Q1 25/26

Jul 28, 2025

Ladies and gentlemen, good day and welcome to the Balkrishna Industries Limited Q1FY26 earnings conference call. This conference call may contain forward-looking statements about the company which are based on the beliefs, opinions, and expectations of the company as of the date of this call. These statements are not guarantees of future performance and involve risks and uncertainties that are difficult to predict. As a reminder, all participant lines will be in the listen-only mode and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during this conference call, please signal an operator by pressing star then zero on your touchtone phone. Please note that this conference is being recorded. I now hand over the conference to Mr. Rajiv Poddar, Joint Managing Director. Thank you. Over to you, sir. Thank you, Mrs. Hoodam. Good morning to everyone and thank you for joining us today. Along with me I have Mr. Bajaj, Senior President Commercial and CFO, Mr. Satish Sharma, Senior President, Strategy and Business Development, Mr. Ravi Joshi, Deputy CFO, Mr. Sushil Mishra, Head Accounts, and HGA, our IR Advisors. Let me begin with performance updates. Q1, financial year 2026, was a volatile quarter on account of tariff related disruptions. With the tariff announcements, we witnessed a volatile ordering cycle in April. However, since the 90-day pause announcement on tariffs, there was gradual return to normalcy. Pre-tariff announcements, we were subject to nominal tariff charge, which is now increased to a little over 10%. We don't expect any significant challenges on this new tariff structure. However, we do believe that the complete normalcy in ordering cycle will take shape once there is permanent tariff structure in place. In other geographies, we witnessed a stable quarter. Americas witnessed a slight degrowth on account of macro situation, while the rest of the geographies. Mr. Rajiv, we can't hear you. Mr. Rajiv. Sorry, there was some disruption at our end. Let me begin with the performance updates. Sure, sir. The geopolitical environment and the broader macroeconomic scenario continue to present significant challenges across our key export markets. Amidst ongoing conflicts, trade tensions and economic uncertainties continue to influence cautious sentiments among customers. In addition to these external headwinds, continued tariff uncertainty has further compounded the situation. Despite these testing conditions, we managed to achieve a sales volume of 80,664 metric tonnes during the current quarter. While this reflects a marginal decline compared to Q1 of financial year 2025, this performance demonstrates a degree of resilience given the prevailing global headwinds. India business continues to be strong and for the quarter contributed to approximately 35% to our sales volumes and approximately 14.4% in growth on year-on-year basis. This growth momentum is a testimony of our brand acceptance and will further accelerate our efforts as we launch in the PCR and CV segments. As I was mentioning earlier, in the U.S. the current tariff is 10% which is shared by our customers and us and in the near future the resolution of the ongoing tariff uncertainties. We are hopeful for a better trade environment and improved business conditions. Given the magnitude of challenges and uncertainties in international markets, we have delivered a strong performance and outperformed the industry. As we return to stable demand environment, we expect to further outperform and improve our market share all over. On the CAPEX front, the earlier announced CAPEX of OTR along with newly announced CAPEX for Carbon Black, PCR and CVR are expected to operationalize as per schedule. With this, I now move on to operational highlights. For the quarter our volume stood at 80,664 metric tonnes, marginally lower as compared to the same period last year. Our standalone revenue for the quarter stood at INR 2,759 crore including realized loss on forex pertaining to sales of INR 1 crore. The gross profit margin in Q1 was lower on account of product mix impact as well as 35% of the overall sales volume were contributed from India. The standalone EBITDA for the quarter was at INR 655 crore with a margin of 23.8%. In addition to higher India contribution, EBITDA margin was. The EBITDA margin impact was on account of partial absorption of tariffs for U.S. geography and lower absorption for fixed cost due to lower sales volume. Profit after tax stood for the quarter at INR 287 crore which was approximately down 40%. This was primarily on account of mark-to-market (M2M) loss to the tune of INR 154 crore. The board of directors has declared a first interim dividend of INR 4 per equity share. With this I now conclude my opening remarks and leave the floor open for Q and A. Thank you very much. We will now begin with the question and answer session. Anyone who wishes to ask a question may press star and 1 on their touch tone telephone. If you wish to remove yourself from the question queue, you may press star and 2. