BKT Tires – Annual Report Analysis

Key Insights from Annual Report.

Summary:

BKT is a leading player in the Global Off-Highway Tire (OHT) market. BKT has a deep understanding of the OHT market, and has more than 3,200 SKUs.

BKT will achieve a total capacity of 3,60,000 MTPA by FY23. BKT operates in large varieties – low volume segment which is highly technical and capital intensive.

BKT caters to Agriculture, Industrial, Construction, Earthmoving, Mining, Port, Lawn and Garden Tires. BKT’s major raw materials are Natural and Synthetic Rubber, Carbon Black and Nylon fabric.

Quick Facts:

  • India’s Largest Off-Highway Tire Manufacturer
  • Manufactures in India and sells in Europe, America, Australia, and India
  • Low-cost tyre maker
  • Huge cost advantage in terms of the employee cost
  • Challenging the global leader
  • Competes with Michelin and Bridgestone
  • Tires are a highly technical and capital-intensive segment
  • Mission to double its global market share from 5.5% to 10%
  • Agriculture is largely non-cyclical
  • Backward integration with Carbon Black and Captive Power Plant
  • Brand building through sport events globally
  • Successfully implemented SAP ERP system
  • Consistent dividend payout
  • Planted around 1,00,000 trees in and around Bhuj plant

Customers:

  • Case IH, New Holland, John Deere, AGCO, SAME, DEUTZ-FAHR, CLAAS, Turk Traktor, Antonio Carraro, Wirtgen Group, Hamm AG, SAKAI, Kubota, HORSCH, JCB, Ferrari, GOLDONI, GREAVES, CAT, TAFE, TEREX, and Kalmar – Cargotec.

Competitors:

  • Michelin, Bridgestone, Alliance Tire, MRF, Apollo, and Ceat.

Revenue:

  • Segment Split: Agriculture (64%), OTR (32.8%), Others (3.2%)
  • Channel Split: Replacement (69.8%), OEM (27.8%), Others (2.4%)
  • Geography Split: Europe (49.7%), Americas (19.6%), India (21.2%), Others (9.6%)

Risks:

  • An economic slowdown in the key markets (India and Europe) may lead to decrease in volumes and capacity utilisation.
  • Exposed to forex risk since most of the raw materials and equipment are imported. However, BKT enjoys natural hedge as most of its revenues are in foreign currency.
  • Industrial, construction and mining are cyclical.
  • Increase in raw material cost can adversely impact the profitability.
  • Raw material costs have gone up from 42.8% to 46.6% due to global supply chain disruption.
  • Unprecedented increase in freight rates due to supply chain bottlenecks.
  • Russia-Ukraine war is a threat. It may increase the operating cost.
  • Maintaining a huge work force is a big challenge.

Management:

  • Family Business – Poddar Group

Investors:

  • Promoters hold 58.29% of the company
  • FIIs hold 14.3% of the company
  • MFs hold 11.17% of the company

Valuation:

  • Historically, BKT Tyres traded around P/E of 14x, and the current P/E is 26x.

Resources:

  • Annual Reports, Investor Presentations

Disclaimer:

For educational purposes only.

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