Ladies and gentlemen, good day and welcome to Balkrishna Industries Limited business update call. As a reminder, all participant lines 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 touchtone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Shobhan Jain from SGA. Thank you, and over to you, sir. Shobhan.
Thank you, Danish. Good evening, everyone. I hope everyone has had a chance to read the press release issued to the stock exchanges earlier today. On the call today, we are joined by Mr. Rajiv Poddar, Joint Managing Director, Mr. Satish Sharma, Senior President and Director of Strategy and Business Development along with Mr. Saroj Khuntia, CFO of the company. We will begin the call with opening remarks from Mr. Poddar, followed by an open forum for questions- and- answers. Before we begin the call, I would like to point out that some of the statements made during today's call may be forward-looking based on the beliefs, opinions, and expectations of the company as of this event. These statements are not the guarantees of future performance and involve risks and uncertainties that are difficult to predict.
Further, all participants are requested to restrict the discussion to the Pirelli BKT announcement made today morning. We will not discuss any matter related to Q2 performance or business in general owing to the silent period policy of the company. With that, I hand over the call to Mr. Poddar for opening remarks.
Thank you, Shobhan. Good evening, everyone, and thank you for joining us today at such short notice. BKT and Pirelli have today signed a strategic offtake agreement for production in India of Pirelli-branded premium car tires. This partnership combines the technological and innovation prowess of Pirelli, along with the industrial capabilities of BKT to create a strong foundation to serve one of the fastest moving and growing auto markets of the globe. In the first phase of this agreement, which is the offtake agreement, BKT will produce in its newly constructed PCR plant at Bhuj, equipped with the most modern and advanced technology, Pirelli-branded tires with Pirelli specific technology and quality standards. We expect the offtake from this partnership to commence in 2027. This will scale up to supplying 800,000 Pirelli-branded tires per year by the year of 2030.
The agreement paves way for a second phase, in which there is an envisagement at certain conditions, the creations of a 50/50 joint venture and the construction of a production plant dedicated to high-value passenger car tires, both with the Pirelli brand as well as the BKT brand to serve India and other international markets. India is a fast-growing passenger car market, which is growing at 6%-7% annually. The premium car market is expected to grow at a faster pace in India over the next few years. For BKT, this agreement supports its expansion in the passenger tire segment and acknowledges its manufacturing capabilities to produce world-class standard tires. This agreement and partnership is a landmark moment in BKT's history, especially at a time when we are at an early stage in our on-highway tire journey.
Our partnership with Pirelli is a testimonial to BKT's capabilities, BKT's quality standards, and the strength of the BKT brand, and also the values that we have created to drive the growth of our businesses across the verticals. We expect this partnership to not only further accelerate our positioning in Indian tire market, but also help in the faster ramp-up of the investments we have put in in the last 18 months in the on-road tire segment. This strategic announcement further enhances our conviction of achieving our stated vision 2030. This partnership brings together complementary strengths to capture the opportunities of a growing market while creating value for both the companies. With this, I conclude my opening remarks and leave the floor open for Q&A.
Thank you so much, sir. Ladies and gentlemen, we will now begin with 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, in order to ensure that the management will be able to address all the question from the participant, we request you to kindly limit your question to two question per participant. If you have a follow-up question, please rejoin the queue. Ladies and gentlemen, we'll wait for a moment while the question queue assembles. First question come from the line of Raghu N L with Nuvama Research. Please go ahead.
Good afternoon, sir. Thank you for the opportunity. Congratulations on the collaboration. First question was, with the capacity which is being set up in Bhuj and with the thought process of 800,000 tires supplied to Pirelli, what is the kind of investment you envisage, and how do you see the ramp-up of supplies, which will happen, which will start from 2027 onwards?
I think, as I mentioned in my opening remarks, the ramp-up will be gradual year- on- year, reaching an ultimate goal of 8 lakh tires per year by the year 2030. Regarding the investment, this would be a part of the ongoing expansion program that we have already taken on board in the last year when we stated our vision, and it will be helping us ramp up our capacities, to utilize our capacities during that period.
