Reviews
In this edition, we have reviewed Balkrishna Industries Ltd. and NRB Bearings Ltd. We suggest our reader-investors to HOLD Balkrishna Industries Ltd. and NRB Bearings Ltd.
We had recommended Balkrishna Industries in Volume 36, Issue No. 15 dated June 21 to July 04, 2021 under the ‘Choice Scrip’ segment. The recommended price for the stock was ₹2,224.8. We had recommended this stock on the basis of returns on ROE and ROCE of 21.39 per cent and 24.21 per cent, respectively. Balkrishna Industries Limited is located in Mumbai, Maharashtra, and is part of the rubber product manufacturing industry. Balkrishna Industries Limited has 3,070 total employees across all of its locations. Its key products/revenue segments include tyres and tubes, export incentives and scrap.
Looking at the quarterly financial performance of the company, it has given net sales of ₹2,072.23 crore in Q2FY22 from ₹1,577.90 crore in Q2FY21 i.e. a growth of 31.33 per cent. The operating profit for Q2FY22 stands at ₹671.15 crore as compared to Q2FY21 which was ₹560.14. The net sales have seen a jump to ₹391.03 crore in Q2FY22 with increase of 14.69 per cent as related to ₹340.94 crore in Q2FY21. In terms of annual consolidated financial performance, the company posted net sales and operating income for FY21 at ₹5,783.19 crore, up by 20.2 per cent from ₹4,811.24 crore in FY20. Operating profit ascended by 30.26 per cent from ₹1,522.03 crore in FY20 to ₹1,982.60 crore in FY21.
Consequentially, net profit climbed 22.7 per cent from ₹959.65 crore in FY21 to ₹1,177.53 crore in FY20. The company is involved in a sector mainly known as large range of tyres and low volume segment, which is neither capital intensive nor labour intensive. In addition, this sector not only has the advantage over technological obsolescence but also shielded from wild fluctuations in demand for its products. The company is moving forward to explore more and more prospects in the of development of ultra large earthmovers and mining radial tyres category markets and also taking benefit of the change from bias to radial tyres, which is growing continuously.
In order to capitalize on this gold mine, the company has already set up an ultra large size all-steel OTR radial tyre plant. Also, the company is increasing capacities to produce products by building up a brownfield tyre plant at Bhuj, Gujarat to manufacture ultra large size all steel OTR radial tyres along with other groups of tyres. Hence, we recommend, HOLD.
We had recommended NRB Bearings in Volume 36, Issue No. 16 dated July 05 - 18, 2021 under the ‘Low Scrip’ segment. The recommended price for the stock was ₹202.86. We had recommended this stock on the basis that the company has reduced its debt and on positive expectation of operating leverage and price hikes to improve the margins. Also, the total debt to equity ratio is 1.15. NRB Bearings is into manufacturing and selling ball and roller bearings. The company manufactures a variety of bearings, including needle roller bearings, cylindrical roller bearings, spherical roller bearings, wide inner ring bearings, tapered roller bearings, and ball bearings.
The goods produced are used in commercial vehicles, passenger’s cars, two wheelers, automotive ancillaries, textile machinery, switchgears and electrical equipment, and locomotives. Analysing the financial performance of the company in the recent quarter, on a consolidated quarterly basis the net sales and other operating income was recorded at ₹256.56 crore in Q2FY22 as compared to ₹197.67 crore in Q2FY21, giving a rise of 29.79 per cent. The operating profited ascended 48.79 per cent from ₹31.07 crore in Q2FY21 to ₹46.23 crore in Q2FY22. Net profit of Q2FY22 recorded ₹24.35 crore as against net profit of ₹11.39 crore reported in Q2FY21 giving and 113.78 per cent jump. On the annual front the net sales tripped 1.75 per cent to ₹762.40 crore in FY21 over FY20. The operating profited scaled 16 per cent in FY21 to ₹118.96 crore from ₹101.89 crore in FY20. The net profit of ₹55.70 crore was reported in FY21 as comparison to net profit of ₹33.19 crore reported in FY20 climbed 67.82 per cent.
NRB has been making big strides towards innovation. Going ahead, this will boost in electric vehicle sales will help the company to grow. NRB is preparing to invest heavily in research and development as the bearings industry is seeing new opportunities from the EV segments. The company will also focus on products, which are EV-based and also expand to newer areas of business development that includes products for hybrid and electrical transmission and other applications for EV and hybrid vehicles. NRB has also been chosen as the exclusive supplier for giant EV player Ola Electric for the two-wheeler segment and has been working on customised needle bearings it requires. Hence, we recommend, HOLD
(Closing price as of Jan 21, 2022)