Balakrishna Industries trades down 9% as inventory challenges weigh on Q4 results

In its investor presentation, Balkrishna Industries said although historically the fourth quarter has been the best performing, there were still challenges in the channel inventory situation.

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Shares of Balakrishna Industries traded down 9 percent on May 29 after the company reported an on-year decline in net profit, revenues and operating profit for the March quarter.

In its investor presentation, the company said that although historically the fourth quarter has been the best performing period, there were still challenges in the channel inventory situation. However, the company anticipates that these issues will likely be resolved by June or July.

In Q4, Balakrishna Industries achieved an EBITDA margin of 21.3 percent, showing sequential improvement, due to better absorption of high-cost raw material inventory and lower freight costs. Despite their ongoing investments in brand building and marketing initiatives to increase market share, the benefits of these efforts may take time to fully reflect in the sales percentage, the company said in its investor presentation.

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From a sequential standpoint, Q4FY23 proved to be a better quarter for Balakrishna Industries. The company experienced increased volumes, improved demand from end markets, and a partial clearing of high-priced raw materials.

Looking ahead, Balakrishna Industries maintains a positive outlook for FY24. It expects improvements in margins through various factors such as favorable raw material costs, a better hedge rate, and the complete normalisation of logistics costs.

Regarding end markets, the company expects Europe to normalise later in the year, while the American and the Indian markets are anticipated to continue their performance trajectory from FY23.

Nomura, in its assessment of Balkrishna Industries, has given a ‘neutral’ rating and set a target price of Rs 2,015 per share. The company’s financial performance showed a decline in revenue, volumes, and average realisations, although tonnage witnessed an increase, Nomura said.

While the margin was partly offset by higher operating expenses relative to sales, the impact of high-cost raw material inventory was evident in the raw material-to-sales ratio. Additionally, a decrease in other income contributed to a decline in profit after tax (PAT), the brokerage firm said.