Capex plan of Balkrishna Industries worries investors, stock plunges

Balkrishna Industries Limited key player in the off-highway tyre segment is looking for additional capex of around Rs. 1,700 crore over a period of 30 months. The company will spend around US$ 100 million (Rs. 700 crore) for setting up a greenfield facility in the USA with a capacity of 20,000 MT. The company is expecting an increased traction in sales volume over the next few years, thus, it is undertaking this capex plan. This capex will be funded through the Parent Company and local debt.

In the domestic front, the company is looking to expand its capacity for steel radial OTR tyres and mixing line. For domestic expansion, the company is looking to spend around Rs. 500 crore which will help in setting up new 5,000 MTPA capacity in Bhuj.

Furthermore, the company will also spend Rs. 500 crore for setting up production facilities at Waluj on freehold land of 22 acres which will replace its existing plant. This new facility is within the 5 km radius of the current location. This investment will also include setting up a co-generation plant and in-house warehousing facilities for raw materials and finished goods. The existing plant will continue to operate till the new plant becomes operational.

The entire capex of Rs. 1,700 crore would be funded via a mix of debt and internal accruals, the company said in its exchange filing. Due to this additional capex plan, the debt of Balkrishna Industries will head northward. Also, the elevated debt level is likely to have adverse impact on company’s margin and return ratios. Beside, experts believe that the domestic capex for radial OTR plant at Bhuj and Waluj is higher with no significant capacity addition. 

Meanwhile, the stock of Balkrishna Industries plunged almost 8 per cent to touch an intraday low of Rs. 1,259.5 per share in the first half of trade on Monday. At 11:44 hours, the stock of was trading at Rs. 1261.6 apiece, down by almost 7.5 per cent from its previous close.