INDIAN TYRE COMPANIES -

OVERALL RISK ANALYSIS

Risk Risk Grade Remarks
Factor (1 to 6)

Industry 4 Positive outlook for demand in near-term, with moderation to mean

risk: tyres ↑ levels in medium-term

Large manufacturers undertaking capacity expansion; reliably

↑ capable of high utilisation

Capacity payoff significantly dependent on volume sales – highly

↔ probable in the unique domestic market, but limited to the same

↓ Rising input costs with scope for significant variability

Highly consolidated industry in a mature and stable market with

↑ opportunities for export

Governmental import restrictions protecting domestic manufacturers

↑ in major segments

Highly dependent on related industries (automotive) and input

↓ commodity markets – high variability and cyclicality
Source: Leveragedgrowth.in
CONSOLIDATED RISK ANALYSIS OF TYRE INDUSTRY
❖ Production Risk:
➢ Around 200+ various raw materials combined to produce a tyre
➢ Primary cost generators are natural rubber, synthetic rubber and derivatives from crude such as carbon
black which make up to ~80% to 85% of the total cost of the raw materials
➢ Major production risk lies in the sourcing and price of rubber and crude which are the critical variables
that determine the tyre company’s profitability

❖ Operational Risk:
➢ The Indian tyre industry generally tends to source raw materials like natural rubber locally (primarily
from Southern states like Kerala)
➢ The risk posed by erratic or unstable local sourcing puts pressure on on importing raw materials from
other countries, which raises the input costs
➢ The long term contracts helps mitigate the impact of fluctuations in raw materials prices on the
operating costs of the firm

❖ Demand Risk:
➢ In the last five years, tyre demand environment was impacted by weak OEM volumes, a feeble
economic environment, impact of GST, and higher imports.
➢ Given the restrictions on manufacturing and gradual progress amidst the community spread that has
affected the operations (production) of few OEM's, across the automobile value-chain.
➢ The majority of the tyres were imported by independent private operators (rather than the actual end
customers) using deceptive methods such as under invoicing or incorrect classification. Importing tyres
to the restricted list will assist boost import transparency in the long run.
CONSOLIDATED RISK ANALYSIS OF TYRE INDUSTRY
❖ Legal Risk:
➢ Excise duty on tyres continues to remain high, at 16 percent, just like it is on luxury items like air
conditioners. Tyres are also subject to a number of local taxes and charges. The ultimate expense of
high taxes is borne by the consumer; in addition to the high Excise Duty, different imbedded taxes (such
as Sales Tax, Octroi, and so on) increase the overall tax incidence on tyres.

❖ Financial Risk:
➢ Price Margins range from about 25% to 45%, with raw material costs taking up 60% to 65% of the
revenues, SG&A expenses about 6% to 12% of the revenues, and employee costs about 7% to 14% of
revenues.
➢ Therefore, due to price fluctuations in raw materials the firms are majorly focused on cutting down
imports and instead trying domestic procurement of raw materials