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question is from the line of Raghunandan from Nuvama Research. Please go ahead. Thank you sir for the opportunity. Sir, firstly on Europe, Europe has seen a decline year over year at 20%. Europe Pharma sentiments seem to be weak on higher input cost impact of EU regulation. Can you talk a bit about how you are seeing the customer sentiments in the replacement market? How do you see the recovery in this market going forward? The current sentiments in Europe are weak and this is reflected in the numbers. The overall economic environment was also weak in Europe. That is the reason for these continued numbers. Given that now we are four months into the year, how do you see the FY2026 outlook given all the uncertainties? Going ahead, the next two quarters we also have a favorable base. Would you expect to be on the positive side for the full year? Too early to give a number and comment on that. Got it sir. To Mr. Bajaj sir, if you can indicate the Euro INR realization and the hedge rate for FY2026. For the current quarter it was INR 93.60. For the remaining year it is closer to the market. Got it sir. Just a last question before I fall back to the queue. Can you please share the freight cost as percentage of revenue that you usually used to share? Would it be lower quarter on quarter given that there has been some fall in the global freight prices? It was marginally lower. Got it. Thank you so much. I'll fall back to the queue. Thank you so much. The next question is from the line of Mumuksh Manlesha from Anand Rathi Institutional Equities. Please go ahead. Thank you so much for the opportunity, sir. Just want to understand, is there any correction in the inventory this quarter? In Europe, where there was almost 20% down, and in Q4 we saw 8% growth. Has there been any inventory adjustment this quarter in Europe, and overall, sir, globally, how is the inventory situation now? Sir, nothing specific on the inventory correction. It is just the overall market sentiment. Got it, sir. Possible to quantify what was the U.S. tariff impact in this quarter? Sir, currently the tariff is 10%. Out of that, 60% is customer bearing and 40% we are sharing. 40% is a sharing, and that continues for Q2 also. Right, sir. Got it, sir. This quarter, other expenses were up 24% YoY and full Q. Any reason for the increase in the other expenses? Sir? What should be the run rate? Sir, it is a duty impact and some marketing impact. Okay, the U.S. duty impact has come in other expenses, what you're seeing, and the marketing being higher. Okay, the run rate should continue as of at least for Q2 because the duty would continue. Right, sir. Yes, got it, sir. In this quarter for the RM, sir, what kind of a reduction we saw in Q1 and what kind of benefit further we expect going also? It was very nominal price reduction as compared to last quarter, and the coming quarter we see the similar type of the prices because rubber is going up and other basket is down for Q2. Right, sir. Thank you. The next question is from the line of Aditya Jhawar from Investech. Please go ahead. Hi. Thanks for the opportunity. You mentioned that 50% of the tariff impact was absorbed by customers. If you can give some sense, out of the total demand in the U.S. market, what percentage would be domestically procured and what is the competitor? How competitors have behaved in terms of tariff impact if they are also importing from outside the U.S.? Sorry, just to confirm competitive dynamics. Just to correct you on that, which is 40%, not 50%. Sorry, could you please. 40%. We are bearing. Okay. Sure, sure. Sir, answer. Any sense in how competition has behaved in this environment? Sir, in terms of pricing or impact of tariff? Hello. Everybody is in the same boat. We are not sure of how they have done the cost sharing, but tariff has impacted everybody. Even if there is a local manufacturer, his raw materials are coming from Asia, so they would have got impacted with the tariffs. Okay. The pricing gap between us and the competition, even after the increase in tariff, is largely of similar magnitude. Yes. Yes, should be. Okay. Okay. Yeah, that's it. Thank you. Thank you so much. I request each participant to ask two questions. Thank you. The next question is from the line of Siddharth Bera from Nomura. Please go ahead. Yes. Hi, sir. Thanks for the opportunity. Sir, first question again on these U.S. tariffs. I understand the tariffs came sometime during the quarter and not for the entire quarter. Will it be possible to share, of the total U.S. revenues for U.S. in Q1, what % has got impacted by the tariffs? It came on the 9th of April, if we are not wrong. That's practically the whole quarter. No, you are right. It did not come for the whole quarter but nine days into the quarter. It has impacted the whole quarter only practically. Okay. Because U.S. volumes have seen