience, and ensuring sustainability.
• Control Effectiveness: Ongoing assessment
• Potential financial impact: Not stated

Cybersecurity #

• Severity: High
• Likelihood: Moderate to High
• Trend: Increasing
• Mitigation Strategies: Implementation of Cybersecurity and Data Privacy Policies, adoption of security operations control and technologies, employee training on cybersecurity awareness.
• Control Effectiveness: Appears to be proactive, but effectiveness is not yet quantified.
• Potential Financial Impact: Negative. Cyber-attacks could lead to financial losses, data breaches, and reputational damage.

Strategic and Management Analysis of Balkrishna Industries Limited (BKT) #

Long-Term Strategic Goals and Progress #

• BKT aims for global leadership in the Off-Highway Tire (OHT) segment, evident in its wide product range and expansion into niche markets like Ultra Large Earthmovers & Mining Radial Tires. The increase in net profit, both on a standalone and consolidated basis reflects progress toward that goal.
• Investments in infrastructure, like the advanced carbon black project and mold manufacturing facility, are a sign of commitment to enhance production capabilities and achieve long-term cost efficiencies and market share gains.

Competitive Advantages and Market Positioning #

• BKT enjoys a “Five Star Export House” status and AEO Tier III status, demonstrating its strong export capabilities, and faster processing.
• BKT has a wide product range (over 3,200 SKUs) enabling it to cater to diverse customer needs and enhancing its market leadership, supporting consistent dividend payments for decades.

Innovation Initiatives and R&D Effectiveness #

• BKT shows consistent focus on technology, with full absorption of imported tire-building machine technology.
• 100% of the R&D investments is towards improving the environment and social impact of the products.
• R&D efforts are focused on sustainable raw materials and increasing the ratio of recycled carbon black.

M&A Strategy and Execution #

• Simplifying structure: BKT Tyres Inc has been merged with BKT Exim US, Inc.
• Streamlining operations: Scheme of Amalgamation of BKT Tyres Limited with Balkrishna Industries Limited has been approved to improve operational efficiency.

Management’s Track Record in Execution #

• Management maintains cordial industrial relations and demonstrates effective cost controls.
• Consistent dividend payments over three decades, including interim dividends, reflect a shareholder-friendly approach and financial stability.
• Re-appointment of Mr. Rajiv Poddar as Joint Managing Director.

Capital Allocation Strategy #

• Proposed transfer of ₹ 40,000 Lakhs to General Reserve signals prudent financial management.
• Consistent dividend payments, with an aggregate dividend of ₹16 (800%) per equity share for FY 2023-24, indicates a balanced approach between rewarding shareholders and retaining earnings for growth.
• Significant investments in infrastructure projects (Bhuj plant expansion) suggest a focus on long-term growth and operational efficiency.

Organizational Changes and their Impact #

• Appointments of new independent directors (Mr. Laxmidas Merchant and Mr. Rahul Dutt) can be linked to improve corporate governance.
• The cessation of Mr. Sandeep Junnarkar and Mr. Rajendra Hingwala’s directorships, as Independent Directors, and reconstitution of Audit Comitte.

ESG Framework #

Environmental Metrics and Targets #

• Invested in energy-efficient technologies and renewable energy sources, with 7.4% of grid power sourced renewably in FY 2023-24.
• Water withdrawal decreased to 1,935,982 kiloliters in FY 2023-24 from 2,003,969 kiloliters in FY 2022-23.
• Water intensity per rupee of turnover improved to 2.08 KL/lakh INR in FY 2023-24 from 2.04 KL/lakh INR in FY 2022-23.
• All plants have implemented Zero Liquid Discharge systems.
• Air emissions show mixed results; NOx emissions increased while SOx and Particulate Matter (PM) emissions decreased.
• Waste management practices are in place, aligning with circular economy principles.
• Capital investment in energy conservation equipment and environmental monitoring systems has been made.
• Scope 3 emissions calculations are in progress.