Understood, sir. Just to clarify, it is part of your existing investment program, and you don't envisage any additional investment for the-
Yes.
offtake agreement. Only for the joint venture there could be additional investments. Would that be-
Yes.
right understanding?
Absolutely right.
A follow-up, sir, that by 2030, assuming you reach your indication of 8 lakh tires per annum, what is the kind of revenue potential and margin potential you see? Also, would the margin be closer to the company's blended margin of 21%-23%, which you had earlier indicated?
I think at this stage, we would like to stay away from those numbers. We are yet working on this, and we will come back at a later. Once we start the business, we will have more clarity on that.
Understood, sir. Just the last question. If you can also indicate, how do you see this sales to Pirelli be structured in terms of domestic and overseas mix?
Yes, there would be some component which may be used by them for their global markets, but majorly it will be for them to serve the Indian market.
Got it, sir. Thank you, sir. Thank you so much. Congratulations once again. I'll fall back to the queue.
Thank you.
Thank you. Our next question comes from the line of Siddhartha Bera with Nomura. Please go ahead.
Yeah. Hi, sir. Thanks for the opportunity. Sir, first a question on this Pirelli plans. Can you indicate what type of size of tires we will be manufacturing in this? Because Pirelli globally does mostly the 18-inch and above tires. How will the manufacturing aim for them work here? As we go ahead, can we supply BKT branded tires also in parallel to the markets where-
Sir, your voice is Can you be a little louder, Siddhartha?
Yeah, sir. Sure. Is it better now, sir?
Yes. Yes.
Yeah. I was talking about first is, what range of tires in terms of sizes will we be manufacturing under this arrangement?
Siddhartha, just to confirm, are you done with your question? Because we can't hear you.
No, I was just highlighting that can we also supply the BKT range of tires to their markets as well, that's in parallel?
I'll answer the questions in two parts. First is the range. It will be 17-inch and above, which we will be giving them. Regarding the There is no restriction on either party on supplying their own respective branded tires to whichever part of the world that respective company would like to sell to.
Got it. We also have our own plan of expansion in the PCR segment. How does one sort of segregate or understand BKT's positioning with what is coming from this tie-up and what we are doing on our own? How will the differentiation be visible for a user?
Yeah, Siddhartha, it's fairly simple because the segments that the two brands operate in are, as your earlier question asked, they are only in the very super premium segment of the market, really. BKT will be addressing the full end-to-end market, the Indian market. So even the price positions are different. The Pirelli brand will be produced by Pirelli technology, whereas the BKT brand will be produced using BKT technology. So while the facility is common, the two products are as different today as they will be tomorrow.
Okay. But for BKT, will we be also addressing the lower size tires, like 13-inch, 14-inch onwards, or we will also focus on the bigger 17-inch and above segment only?
Since it's our first step in the car market in India, we'll be addressing the full portfolio of the Indian market. We start from 13-inch upwards. But the whole market is premiumizing, and we would like to do better than the market rate of growth of premiumization. So of course, the effort would be to stay ahead of the market curve. But the overall objective for the BKT brand is to address the full length, width, breadth, depth of the market.
Understood, sir. Thanks a lot, sir. I will come back in the queue.
Thank you.
Thank you. Next question comes from the line of Vijay Pandey with Axis Capital. Please go ahead.
Hi, sir. Thank you for taking my question and congratulations on the day. A couple of questions, sir. Firstly, within the offtake agreement, we will also be able to supply to global market or will be cater focused only on the domestic India business?
The offtake is for them, in their brand, and they may use their tires for India as well as some part of it for whichever other market they want. That said, there is no restriction for BKT-branded tires to be distributed by us anywhere in the world.
Any particular region you are targeting with the JV? Because Pirelli has a good presence in the Europe and North America market. Just wanted to understand if we are targeting Eastern Europe or South America side of the market with the Pirelli-branded tires from the JV.
Obviously, the arrangement is to have a strategy by Pirelli for the India market. Having said that, there are no restrictions, like Rajiv has explained, that they could also take these tires for either Europe or North America or any other market for that matter.
