Balkrishna Industries is facing channel inventory clearance in its end markets, which has impacted its volume growth.
In recent quarters, it has been a bumpy ride for investors in shares of Balkrishna Industries Ltd as fears of a global recession have hurt the tire maker's performance in some global markets.
Against this backdrop, the December quarter (Q3FY23) results do not offer much relief. Its reported profit after tax fell 70% year-on-year (y-o-y) to ₹99.6 crore, due to higher interest cost and unrealized foreign exchange loss.
Volume declined 5.5% y-o-y and 16% sequentially to 66,480 tonnes. Currently, the tire maker is experiencing channel inventory clearance in its end markets, which has weighed on its volume growth.
According to the company's management, the distribution channel in the global markets had excess inventory not only in the OHT segment but also in other tire segments. While the company continues to face challenges of de-stocking in the fourth quarter, the situation is improving on a month-on-month basis.
However, fears of recession continued to adversely affect demand in global markets. Management said the positive factor is that demand in India remains stable, supported by an improving economic environment.
Another disappointment was its muted operational performance. Excluding the mark-to-market forex loss, the Ebitda margin stood at 19.1%, but taking this into account, the Ebitda margin fell to 14.9%, said analysts at Motilal Oswal Financial Services. This is a huge drop.
The management said though raw material prices have come down, the company has not been able to fully benefit from it due to high cost raw material inventory in the system. This has offset the positive impact of easier freight costs. However, the management expects to pass on the benefit of lower freight cost from the fourth quarter of FY2023 onwards.
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