Social Responsibility Programs #

• Customer-centric approach, handling 10,040 customer complaints in FY 2023-24 with 1,817 pending resolution.
• CSR projects focus on promoting education, healthcare, and rural development.
• Identified CSR projects with total commitments of ’ 3,406.52 lakhs.
• Spending on CSR initiatives has exceeded statutory requirements, with excess spending of ’ 273.07 lakhs in FY 2023-24.
• Employee-centric culture, with focus on respect, empathy, and dignity.
• No complaints were reported under the Sexual Harassment of Women at Workplace Act, 2013 during the year.

Governance Structure and Effectiveness #

• The Board of Directors is duly constituted with a balance of Executive, Non-Executive, and Independent Directors.
• The Board and its Committees function cohesively.
• Multiple committees including Audit, Nomination and Remuneration, Stakeholders’ Relationship, Corporate Social Responsibility, and Risk Management.
• An internal control framework is in place for managing financial and operational functions.
• Regular audits and reviews reinforce internal controls’ effectiveness, including external assessments of internal financial controls.
• Vigil Mechanism/Whistle Blower Policy for reporting fraud and mismanagement.
• Compliance with the Code of Conduct for Directors and Senior Management Personnel.
• A Code of Conduct for Regulating, Monitoring and Reporting of trading by Designated Persons is applicable.

Sustainability Investments and ROI #

• 100% of R&D expenditure and 15.57% of capital expenditure are allocated to technologies improving environmental and social impacts.
• Investments in energy-efficient technologies, renewable energy sources, and water conservation initiatives are ongoing.

Regulatory Compliance and Future Preparations #

• Compliant with SEBI Listing Regulations, the Companies Act, 2013, and the Secretarial Standards.
• Preparing for future regulatory changes and enhancing its risk management framework.
• Complied with Extended Producer Responsibility (EPR) regulations.
• Compliance with cost audit requirements as per Section 148 of the Companies Act, 2013 for FY 2023-24.

Balkrishna Industries Limited (Off-Highway Tires) Financial Analysis #

Future Projections and Guidance #

• Management anticipates increased demand in the coming quarters, expecting reduced inflation.
• Ongoing global economic slowdown, wars, and potential stagflation pose significant risks.
• The company is maintaining a customer-centric approach.
• The assumption is that the increase in raw material cost gets offset by an increase in prices over time.

Market Growth Forecasts #

• The automobile industry shows increased vehicle demand globally, positively influencing tire demand.
• The “Off-Highway Tire” segment specifically provides resilience against downturns in mainstream automotive sectors.

Planned Strategic Initiatives #

• Strategic focus on the “Off-Highway Tire” segment, targeting specific customer needs.
• Expansion into niche markets, such as Ultra Large Earthmovers & Mining Radial Tires, and a shift from Bias to Radial Tires.
• Emphasis on research and development for product differentiation and adaptation to market trends.
• Focus is maintained on employee training on cybersecurity awareness.

Capital Expenditure Plans #

• Ongoing advanced carbon black project (30,000 MTP) at Bhuj, expected completion by H1 FY 2024-25.
• Mould manufacturing facility at Bhuj, expected completion by Q1 FY 2024-25.
• Strategic investments in infrastructure, including the Carbon Black Plant and Captive Power Plant at Bhuj, to hedge against energy costs and promote circularity.
• India’s first Ultra Large size all-steel OTR Radial tire plant and capacity expansion.

Efficiency Improvement Targets #

• Continuous monitoring of equipment and upgrades to prevent obsolescence.
• Reduction in steam coal consumption by refurbishing boilers and optimizing curing utility parameters.
• Installation of Variable Frequency Drives (VFDs) for recycling RO water, reducing power consumption.
• Reduction of electrical energy loss through system improvement.

Potential Challenges and Opportunities #

Challenges #

• Competitive Pressures: Significant threat from competition, affecting market share and pricing.
• Talent Management: Attrition, retention, and labor disputes can impact operations.
• Raw Material Volatility: Fluctuations in raw material prices (Natural and Synthetic Rubber, Carbon Black, Nylon fabric) and supply disruptions.
• Economic Downturns: Slowdowns in key markets (India, Europe) could reduce demand and capacity utilization.
• Geo-political and Regulatory Risks: Uncertainties, regulatory changes, and exchange rate volatility can increase costs.
• Cyber Security/Technology Risk: Vulnerability to cyber attacks.
• Climate Risk: Potential impacts of changing climate.