a good jump in the quarter. This is despite the entire quarter being under tariff. Despite that, we have seen a good pickup in the U.S. volumes. Is it the right way to look at it? If you look at it this way, it was originally pre the 9th of April, there it was 26% which came down. As I mentioned in my commentary, there was some normalcy which has come in, so they have been buying because of this revised tariff. Now we are waiting for the final note, what happens once the governments agree on some tariff rate? We will come to know what the long-term normalcy will be. It's too early to comment before that. Generally, what is the thought process like? We understand that it may go up even further. Do you plan to sort of pass on the entire cost or do you probably want to continue with the current scenario of 60%? What we have seen is we were quick to come to a cost sharing basis which has impacted on this. We will take a call once we have final numbers in front of us. We don't want to comment anything till the final numbers are there. What are the tariff basis? Is it this level? Higher? Lower? We don't know anything, so without knowing anything it's very difficult to comment. Got it, sir. Lastly, on the CapEx side, would you have any further color? INR 3,500 crore we had highlighted will be the next three years. Any point possible breakup into what can go into TBR, PCR and how should we understand the ramp up to be in the next 2-3 years? If you have some thoughts there. No, we are not sharing the breakup of that. We announced an overall CapEx which we will be doing in the next three years which will come in line in the next three years. Okay, sir. Got it. I'll come back in the queue. Thank you. The next question is from the line of Rishi Vora from Kotak Securities. Please go ahead. Yeah, thank you for the opportunity, sir. My first question is on the realized forex losses. You highlighted that our hedge rate was INR 93.6 for the quarter Euro NR, but the full year average, full quarter average was around INR 97. So why is our losses lesser for the quarter? Can you just explain that math on how it works? How do we hedge? Like what is our hedging policy? Do we have 100% of our first year exposure or is it like 50%, 60%, 70%? Rishi, it will not be prudent to compare the normal average with what hedge rate was mentioned. It also accounts for the timing differences wherein the PCFC was taken earlier, then there was a realization or repayment against that, as well as the sales was booked at a different rate in the books, and then the data realization happens at a different rate. It will not be prudent and probably you will not end up doing the right math that taking an average of a quarter and then comparing it with what we realized. The second quarter will be more reflective of this quarter spot rate. It all depends on what rate prevails at that point in time, at what rate we have booked the sales in our books. Also, just to add on to that, the custom rates are daily. You know, it's a daily parameter. We are booking and hedging against our sales and all, but when the actual sales gets transacted, what is the custom duty rate on that day? That is how the gain or losses, gain or losses get calculated. Understood. Our hedging policy would be like for one year revenue expectation, everything we would be hedging or it's lesser than that. Yeah, we keep on rolling basis and that too very conservative. We only hedge 80% of net receivable, which end up probably 30%, 35% of gross Euro revenue. We don't hedge anything on dollars. Understood. I am assuming dollar would be naturally hedge because. Understood. My second question is pertaining to full year margin guidance given where we are in terms of commodity tariff pricing. Like any broader guidelines you could share with at least in terms of margins or any headwind stage you see going into the financial into the subsequent quarters. We have already given the margin guidance in the even last quarter. It will be around 24%, 25%. Understood. Okay, thank you. Thank you. The next question is from the line of Abhishek Kumar Jain from Alpha. Accurate. Please go ahead. Thanks for the opportunity, sir. Sir, you have imposed several rounds of the sanctions on the Russia trade restrictions on the machinery and the Russian oils as well. How do you see direct and indirect impact on your business? Your voice was very inaudible. Are you able to hear me now? Yeah. My question was on the European Union. That has imposed many sanctions on Russia, like that trade is turned on the machinery and Russian oil. Just wanted to understand how do you see direct and indirect impact on your business in Europe? We don't mind any machinery or direct raw material from Russia. Oil may be coming and some derivatives of the oils locally. I don't know what way it is coming, but otherwise we are not impacted from that. Okay, sir. You are also falling into the TBR and the PCR segment. Just wanted to understand when we'll