Ladies and gentlemen, good day, and welcome to the Balkrishna Industries Limited Q1 FY 2025 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 on date of this call. These statements are not the guarantee of future performance and involve risk and uncertainties that are difficult to predict. As a reminder, all participants in line will be in listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing star then zero on your touch-tone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Rajiv Poddar, Joint Managing Director. Thank you, and over to you, sir.
Thank you, Sejal. Good morning, and thank you everyone for joining us today. Along with me, I have Mr. Bajaj, Senior President, Commercial and CFO; Mr. Ravi Joshi, Deputy CFO; Mr. Sushil Mishra, Head Accounts; and SGA, our investor relations advisors. Let me begin with performance updates. In Q1 of the financial year 2025, the demand trends were healthy, reflecting in our sales volume growth of 24% year-on-year. Please note that the growth percentage has a positive impact due to lower sales in the same quarter last year on account of cyclonic issues in Western India in June 2023. Despite a strong performance in Q1, we are witnessing macro challenges accentuated by recessionary fears in U.S.A. Geopolitical sanctions and inflationary raw material scenario, coupled with high freight costs are there.
This will result in a tepid demand environment for the remainder of the year. However, we believe we will be able to achieve a minor sales volume growth in this financial year. On ESG front, we have continued to extend our power requirements through renewable energy. We have 5 MW of wind power and 7 MW of solar power operations across our plants as of today. Let me now share some thoughts on the European Union Deforestation Regulation. As you may be aware, with effect from 30 December 2024, tire deliveries to EU need to be in adherence with the EUDR or the European Union Deforestation Regulation. This regulation requires that the natural rubber used in the EU supplies does not come from the land deforested after 31st December 2020, as well as in adherence to local laws. We will provide further details in due course.
Further, in order to promote sustainable practices beyond our manufacturing units, BKT recently announced its membership to the Global Platform for Sustainable Natural Rubber or the GPSNR. With this, BKT is taking a step forward in promoting long-term sustainable practices, culminating in a more environmentally conscious and friendly production in line with the principles defined by GPSNR. As a member of GPSNR, we will have access to a platform that aims to standardize manufacturers' sustainability reporting and digital platforms for compliance with the requirements of the EUDR. Coming to the ongoing CapEx. We are working on advanced Carbon Black project with a capacity of 30,000 metric tons. This project is progressing well and is as per schedule. Further, we have commenced the operations of our new mold manufacturing plant at Bhuj.
Please note, this plant will provide us mold for our internal consumption and will help bettering the quality levels that we have. Now, let me share with you a new CapEx that the Board has approved. We have seen good acceptance, and success of our OTR range of tires. This has given us confidence to add a capacity. Accordingly, we are embarking on a new CapEx spends of up to INR 1,300 crore for 35,000 metric ton per annum at Bhuj. This will, however, be executed in various phases. With this, I now move to operational highlights. For the quarter, our volume stood at 83,570 metric tons, a growth of 24% year-on-year. Our standalone revenue for the quarter stood at INR 2,741 crore registering a growth of 30% year-on-year.
This includes realized gain of foreign exchange pertaining to the sales of INR 52 crore. For Q1 of FY 2025, 47% of our sales came from Europe, 29% came from India, 14% came from America, and the balance from rest of the world. In terms of channel distribution, 74% contributed from replacement, while OEM contributed for 25% with the balance coming from offtake. In terms of category, agriculture contributed to 60%, while OTR industrial construction contributed to 32%, and the balance came from other segments. The standalone EBITDA for the quarter was INR 714 crore, registering a growth of 47% year-on-year. The margin came at 26.04%. Other income for the quarter stood at INR 83 crore. Profit after tax for the quarter was recorded at INR 477 crore, registering a growth of 53%.
Our CapEx spends for the Q1 of this year were INR 200 crore. Our gross debt stood at INR 2,771 crore at the end of 30th June 2024. Our cash and cash equivalents were INR 2,946 crore. Accordingly, we have a net cash of approximately INR 175 crore. The board of directors has declared an interim dividend of INR 4 per equity share. With this, I conclude my opening remarks and leave the floor open for questioning also.
Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their touchtone telephone. If you wish to remove yourself from the question queue, you may press star and two. 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 Siddhartha Bera from Nomura. Please go ahead.