Okay. In terms of the royalty cost, have we decided on the royalty cost within the JV, or that will come later?
No, there is no royalty. We have never spoken about any royalty. I don't know from where you picked that up.
No. With the JV, because we will be using Pirelli's technology.
We have never spoken about any royalty. None of our press release also says any royalty. So there is no discussion of royalty, sir.
Okay. Sir, just to finally, the total PCR capacity, so 6,800 tires per day, 6,700 tires per day, that will be currently largely for the Pirelli offtake and then additional. Or are we looking to expand this capacity further?
No. See, the Pirelli, again, just to put it into perspective, they are looking to address the very high end of the Indian market, which is not a very big market to start with. It is about 10% of the market is what you can classify loosely as the very high end of the market. That is what they are looking at. And there are already global brands addressing that, so Pirelli will have to get its own share of that market. So the 6,700 capacity that we have in phase I.
Right.
Maybe 80% of that would be still for the BKT brand. Only the remaining will be for the Pirelli offtake.
Okay, sir. Thank you.
Thank you. Reminder to all the participants, please restrict your question to two questions only per participant. Next question comes from the line of Joseph George with IIFL Capital. Please go ahead.
Hi. Thank you for the opportunity. Just one question. When you had put out your midterm target for FY 2030, you had indicated that your target is to have over 20% of revenues coming in from the non-OHD segment. Now, with this agreement with Pirelli, does that target stand revised, or will the incremental revenues from the Pirelli agreement be part of the 20% targets that you had set?
No, it will be part of that same 20%.
Yeah. Having said that, obviously, our conviction goes up further on the vision that we have stated, and we are more confident than ever before to reach the stated vision.
Understood. Thank you. That's all I had.
Thank you. Next question comes from the line of Rishi Vora with Kotak Securities. Please go ahead.
Yeah. Thank you for the opportunity, and congratulations for the agreement. First wanted to get a sense on what would be Pirelli's presence in India today, across the OEM and the replacement market. Any ballpark numbers which you could share?
No, we would not like to comment on their market share.
But today they would be present in the Indian market, and maybe they would be importing. Now incrementally, they would source it from this agreement, is how we should think about it?
Yes. That's how once we start manufacturing from them, they will substitute their imports and take from us. The numbers we have already displayed, I have already mentioned about the numbers that we are talking about. By and large, they have mentioned that these numbers would be for the Indian market, majority of these numbers.
When you say 800,000 tires, in the agreement, you had mentioned that there is a minimum offtake commitment, which Pirelli has given it to you. That number is like 800,000 tires, and offtake commitment over the years is how we should think about it, that there is a commitment from the company that they will source 800,000 tires at the end of FY 2030? Or that number is different from 800,000 units?
No. As I mentioned, I will repeat my statement. We will scale it up to 800,000 tires for them in their brand by 2030, starting from the year 2027. By calendar year 2030, we will reach these numbers, because we will take time to ramp up.
Understood. Just last thing on the agreement side, you had also said that the pricing would be based on raw material actuals plus the conversion cost on the domestic supply. At least in this, the way we should think about it is what BKT would be making would be the conversion margins. Is how we should think about it?
Yes, that is right.
Understood. Okay. Thank you so much.
Thank you. Next question comes from the line of Arvind Sharma with Citigroup. Please go ahead.
Hi. Good evening, sir. Thank you for taking my question. Sir, the deal, it is clear for Pirelli, they get access to high-quality manufacturing at relatively favorable cost structure. But for BKT, apart from the revenue from the offtake, what else is there in the deal? Do you get any access to Pirelli technology or do you get any access to IPR, using their technology, their tire design for your own brand, at least in initial phase? Or is it that for BKT right now, it is only the offtake revenue that comes in from contract manufacturing?
At the broad level, what we can state is that all our plans get accelerated. Our go-to-market acceleration happens. But if you see the rub-off of intangible benefits, there are plenty of intangible benefits. In the sense when you are associated with a brand like Pirelli, you obviously have a rub-off on the distribution, on the manufacturing, on the technology. As these are early steps for us, as we enter the on-road segments, an association like this with an iconic brand like Pirelli, works on multiple dimensions. You don't have to just see it in black and white, but the overall spirit of the association.
