Margin management turns tricky for Balkrishna amid soft demand, new bets
Volumes declined 3% year-on-year to 80,664 tonnes in Q1, and the management refrained from providing a volume guidance for FY26. Revenue was largely flat at ₹2,759 crore, while Ebitda fell 8% to ₹656 crore. The 228 basis point (bps) drop in Ebitda margin to 23.8% was seen as a key disappointment. The company has guided for an operating margin of 24-25% for FY26.
A base tariff of 10% applies to Balkrishna's exports to the US, and the company has been unable to pass on the entire increase to consumers. It has absorbed 40% of the impact, which is expected to persist through Q2FY26.
'With multiple US trade tariffs getting finalized at around 15% (EU/Japan), we believe India tariffs are likely to inch up from around 10%. This remains a near-term demand/margin headwind for Balkrishna," said a Nomura Global Markets Research report. It has cut its FY26 Ebitda and earnings per share forecast by 8% and 16% respectively.
While raw material costs are expected to remain stable sequentially in Q2FY26, margin pressures are likely to continue. Balkrishna, which has a niche in the off-highway tyre (OHT) segment, recently announced plans to diversify into domestic tyre categories including truck and bus radials and passenger car radials (PCR). The concern, however, is that this expansion could be margin-dilutive over the medium term, given intense competition from established players.
Balkrishna would launch commercial vehicle radial tyres by Q4FY26 and PCR tyres by Q3FY27.A capital expenditure of ₹3,500 crore has been outlined for the next three years.
'Considering the higher upfront investments in the new tyre segments which have higher competitive intensity and lower margins than the company's core business, and the lack of visibility for business normalcy of its core business, we remain cautious," said HDFC Securities.
After hitting a 52-week low of ₹2,152.05 apiece on 7 April, following the Liberation Day tariff announcement, the stock has recovered to ₹2,746. It now trades at an undemanding 25x FY27 earnings estimates, according to Bloomberg.
However, Balkrishna has yet to prove itself in the new segments, and striking a balance between gaining market share and protecting core returns could be a significant challenge.
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