Target: ₹2,163
CMP: ₹1,994.15
Balkrishna Industries reported Q3FY23 result way below estimates on account of destocking in the European market, high-cost inventory of raw materials and MTM loss. The benefit of a decline in freight cost was netted off by higher RM cost and hence EBITDA margin contracted on q-o-q basis.
Revenue was 3.4 per cent below estimates and EBITDA margin was 500 bps below estimates. Revenue declined by 20.8 per cent q-o-q to ₹2,142 crore on account of 15.7 per cent q-o-q decline in volumes and 6 per cent q-o-q decline in ASPs. The decline in volume is attributed to ongoing destocking in the European market and the decline in ASPs was due to passing on of benefit of correction in freight cost to the customers.
Freight cost as percentage of sales stood at 9.1 per cent in Q3-FY23 compared to 14.2 per cent in Q2FY23. Despite correction in freight cost, the EBITDA margin contracted by 440 bps q-o-q to 12 per cent due to 250 bps q-o-q contraction in gross margin. With MTM forex loss of ₹166 crore the PAT declined by 75.3 per cent q-o-q to Rs 99.6 cr. Going forward the management has indicated that the slight benefit of correction in RM basket and decline in freight rate would be visible in its operating performance in Q4Fy23 and full benefit would be visible from Q1FY24 onwards.