Got it. I was referring to a possibility where, say, there is a specific SKU from Pirelli. Pirelli uses BKT's manufacturing to sell that SKU, probably in India or global markets. But could BKT also have access to that SKU, rebrand it as whatever new brand that you want and use it in India? The front end looks very different, very different branding, very different positioning, but at least do you have access to those designs from Pirelli?
As I mentioned, BKT has always stuck to its own technology for its own products. We have a desire to continue to do the same, even in our legacy off-highway business where we have attained leadership position in agri and getting to a leadership position in mining. We have not relied on anybody else's technology. Going forward in on-road, when we had started our journey, we had our own vision, we had our own roadmap, which we will continue. We do not want to rely on any third-party partner for their own technology or designs. We will make everything on our own. There will be a clear partition between what we produce for them and what we produce for us, and using our own technology.
That is a very clear understanding, and that is where even from a governance point of view, we have always done that in the past.
Yeah. But what it validates, of course, is that it stamps that BKT is a high-quality manufacturer. That is obvious.
Okay.
But we will use our technology for our own products, yeah.
For sure, sir. It does validate the technology and quality. Just one similar question, sir. I know I am exceeding the two questions limit. But do you get any synergies in terms of procurement?
No stated synergy. But as the two organizations work together, with the scale of the two organizations, obviously we will work to procure the raw material at the most cost-efficient way. And in that pursuit, we will exchange notes and see what can be done. But there is no stated agreement as such. At the moment, the stated thing is they rely on us to procure the raw material.
Got it. That is all from my side, sir. Thank you so much for taking my questions.
Also, Arvind , one more thing is that the carbon black business of ours will also benefit, because for these tires that we will be making for them, we will be using BKT-branded carbon black only. So in that sense, that synergy would definitely come in.
Got it, sir. This is very helpful, sir. Thank you so much.
Thank you. Next question comes from the line of Gaurav Khandelwal with Mirae Asset Management . Please go ahead. Participant has left the queue. We can move to the next participant. Our next question comes from the line of Basudeb Banerjee with CLSA. Please go ahead.
Yeah, thanks. Poddar ji, just wanted to understand that, as you said, around 80% of Bhuj PCR capacity anyways will be used for your own BKT PCR products. For this 20% capacity usage, as a run-up till for next three years, four years, the machinery, as per specification of Pirelli tires, will they be completely different and ask for some extra CapEx? Or your existing plant machinery and system is all ready to make the Pirelli spec products?
One of the things this strategic partnership has gone ahead is because BKT has put a state-of-the-art manufacturing facility. It's the best in the country, to the best of my knowledge, and our progress in technology, industrial capability in whatsoever we have done in our 40 years of existence. The equipment technology and everything that we have put into place is capable of. These are almost the same equipments that Pirelli has in their plants. Nothing much is needed. It's just the technology and the specifications, et cetera, which will be different.
Also, one more thing that I would like to highlight here is that, BKT has always had its own vision of creating world-class facilities. When we say that, we actually bring in the best equipment possible to make, even in our own tires, because at the end of the day, that brand is ours. We always strive to make world-class products. By virtue of that, Pirelli has approached us, and we have gone ahead with this deal. As Satish mentioned, that's why there is no need of any further CapEx, because our machinery is equipped to make any kind of tires within that range of segments for that particular range.
Sure, sir. That's great to hear. From a timeline perspective, I missed out. When this offtake agreement, that is going to start immediately?
As I mentioned in my opening remarks, I will read it again, this partnership is set to commence in calendar year 2027 and will scale up to supplying the full 800,000 tires or 8 lakh tires of Pirelli-branded premium car tires by the year 2030. Both the years are calendar years.
The timing of the JV?
We have till 2030 to announce the work on the JV, then once we have that ready, we will probably come up with an announcement when we are ready. That is the deadline. So within that period, we are now going to start working on that possibility.
Sure, sir. Thanks.
