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Balkrishna Industries expects European headwinds to continue to puncture earnings

Balkrishna Industries expects European headwinds to continue to puncture earnings

Balkrishna Industries expects European headwinds to continue to puncture earnings
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By Hormaz Fatakia  Nov 15, 2022 10:55:12 AM IST (Published)

Shares of Balkrishna Industries have declined 18 percent so far this year.

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Balkrishna Industries, one of India's leading tyre exporters expects headwinds from Europe to continue to impact the company's financial performance during the second half of the current financial year.
Half of the company's sales volume in the first half of the current financial year came from Europe. 80 percent of overall volumes come from the export market.
During its earnings call, the company mentioned that there is no visible clarity on the current geopolitical scenario in Europe and that they are not witnessing any form of end-user confidence. They also expect a severe winter season to hurt earnings.
The company suspended its sales volume guidance for the current financial year, after a weak operating performance during the September quarter. EBITDA for the quarter fell 20 percent while margin contracted by nearly 10 percentage points.
Weakness came from a struggling global economy and a sharp rise in interest rates, which led to dealers and distributors reducing order placements.
In what could count as some relief for shareholders, the management added that the recent correction in raw material and logistics costs bode well for the company's margin, the benefits of which may begin to kick-in from the early March quarter.
The company's board also made some adjustments to its capex plans, by reverting to its earlier decision of ceasing operations at one of its old plants. The approved Rs 350 crore capex for the modernisation of the said plant will now be utilised at the new plant site to bring economies of scale.
As a result, the current achievable capacity for the company will stand reduced to 3.35 lakh MTPA, which will increase to 3.6 lakh MTPA in the first half of financial year 2024 once the Waluj brownfield plant is commissioned.
The management also mentioned that all capex, barring carbon black, now stands complete.
Shares of Balkrishna Industries opened higher, contrary to expectations but are trading off the highest-point of the day, up 2.4 percent at Rs 1,919.8.
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