Yeah, thanks for the opportunity, and congrats, sir, on a great set of numbers. Sir, first, on the demand side, generally, we have seen Q4 being the strongest quarter in terms of year. A nd this time Q1 numbers have also been ahead, so clearly volumes have been quite good. So for the year, would you like to give out any guidance, which you usually give, like how much volume growth you are expecting if you look at the entire year?
As I, as I said in my opening speech, we are anticipating minor growth from last year.
Okay. Okay. So, sir, basically, I think what we understand is, near term, the numbers or demand has slowed down a bit. Are you sort of getting similar signs? And how do you expect the recovery to play out, going ahead?
Yes, we are seeing demand slowing down, and that's why we are saying that despite this quarter, the, by the remainder of the year, we will only be able to get a minor growth.
Got it, sir. So second question is, on the freight cost. So if we look at this quarter, it has come down, compared to last quarter, despite freight rates and all going up. So, so can you throw some more color about how do we think about the costs, both on the commodity as well as freight, in the coming quarter?
Freight rates were already negotiated. That is why the freight cost was lesser in the last quarter. But in the coming quarter, the freight rates has gone up, so you will see the impact in the coming quarter.
And, sir, what about commodity? How much can we expect to-
Prices are also going up. So raw material, approximately 2%-3%, there will be increase in the raw material cost.
Got it. And, sir, any price hikes have we taken to sort of pass on some of these freight and raw material costs till now?
No. Till now, we have not been able to take any price hike. Going forward, the market demand is a little weak, hence we are trying to see what we can do and what we can pass on. But so far, we have not taken anything.
Got it, sir. So last question is on probably the CapEx side. Last time, when we expanded Bhuj capacity by 50,000, the CapEx was much lower, at about INR 800 crore-INR 900 crore, I think. Now, with only 35,000 expansion, the spend seems a bit higher. So any thoughts why the spend is much higher, and how much CapEx do we plan to do probably for this year?
You're right that the values are different because this is more towards the mining tires, and also there, you know, for this capacity, some utilities and all also need to be added, which will also be taking care of some future requirements. So that is all being done in the current cycle.
Okay, sir. Okay, sir, thanks. I'll come back in the queue.
Thank you. The next question is from the line of Raghun andhan from Nuvama Wealth Management. Please go ahead.
Thank you, sir, for the opportunity, and congratulations on strong set of results. Sir, firstly, on the USD- Euro rate for the quarter. How much was it, and how is the hedge rate for the full year?
So this quarter was INR 92 euro, and next hedging is around INR 92.5 euro, you can say, for next quarter.
Got it, sir. The last two quarters have seen better growth in agri, especially in the Europe region. But going forward, you are seeing a tepid growth. So can you talk a bit about how is the on-ground sentiments? What are your thoughts about it?
So, we are yet seeing the market weaknesses come. A nd this also there are geopolitical scenarios, you know, with, with the backdrop of everything that's happening across various regions of Europe and Middle East. A nd also U.S. recession fears are there. So all of that put together, we are seeing, we are noticing a weak demand at the end user place.
Understood, sir. Lastly, on the freight cost, you said there would be an increase in the coming quarter. You know, how much would be the increase? What is the range you would expect? Currently we are at around 6% + of 6.4% of revenue in Q1. What should we build for Q2?
. It should be 8%-9% approximately.
Thank you, Bajaj, sir. And just CapEx number I missed for FY 2025, how much was that?
Our CapEx for in this quarter is INR 200 crore, approximately.
And for full year, sir?
Full year would be between INR 600 crore-INR 700 crore.
Got it, sir. Thank you so much. I'll fall back to the queue.
Thank you. The next question is from the line of Mumuksh Mandlesha from Anand Rathi Institutional Equities. Please go ahead.
Yeah, thank you, sir, for the opportunity and congratulations on good results, sir. Sir, as you mentioned, I mean, demand has softened in recent time. What could be your channel inventory, sir?
It is increasing. Channel inventory is increasing, and OEM s demand is softer also.
On the freight cost, would partly the freight surcharge has been passed on, sir, to the customers?
Sorry, your.
Yeah. Sir, on the freight. On the freight cost, sir, has there been partially the surcharge has been passed on to the customers?
Yes.
Okay. So that's why we're seeing a smaller impact, going ahead also.
Yeah.
Sir, even the increase in the surcharge, I mean, the freight surcharge has delayed the price hike planning, sir?
Yes, that is also impacted. You're right.