There are some preset conditions which both parties have to reach. If we reach there, then that will sort of trigger the discussion for a JV.
Sure.
Thank you. Our next question comes from the line of Gaurav Khandelwal with Mirae Asset Management. Please go ahead.
Sir, thank you for the opportunity and congratulations on the partnership. Sir, to earlier participant, you mentioned that with this partnership and JV, your go-to market plans in the passenger car tire gets accelerated. Does that also mean that you will get access to Pirelli's distribution network that is established in India right now?
Let me explain this point. It is like, as far as car tires are concerned, there is a lot of fence sitters in the market in the sense that when we launched the truck bus tires, it was still closer to what BKT produces in the sense of off-highway. But when you go to car, it is still a very strong consumer product. While we are doing a branding exercise and all, there are some people who believe in us and there are some When I say people, I mean channel partners. And some channel partners who would say, "Okay, let me go see how the product is. And then we will decide." So there are fence sitters, right? And there could be some which will say, "No, I am not interested in BKT" for whatever reasons, right?
Now, with an association like this, many of these question marks, people who are the fence sitters or people who have the question marks in their mind, those get dissipated. What we anticipate, and since morning, we are flooded with congratulatory messages from the trade, which is to say that, I think more doors will open to us of the channel. The reception of our brand into the market will become a little bit more easier than before. That's the way to read this.
Great, sir. Understood. Thank you so much.
Thank you. Next question comes from the line of Yash Agarwal with Nirmal Bang Securities. Please go ahead.
Yes, sir. Just wanted to confirm that post this agreement, like you mentioned that 20% of new tire categories would be from the total revenue, 20% would be from the new tire category, but the margin would remain at same. Post this agreement also, we are confident our margins would not be diluted, and we will be able to maintain the similar level of margins?
This, I think, is our stated policy, so this will not change that.
Okay, sir. That's it from my side.
Thank you. Next question comes from the line of Dishant Jain with Anand Rathi. Please go ahead.
Hello. Am I audible?
Yes.
Yeah. Thank you for the opportunity. My first question is regarding the JV. Anything on the timeline of the plant construction and the amount of CapEx that will be used in that?
As I mentioned earlier to one of your colleagues, we have some preset conditions in the phase I. Once we meet that, both of our companies will sit together and draw up the guidelines for the JV. Once that is done, then we will have more clarity on the timelines. As and when that comes up, we will share with you. At this stage it's too early to give you any more details on the same.
Okay. By what time would be, like any idea? By FY 2029, FY 2030 will this everything be done?
No, I cannot comment as yet.
Okay. Regarding the service agreement, what is the structure that will be used for paying that fees to Pirelli for using their technology?
We are Just one minute.
Thank you.
Sorry, just one minute.
What's the question?
Service agreement.
I'll take. See, the service agreement is largely in the field of testing, simulation, certain technical things where the infrastructure in India is poor, and currently poor. We will, as a partner, they will extend willing support to us for rendering those services by opening up their infrastructure for our BKT branded products, where we can use their infrastructure to test, simulate, et cetera. Thereby again accelerate our go-to-market strategy, and of course, for a consideration. That's what the service agreement is all about.
Oh, okay. Thank you.
Thank you. Next question comes from the line of Aditya Agarwal with Oldbridge Mutual Fund. Please go ahead.
Yeah. Hi. Thank you for the opportunity. My only question is on the capacity part. When we will reach that 8 lakh supply to Pirelli by 2030, what kind of capacity will we have or what percentage of our capacity will be used towards servicing that agreement?
Yeah. See, the 8 lakh figure that you have, that's a 2030 figure, right?
Yeah.
Therefore, the 2027 figure is much lower. The 2028 figure will get scaled up, and so on and so forth.
It is unfair to compare it with the current capacity that we have put into place, which is 6,700 tires a day. As we see the traction for both the brands, we will modularly keep on increasing our capacity. The infrastructure that we have in our plant, this 6,700 is just the phase one. But the infrastructure that we have put into place can expand our capacity multifold in a modular fashion. As we see the response, to give therefore a defined percentage of what is 8 lakh going to be as a percentage of the capacity which will be there in 2030 is difficult to say. But the bulk of our capacity is going to be used for the BKT brand. That is what we are in here for.