start the commercial production and how much will operating cost will increase in the near term because of this. Sorry, sir. June, July 2026. June, July 2026. Okay. How much operating cost will increase because of this in the near term in the next one or two quarters? This we cannot comment, I think. Okay, sir, and my last question on the dealer inventory, in terms of the days, how much the current dealer inventory in the export side? It's at normal levels. There's no increase or decrease. It's at the normal level. Will it be two months or three months? Between two and three months. Okay, thanks, sir. That's all from myself. Thank you. The next question is from the line of Joseph George from IIFL. Please go ahead. Thank you. I just have one question. You mentioned that the euro realization in the coming quarters would be closer to the existing market rate, whereas last quarter it was 93, 94. What I want to check is, you also mentioned that you are maintaining your margin guidance of 24, 25%. Now this euro benefit that you're getting is a significant amount. Do you not expect that to flow down to the bottom line or do you think it will be competed away because there will be other players as well who are exporting from India and they will also have similar advantages? No. I think the volume impact will come. There is uncertainty. That may come and have some impact on the running cost, fixed cost, and other costs. The duties which were unaccounted for will have also come in place. A lot of things at this stage are very open to give a comment. As far as the EBITDA guidance is, we mentioned that we strive to be in this range. There will be a couple of quarters which will be higher and a couple of quarters which will be lower. The higher quarters are not in benchmark and the lower quarter is a one-off kind of scenario. We will strive to be in that range. Fair enough. Thank you. That's all I had. Thank you. The next question is from the line of Vishal Dudwala from Trinetra Asset Managers. Please go ahead. Thank you for the opportunity, sir. Am I audible, team? Yes, I have a couple of questions. First, with global OTR tyre demand set to grow mid single digit in FY26, driven by uneven monsoons in India and driving construction activity in export market, how are you calibrating production and segment Agri and OTR to capture that growth without compromising margins? We produce only against order. We do not produce for stock. As the orders are coming, we are producing as per that, and already I mentioned in my opening remarks that the product mix had some difference. That's why the EBITDA margin was slightly impacted. We will take it as per the demand. Very early to comment on what will come and where. Second is on your asset utilization. Your new OTR specialized and expanded rubber track line will fly in Q1 2026. Can you share the utilization level you achieved to date versus over 80% target? It is in testing phase and we will give you more commentary on that towards the end of this year. One last follow up question on your Europe side. Can you provide an update on the execution of your TBR capacity expansion plan for that region? As I mentioned, all the expansion that we have announced is going as per schedule. I will not be giving individual breakup. Got your point. Thank you for the question. Thank you. The next question is from the line of Chirag Maru from Keynote Capitals. Please go ahead. Yes, thank you for the opportunity. First thing I would like to know, what is the mix of Carbon Black in our total sales? What is the mix of Carbon Black in our total sales? Approximately 9%. Will it be possible for you to provide volume numbers too? No. Okay. The second thing I would like to know is that as we are adding new product lines like ECR and related to commercial vehicle as well as the passenger vehicle, I wanted to understand your philosophy and thought process. What would be our right to win in this segment as we were earlier completely focused into majorly of hybrid tires. First, there is no dilution of our focus in off hybrid tires. I'd like to make that statement very, very clearly. The second point is we are looking at the market keenly in finding the white spaces and the areas where to play. We have a strategy which cannot be unfolded at this stage. We are looking at the market keenly and devising our own strategy. I think we will surprise the market positively. Fair enough. Secondly, I wanted to know, as you said that the product mix shift towards India has led to dilut of gross margins. Could you just give us a ballpark to understand it better? What is the pricing differential in international market compared to India? It's marginally maybe about half to 1% lower. You're talking about margin, right? No sir, I'm talking about realization. Like if we sell it for INR 100 in India, what will be the selling price in international market? It would be easier for us to understand, like if the mix shifts towards India there can