Got it. Sir, on the OTR CapEx. Any broadly, what kind of a timeline would be the implementation for this CapEx?
We'll come back to you in the coming quarters.
Got it, sir. And, just lastly on what could be the carbon black revenue share to third party, sir?
50%, sir. 50% of the carbon sales, carbon products, sir.
Okay. That was around 6%-7%, sir?
8%. Approximately 8% of our sales.
Yeah. Okay. Thank you so much for the opportunity.
Thank you. The next question is from the line of Ashutosh Tiwari from Equirus Securities. Please go ahead.
Yeah. Hi, sir, congrats on good numbers. Firstly, you mentioned that channel inventory is increasing. Is it, like, meaningful increase or only normal increase? Hello?
Yeah. So it is, it's the Q1, which numbers we have, you've seen, has helped them increase it. And now we are seeing a softening, thereby we are saying that the demand is, we are seeing tepid demand for the remaining of the period.
So is there a case that probably because of restrictions , because transit time has gone up, that's why probably because of supply chain disruptions, the distributors have stocked up a bit more during last quarter?
Yes, one of the reasons. That is also one of the reasons.
You talked about this OTR CapEx. Will it be a large one would be your 48-inch + tires, or how should one look at it?
No, it's a whole mix of mining tires.
Whole mix. And strategically, we had entered five years-six years back in this ultra large mining tires, and that was one of the growth areas that we had targeted. So how is the progress in that? And probably if you can share, maybe around roughly what percentage of overall volumes today is coming from that, 48-inch +?
So, there is a good acceptance. A nd that's why we're in this new product mix expansion that we are looking, is been only for, mainly for mining segment. So that itself indicates that our products are doing well, and that is it. I don't have the breakup of what is the exact sales of 47-inch and above.
It would be a mix of bias and radial, both, or only radial?
Only radial.
Okay. Okay. And lastly, on this, rest of the world is doing well, like especially last quarter, this is like CIS countries?
Mainly India.
No, no, no. The rest of the world is, apart from Americas, Europe and India, everything else. So it's Asia, Middle East, Africa, where...?
Any particular, like, any particular region which is doing well for us?
No, all, all over, all over. So all over that is well.
Okay. Okay. Thanks. That's all from my side.
Thank you. The next question is from the line of Jinesh Gandhi from Ambit Capital. Please go ahead.
Yeah. Hi, Rajiv. First question on the cost inflation expected in 2Q. So we are expecting 2%-3% increase in RM basket and similar increase on the freight side. So, and currently, we don't have visibility of price hike, so do you expect a substantial pressure on margins in 2Q? I mean, as against 26%, do you expect to go back to 23%-24%?
Last year, full year, our EBITDA margin was around 24.8%, and we will be striving to for the same range for the whole of the year.
Okay. Okay, got it. And secondly, while we talked about 24%+ growth in our wholesale volumes. A ny sense on how retail volumes are trending on the ground? Are they flattish, or we are seeing some growth there or they are still declining?
No, that is, we are seeing it to be weak. That is why the channel buildup, that I mentioned earlier has taken place.
Okay. So it's still declining. Got it. Got it. And, lastly, with respect to the OTR CapEx which you're doing. S o, I mean, a very basic question, would intensity of SKUs be higher in OTR or agri has needs higher number of SKUs?
Yes, they will be higher.
Higher in OTR?
Yes.
Hence, the CapEx also be slightly higher because of higher molds or requirement. Is that correct in understanding?
Yes.
Got it. Got it. Great! Thanks, and all the best.
Thank you. The next question is from the line of Pramod Amthe from InCred Equities. Please go ahead.
Yeah. Hi, thanks for this opportunity. So when you're talking about the slowdown, is it related to industrials or agri or both? Where are you seeing specifically?
Both.
Okay, and if I have to look at your industrial for this quarter itself, it's down almost around 18%-20%. So, in that context, do you see any sense to go for a capacity addition now or you can delay it?
Sorry, I don't know which number you are referring to because I.
The tonnage which you have given for YoY, if I have to look at, compare versus last year.
On the industrial construction mining OTR tires, we have a 19.3% YoY growth. Across all the segments, whether it's agri, OTR, there is a higher double-digit growth. So there is no...
OTR is...
YoY perspective.
Go nearly 20%, so I... That's why I'm confused. Which number are you referring to, sir?
Maybe my base numbers are different, and hence I see that coming down, last year.