We are, like I said repeatedly, Pirelli is looking at India at the super high value segment, which by definition is a very small market, currently. It will never be the case that a huge percentage of our capacity is going into servicing Pirelli's capacity. But if that happens, then of course, other good things may unfold.
Okay. Just a follow-up on this. When we say 6,700 tires per day capacity in phase one, for the full year, how many days do we assume of production? Is it 300, 320? What should we take?
Roughly 350 days- 355 days.
350 days- 355 days. Okay. Thank you.
Thank you. Our next question comes from the line of Puneet with Zaveri & Company. Please go ahead.
Yes. Hi, I hope I am audible.
Yes, you are.
Yes. Thank you so much, sir, for the opportunity. I think most of the things you've answered. I just wanted to understand a little bit about distribution. I think you alluded to it a little bit, but how is the distribution of these said products expected to happen? Is it going to be from your network with Pirelli's network, or is it going to be with both of them?
It's a manufacturing arrangement, and the distribution of the two brands are done by the two respective companies and their respective teams.
Okay. Just in terms of, because as you mentioned, it's in the super premium category as well. Of course, there are some well-known names in that category. Do you feel that there will be an advantage of cost, or will it be meaningful at this point of time in terms of production? I think if you can put some light on it.
Competitive cost procurement does not mean that cost gets passed. I mean, they will be positioned with the competitive set that they look at. That will be the only consideration for deciding. I can't speak for what they will do, but my understanding is that it will be benchmarked to the players that compete with that position.
Got it. Just if you take a step back, of course, you mentioned that with an association with a brand like this will also put out a message and open a lot of doors for you, as you mentioned with trade. Just apart from that, is there anything else that you're looking to achieve with this kind of partnership? Of course, we've spoken a little bit about what it will do in the near to medium term, but anything apart from that that you're targeting from this kind of a partnership, sir?
Today, let's digest this.
Okay.
Tomorrow, of course, is another day. When we have something more to share, you guys will be the first to know.
Okay, sir. Thank you so much for your perspective.
The next question comes from the line of Raghunandhan with Nuvama Research. Please go ahead.
Thank you, sir, for the opportunity again. Just one question. Can you give any details about what would be the minimum offtake of Pirelli under the offtake agreement over the years?
Those are confidential numbers, so we may not be able to disclose it.
Noted, sir. Thank you, sir. That's all from my end.
Thank you. Next question comes from the line of Vijay Pandey with Axis Capital. Please go ahead.
Sir, just to follow up on the previous question from one of the participants. Should we get benefit? Is this a good way to look that once we start producing tires for Pirelli, we should be getting at least some technical know-how and able to see how that premium tire segment is being produced, and that should benefit in the longer run for the JV? That's the correct way to look forward or?
Let me try and answer this with an analogy, which is like in Indian culture, normally we say, "Achhe dost rakhna." Associate with good people. When you do that, you imbibe good values, so by osmosis. That's the way to look at it. While we have confidentiality agreement, their IPR is their IPR, our IPR is our IPR. But when you are in the company of good, obviously there's learning by osmosis, and which will rub off in the way we work. It's a continuous learning journey for everyone. That's the way I think we should look at it.
Okay, sir. Thank you, and all the best.
Thank you so much. As there are no further questions from the participants, I now hand the conference over to the management for the closing remarks. Thank you, and over to you, team.
Thank you once again to everybody for taking the time out. Just before I close, I would like to once again reiterate that we believe at BKT, this will accelerate our go-to-market. It has validated our strategy which we had put in place last year, and we are very confident of achieving our vision 2030. The new vertical seems to have got a new boost of energy because this will put a lot of things into what we have been talking about into play. With that, I would like to close this remark. Thank you to all once again.
Thank you so much, sir. Ladies and gentlemen, on behalf of Balkrishna Industries Limited, that concludes today's call. Thank you for joining us, and you may now disconnect your lines.