be dilution taking place in GPM level around it fluctuates between different product mix. You can take a range of 8 to 10% lower. Okay. This effect on the margin front, it would be half, between half and 1% EBITDA level, it would be half to 1% only. Yeah. Okay. Fair, fair. Sir, just wanted to understand are we on track for the rubber track expansion by H2 2026? Yes, that is it. That is it from. Thank you sir. Thank you. The next question is from the line of Hemang from Anvil. Please go ahead. Hello. Hello. Yes. Yeah, good morning sir. I wanted to check that since we are doing 20% from India over next five years. The margins, you just said the gross margins would be diluted. There will be an impact on EBITDA margin because the staff higher in India comparatively as in we don't have the labor arbitrage for Indian products. As I mentioned in my few in the last meeting, despite all of our new businesses and India market strategy, everything, we expect blended margins post full commercialization to be in the range of 23% to 25%. We will strive to maintain that. How will we have an advantage in passenger cars and TBR which we are planning? Because we have another competitor, many other competitors in Indian markets whose margins are in the range of 16%. I made these announcements in my last quarterly when I announced our five year plan. If you see that we had mentioned that we will be entering into premium categories and radial categories, there will be superior product mix, and we'll have some operational advantages put together which will help us maintain these numbers. Sure, all the best. In terms of near term challenges, anything on the volume outlook which we did around 3:15, this 3:15, 20 this year. As I mentioned earlier, it's too early to comment on volume guidance. Okay, thank you sir. That's it. Thank you. The next question is from the line of Raghunandan from Nuvama Research. Please go ahead. Thank you, sir, for the opportunity. Firstly, on the 30,000 capacity of advanced Carbon Black, as the revenues commenced from this business, how do you see the ramp up in FY26? Not significantly. It is still in the trial stage. This end of the last quarter means end of the calendar year we expect to ramp up this business. Got it. Thank you. On the Trax side, how much would be the share of Trax in our revenue currently? Given that the new capacity will come up in H2, how do you see the ramp up there? Trax is currently in trial stage and so it's very nominal. Thanks for that, sir. My question was to Satish, sir. You know, how big would be the current BKT dealer network in India? Would you be using the current network for TBR, PCR? How do you look at the strategy on distribution of new products? Would you be leveraging it or would you be building it from scratch, especially to target the PCR segment? Raghu, the approach and philosophy of distribution will by and large be the same. That's where the leverage in terms of positive points will come. The distribution per se largely will be newly made. Some part of it might overlap, a very little portion, but largely it will be a fresh start. Got it, sir. That would mean that there will be a gestation period for building a network and capturing that 5% market share. Would that be the reason why you're targeting 2030 for that market share target? Yeah, I mean that's fair. That amount of time will be required to go from 0 to 5%. Whichever way you look at it, our product, like we said in an earlier question, comes out in the middle part of next year. This is the time gestation period which we will be using to build a distribution. Got it, sir. Just a clarification on how big would be the existing network of Balkrishna in India? We would be having close to about 70 odd, 76 or. Got it, sir. Thank you very much. Thank you. The next question is from the line of Chirag Maru from Keynote Capitals. Please go ahead. Thank you for the follow up. Will it be possible going forward to give some segmental numbers? As Carbon Black has already reached almost 9% of the sale, can we get some segmental bifurcation on sales and operating margins? At this moment we are not doing the breakup. We'll see in future if we decide to. No issues. Just secondly, will it be possible for you to give us what kind of market size the track rubber track product would have at this moment? Just to understand how big is the market. The market is huge. With our current capacity and the future one which you have announced, even if we get there, we will be looking at about 3% to 5% of the market share. Thank you sir. Thank you. As there are no further questions from the participants, I now hand the conference over to Mr. Rajiv Poddar for closing comments. I would like to thank all of you once again for taking the time out, and we'll see you again next quarter. Thank you. Stay safe till then. On behalf of Balkrishna Industries Limited, that concludes this conference. Thank you for joining us. You may now disconnect your lines.