It would be wrong to comment on wrong numbers, so.
Okay, sure, let me correct. But you feel, what—you are still not commenting on the timeline when you want to implement this, right? Or usually the?
We have got the approval. We will work it out and announce it in the coming quarters.
Okay. And, if I had to look at, is the ASP trend for OTR versus agri substantially different? If I had to look at ASP per ton or per kg? And since you're doing a more CapEx, that's one. Second, in the current capacity, what is the split you have versus agri versus OTR?
So ASP, for the super giant is higher, but the rest is similar. Marginally, there's a marginal difference, so this whole mining project will be scattered across the entire range. So we expect it to be not a very different ASP. And the other question that you had, we'll come back to you later on, I don't have the figure.
Okay. Because I want to get a relevance of what this 35,000 ton is, on what base you currently have. That is the reason. And the last one is. Sure. The last one is the, this time you haven't given the ForEx sheet. So in that context, what is the ForEx impact on expenses? Sales you have given.
[Foreign language]. On sales it is INR 52 crore.
Right.
Which is what we have disclosed in our presentation. On other expenses, it's about INR 11 crore.
Okay, sure. Thanks and all the best.
Thank you. The next question is from the line of Arjun Khanna from Kotak Mahindra Asset Management. Please go ahead.
Thank you, sir, for taking my question. The first question is, while you talk of this slowdown, sir, are we seeing any market share impact? Obviously, our sales have been robust in the first quarter. But over the year, do you see an impact to our market share? Are we losing share, or do you think we are largely maintaining or gaining share?
No, we will be maintaining.
Sure. Sir, the second question is in terms of the CapEx announced, you've mentioned it's for augmenting capacity and also utilities infra. Could you... Is it possible to give a breakup, a rough breakup of this amount?
No, we'll come back to you in the coming quarters.
Sure. Sir, in terms of specialty carbon black, we had mentioned in the earlier call that we are on track for the first half of this fiscal year. Are we on track for the same, so we should see commissioning in the first half?
Yes, yes. I already announced it in my opening remarks also, that we're, it's progressing well and will be commencing in, as per schedule. So we had announced it in the first half of this year, and we will be on course for that.
Great. My final question is on the EPR. We had previously mentioned it's difficult to find out the exact liability. Have we crystallized that amount now, and have we provided for it for the previous years?
So we have... One second.
So for EPR, whatever the obligation is, is applicable now, so that we have provided in this quarter, that is around roughly INR 4 crore for this quarter.
Sure. And for previous years, are they fully provided?
Yeah, it was already provided, and in that we are gaining something that we had already reversed in this quarter.
Sure. So, the net impact for this quarter you said was INR 4 crore?
Correct.
Sure. Thank you so much, and wishing you all the best.
Thank you. The next question is from the line of Rishi Vora from Kotak Securities. Please go ahead.
Thank you for taking my question, and congratulations on good results. Sir, can you just elaborate on this EU Deforestation Regulation? Like, currently, where we are sourcing our natural rubber from, and what would be the implication, if any? Will our cost go up, or it's just a regulatory thing which we need to comply to?
So, firstly, it, the coverage was about that we need to make sure that the rubber what we are procuring has not caused deforestation after the December 2020. A nd at the same point in time, it is sourced from a land wherein all the local laws while cultivating is being adhered to. As far as cost is concerned, it will have obviously some marginal impact on the cost for the rubber piece.
So that would happen from any quantification today? Would you like to give or maybe at a later point?
We'll keep you posted over a period of time.
Currently, where would we be sourcing our NR from? It would be combination of India and Southeast Asian countries?
Yes. From all Thailand, Indonesia, Malaysia, as well as African countries, Vietnam. So wherever we get the best deal, we buy from there.
Understood. Okay. Thank you so much.
Thank you. The next question is from the line of Rohit Jain, from Tara Capital Partners. Please go ahead.
Yeah. H i. I just had a, a clarification question. Did you say that the volume is gonna be flat YoY for the entire year, or is it gonna be flat YoY for the remaining three quarters?
Entire year.
So the entire year is gonna be flat YoY. Understood.
Minor growth. So as I said, it will be with a minor growth. We, at the end of the year, we are confident of achieving a minor growth.
Got it. Got it. Fair enough. And, this rate increase that you mentioned, is this gonna be passed on to the consumers with a lag, or is there gonna be an initial bigger hit and then, gradually we'll be able to pass it on?