Opportunities #

• Segment Specialization: Catering to diverse needs in a lower-volume, specialized segment.
• Market Leadership: Leveraging a robust product portfolio to gain market share.
• Technological Stability: Operating in a segment with stable technology and consistent demand.
• Niche Market Expansion: Proactive entry into Ultra Large Earthmovers and Mining Radial Tires, and transition from Bias to Radial Tires.
• Operational Risk: Continues monitoring of the equipment and upgraded from time to time.
• Market Risk: Expanding presence in different markets, deeper penetration into existing markets, and launching new products.
• Infrastructure Investments: Facilities like the Carbon Black Plant and Captive Power Plant to manage energy costs.
• Innovation and digitalization: Embracing digital transformation and innovation can enhance operational efficiency.

Scenario Analysis and Sensitivity to Key Assumptions #

• Raw Material Price Volatility: A 10% increase in key raw material costs, without a corresponding price increase, is not explicitly quantified but considered manageable over time due to pricing adjustments.
• Currency Fluctuation: The Company enjoys a natural hedge due to significant export revenues.
• Energy Costs: The impact of rising energy costs is mitigated by investments in a Carbon Black Plant and Captive Power Plant, promoting energy circularity.
• Interest Rate Sensitivity (Fixed Rate Instruments): The report indicates that fixed-rate borrowings are carried at amortized cost, making them not subject to interest rate risk as neither the carrying amount nor the future cash flows will fluctuate.
• Interest Rate Sensitivity (Variable Rate Instruments): A reasonable possible change of 100 basis points in interest rates have been provided, with impact assessment on profit or loss before tax.
• Economic Slowdown: Demand reduction sensitivity is not explicitly quantified.
• Market Demand: The assessment assumes continued global automobile demand.

Balkrishna Industries Limited: Consolidated Financial Statements Analysis #

Audit and Regulatory Analysis #

Auditor’s Opinion #

• Jayantilal Thakkar & Co. issued an unmodified opinion, indicating a true and fair view according to Indian GAAP.
• No qualifications were reported.

Key Accounting Policies #

• Compliance with Indian Accounting Standards (Ind AS).
• Financial statements prepared on a historical cost basis (with exceptions).
• Revenue recognition under Ind AS 115.
• Depreciation on PPE using the Straight Line Method per Schedule II of the Companies Act, 2013.
• No changes in accounting policies during the year.

Internal Control Effectiveness #

• Auditors reported adequate and effective internal financial controls.
• Continuous monitoring, assessment, and reporting mechanisms are in place.

Regulatory Compliance Status #

• Compliance with SEBI (LODR) Regulations, 2015, and the Companies Act, 2013.
• Compliance with relevant Secretarial Standards.
• No penalties from regulatory bodies in the last three years related to capital markets.
• Compliance with environmental laws (Water Act, Air Act, Environment Protection Act).

Legal Proceedings #

• Pending litigations with disclosed impacts.
• Show cause notice from the Ministry of Corporate Affairs regarding Cost Auditors (under contest).
• Income Tax Department search conducted (outcome pending).
• Disputed claims for excise, sales tax, customs, service tax, and GST amount to ’ 12,738 lakhs.
• Disputed income tax demands reported as ‘86 lakhs.

Related Party Transactions #

• Transactions conducted in the ordinary course of business and on an arm’s length basis.
• No material contracts/arrangements/transactions with related parties.
• Details disclosed in Note No. 43 of the Consolidated Financial Statements.

Subsequent Events #

• Board recommended a final dividend of ’ 4 (200%) per equity share for FY 2023-24 (subject to approval).

Accounting Quality Analysis #

• Adoption of Ind AS and historical cost basis is standard practice.
• Consistent application of accounting policies enhances transparency.
• Unmodified audit opinion suggests high accounting quality.
• Disclosure of related party transaction increases quality.
• Use of standard depreciation rates as per companies act.

Regulatory Risk Assessment #

• Show cause notice regarding Cost Auditors presents a regulatory risk.
• Ongoing search by the Income Tax Department represents a significant regulatory risk.
• Pending litigations represent a level of contingency.
• Compliance to Extended Producer Responsibility (EPR) for waste management is a risk area.
• Geo-political and Regulatory risks may impact the company as it does business in over 130 countries.