Thread by @SmartSyncServ

“If there was ever a list of non-sexy businesses in the world, manufacturing off-highway tires would certainly figure somewhere near the top.” @akm1410

Our notes on AR 19-20 of a Non- Sexy Off-High Way Tire (OHT) Company

A 20 Bagger in 10 years

Thread follows

1/

Financial Highlights (5 years)

•Revenue has grown at a CAGR of 8%

•Profit has grown at a CAGR of 17%. (>2X in 5 yrs)

•Steady improvement in FCF and hence growth in Dividend

•Raw material cost as % of Sales has gone down from 56% in 12-13 to 42% in 19-20

2/

Notes from MDA

•OHT is Highly Technical & Capital Intensive: “large varieties low volume segment”

•Large no of SKUs

•Agri is non-cyclical

•Industrial, construction & mining are cyclical

•Major Geography: Europe, Americas, Australia & India

3/

Notes from MDA

Project/Expansion

Carbon Black Plant

•1st Phase of 60,000 tons p.a. capacity was completed in June, 2019.

•2nd phase was completed on 12th March, 2020 with a capacity of 80,000 tons p.a.

4/

Notes from MDA

Project/Expansion

Greenfield Tire Plant in US:

•To set up a Green Field Project of 20,000 Mtpa

•Estimated capital outlay up to USD 100 million

•On the backdrop of the various challenging economic and business environment, kept in abeyance

5/

Notes from MDA

Project/Expansion

Waluj Plant Expansion :

•Due to COVID-19, shut from 25th March, 2020

•Resumed after the lockdown was lifted

•Trying to complete this project as per schedule i.e. before 31st March 2021

6/

Notes from MDA

Project/Expansion

Bhuj Plant:

•Ultra large-sized all-steel OTR Radial Tire Plant

•Mixing facility & setting up of Warehouse

•Trying to complete this project as per schedule i.e. before 31st March 2021

7/

Notes from MDA

Outlook for FY20-21

•COVID Pandemic related uncertainty
•A fresh tussle between USA and China may impact the global business environment adversely
•Long term prospect impacts
•Deeper penetration within & outside India & across OEMs would lead to growth

8/

Notes from MDA

Opportunities

•Large varieties - low vol

•Capital intensive nature keeps competitors away

•2700 SKUs in this segment - difficult to match.

•COVID-19 has forced many to reshuffle their sourcing plan

•China’s loss could be India’s & BKT’s gain

9/

Notes from MDA

Threats

•Increase in RM prices and other input costs

•Competition from small players

•Retention of employees

•Labour issues.

•COVID-19 related threats- may increase the operating cost of running the business.

10/

Notes from MDA

Key Financial Ratios showing inherent strength in the business model which has developed after two decades of operational excellence.

11/

Notes from MDA

Risks:

•Operational

•Fluctuation in RM prices: Natural Rubber, Crude price

•Market: 1/3rd of Rev is through cyclical products.

•Labour Relations & Retention

•Currency: RM imported, but enjoys a natural hedge due to exports

12/

Promoter Shareholding

•Since 2013 same as 58.30%

•Increased in CY 2013, when shares were trading at 6 times TTM earnings

•No pledge anytime in history

13/

Top 10 shareholders

•HDFC Trustees
•Kotak Equities
•Amansa Capital
•Govt Pension Fund Global
•HDFC Life
•Mirae Asset
•Templeton India
•Axis
•DSP
•Canara Bank

14/

Consolidated Financials

•Balance Sheet
•Profit & Loss
•Changes in Equity
•Cash Flow Statement

15/

If you found BKT interesting & curious to know more about the company, check out the last 6 quarters concall details:

smartsyncservices.com/balkrishna-ind…

If you found value in this thread don’t forget to L & RT 🙂🙏

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