So we are working and trying to see how we can pass it on, but we will get back to you in due course on that.
Got it. Okay. Thank you. All the best.
Thank you. The next question is from the line of Basudeb Banerjee from ICICI Securities. Please go ahead.
Thanks, sir, most of the question-
Sorry to interrupt you, sir. May I request you to please use your handset? Sir, we are not able to hear you. We have lost the connection of the current participant. We will move on to the next participant. The next follow-up question is from the line of Ashutosh Tiwari from Equirus Securities. Please go ahead.
Yeah, sir. On this, India growth. O bviously, we are doing pretty well over here. This is coming from both Agri or OTR, or maybe Agri is growing faster than this?
Both. Both the product mix are growing for us.
I mean, what kind of market share we probably would have in India Agri, if we have some idea on that?
Very difficult to give you exact number, but between 6%-7%.
Okay. Roughly, what will be the breakup in India, like, say, between the OTR and Agri?
So that we don't have in, we can take it up later, offline.
Okay. And this EUDR regulations that you talked about, I mean, is there already some mechanism in place that you can really find out that where this rubber is sourced from? I mean, all, all of it already are there globally or how, what would it would really comply?
Yes, system is already in place. Yet to be evaluated or to be really procured, but we have already tied up with the manufacturers to supply that type of rubber.
Any idea, like, I am sure that some of the companies would be sourcing even today that kind of rubber. How is that price versus normal natural rubber price?
It will be costlier than that, but maybe approximately $300 per metric ton.
On a base of roughly how much?
$1,300 on the basis of the natural rubber.
You have to comply, like, completely, whatever export happens over there should be that, this rubber only?
Not all of that. Only for the European Union.
All the sales should be using that rubber only?
Only for the European Union, not all.
Yeah, yeah, yeah. B ut any, like, say, like, do they command some pricing premium as well, like the tires made from that kind of rubber or there's no difference?
Everyone has to use that one so definitely there has to be some pricing, whether it is manufactured in Europe or in India or anywhere, everyone who has to use that type of rubber, that will have the extra cost, so time will tell only how they are able to pass it to everyone.
Okay. Thanks. Thanks. That's all from us.
Thank you. The next follow-up question is from the line of Jinesh Gandhi from Ambit Capital. Please go ahead.
Yeah. H i, sir. Just quick question on the EPR. You mentioned there have been some reversals in 1Q of the prior period, and like EPR provisioning is INR 4 crore. What would be the quantum of reversals, and what would be a normalized EPR provisioning for 1Q?
Actually, in last year, we have provided on the basis of some assumption, based on the market rate. But after that, then, we negotiate with the vendor, and we purchase at lower rate. So we reverse some amount, that is a minor amount . And after that, we point this quarter, we have provided the exact amount, so the net impact will be around INR 3 crore-INR 4 crore.
The net EPR impact is INR 3 crore-INR 4 crore in one quarter, and, reversal would be, again, would be similar or higher than that?
Similar amount, it is INR 1.5 crore-INR 2 crore.
Got it, got it. Agree. Thank you very much.
Thank you. Ladies and gentlemen, you may press star and one to ask a question. The next follow-up question is from the line of Mumuksh Mandlesha from Anand Rathi Institutional Equities. Please go ahead.
Thanks so much. So any outlook for the Indian market, sir?
Sorry to interrupt you, sir. May I request you to please use your handset?
Yeah. H i. Thank you so much. Sir, any outlook for Indian market, sir?
Sorry, your voice was...
Is it better, sir, now? Is it better now, sir?
Yeah.
Yeah. Sir, any outlook for the Indian market, sir?
It continues to remain positive for us, and we look to expand our way in Indian market.
Okay. And sir, because of the EUDR, sir, and the price hike, would there could be some any pre-buying on account of that factor, sir?
Pre-buying?
Any pre-buying could happen because of the regulation norms, sir, where there could be pre-buying, sir, because of price hike, sir.
Pre-buying before December because whatever material goes after 31st December , it has to go the EUDR compliant rubber only. So we have contacted, but it will come in the fourth quarter only.
Got it, sir. Thank you so much once.
Thank you. As there are no further questions, I would now like to hand the conference over to the management for closing comments.
Thank you everyone for taking the time out, and looking forward to meeting you all in the next quarter. Thank you.
On behalf of Balkrishna Industries Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.