❖ Management Risk:
➢ The ten leading tyre market players hold a market share of between 90% - 95%. Furthermore, the top
3-4 firms have 70% - 80% market shares in each category, i.e, truck and bus, passenger cars, and 2-
wheelers.
➢ Because it is a homogeneous product, there is little distinction between competing tyre manufacturers'
offerings. Companies do, however, aim to set themselves apart by outperforming one another in some
areas of parity, such as quality, safety, tread design, and cost.
 MRF Tyres Ltd.
Market Position Factors
❖ Robust research and design capabilities, strong
market position, and vertically integrated operations
❖ Subsidiaries: MRF Corp Ltd, MRF International Ltd,
MRF Lanka P Ltd, and MRF SG PTE Ltd
❖ It also exports its products to about 65 countries
across the globe, with 6th largest market share in
the world
❖ The company is vertically integrated in terms of its
core business
❖ High reliance on Indian market exposes it to the risk
of downturns in the country's macroeconomic
conditions and amplifies its business risk
❖ 705 revenues generated from Replacement market
but lately Impacted by low demand from OEMs and
the replacement market
Sources: Marketline, CRISIL Research, ICRA, Annual Report
Operational Efficiency Factors
❖ The company has a declining asset turnover and
inventory turnover ratios
❖ The former is mostly driven by incremental
investments in assets while the revenue is mostly
remained stagnant
❖ The latter is driven by increasing inventory costs
coupled with stable COGS
❖ The company spent Rs.34.65 cr for research and
development (including building) for fiscal year 2020
as compared to Rs 55.5 cr in fiscal year 2019
❖ The robust international operations of the company
increased its exposure to foreign currency
fluctuations
❖ Overall tyre production decreased by 3.5% y-o-y in
fiscal 2020.
Business risk rating: 4+~5
 MRF Tyres Ltd.
Financial Risk Factors
❖ MRF profitability margin has taken a hit due to
the pandemic and the operating margin has
increased
❖ MRF has been showing a steady decrease in
its current ratio which might suggest that the
liquidity is low and there might be issues in
resolving short term obligations
❖ The Company’s investments in Quoted and
Unquoted Securities are susceptible to
market price risk arising from uncertainties
about future values of investment securities.
❖ The company manages the securities price
risk through investments in debt funds and
diversification by placing limits on individual
and total investments
Financial risk rating: 4
Sources: Marketline, CRISIL Research, ICRA, Annual Report
Management Risk Factors
❖ MRF has been working to cut down imports and
locally source raw materials in the wake of covid
pandemic that seriously hampered the sourcing and
exposed dependence on foreign market
❖ Invests in advanced raw materials testing in its
National Accreditation Board for Testing and
Calibration Laboratories (NABL) accredited
laboratories
❖ The voluntary vehicle scrapping policy could
potentially provide a big boost to the automobile
industry and in turn to the tyre industry
❖ The risks are limited by sourcing from different
countries and regions and having long term contracts
with prices linked to well accepted market indices and
published reports.
Management risk rating: 5
 Apollo Tyres Ltd.
Market Position Factors
❖ Market share 22.9%, 2nd largest in Indian tyre market
❖ Marketing and distribution in USA, Europe, the Middle
East, India and other parts of Asia
❖ First Indian tyre company to:
● launch exclusive branded outlets for truck
tyres
● introduce radial tyres for the farm category
❖ Market leaders in:
● CV segment (largest tyre segment in India)
● Passenger vehicle (OE segment)
❖ Led the domestic tyre market in terms of growth in the
last 3 years with a CAGR of 12.6%
❖ Has diversified market base across geographies and
therefore, not dependent on the Indian market alone
❖ 69% of revenues generated through Indian market
❖ Predicted to overcome MRF in the next few years to
become the no. 1 Indian tyre company
❖ Product range:
PV Tyres,Commercial Tyres (Light/Heavy),Agriculture
Radial, Tyres,,Off-The-Road Tyres, Two-wheeler tyres
❖ Increased competition from global players such as
Michelin, Bridgestone, etc. in India, may hamper
growth
Sources: Apollo Annual Report, Crisil Report, Business Standard, Economic Times, Hindu Business Line
Operational Efficiency Factors
❖ 5 domestic manufacturing plants (2 in Kerala, 1 in
Tamil Nadu, 1 in Gujrat. 1 AP), 2 facilities in Europe
❖ Centralized RMl procurement through Chennai head
office & purchase office in kochi
❖ International RM suppliers from Asia, Africa, Europe
and the Americas
❖ Acquired 10,000 hectares in Laos for a rubber
plantation due to shortage of domestic rubber supply
❖ Network of nearly 5,000 dealerships in India, of which
over 2,500 are exclusive outlets
❖ Prefered local procurement from domestic suppliers in
the respective regions due to benefits like:
● proximity to Apollo’s plants
● lower transit lead times,
● need to maintain lower inventory and
● lower carbon footprint
❖ The global shipping and logistics industry faced
shortages of containers, blank sailings, port congestion
leading to sharp spike in Ocean Freight rates during
the second half of the year adding to the cost push.
Apollo Tyres continues to focus on conserving cash
through optimizing the inventory levels.
Business risk rating: 4
 Apollo Tyres Ltd.
Financial Risk Factors
❖ The Return on Equity % of Apollo tyres is showing a
downward trend since the previous 4 years. This
suggests that Shareholders” funds are being utilized
inefficiently
❖ The Return on capital employed is showing an unstable
pattern over last few years. These fluctuations may be a
result of increasing competition levels in the tyre industry
❖ Net profit and EPS, both have seen a rise in year ended
March 2021. Which signifies a healthy revival after
pandemic induced disruptions
❖ Financial strain in european operations due to a
dwindling market scenario along with pricing pressure
and an internal operational struggle with a high cost plant
❖ A weak Indian currency can result in pressure on
margins, since the Company is a net importer
❖ High capital intensity resulting in regular need of large
capex for growth putting pressure on free cash flows
❖ Current ratio has increased from 0.71 to 1.13 in one year.
This signifies that Apollo Tyres has bounced back and is a
sound financial position viz-a-viz its short term debt
obligations
Financial risk rating: 4-
Sources: Apollo Annual Report, Crisil Report, Business Standard, Economic Times, Hindu Business Line
Management Risk Factors
❖ The risk appetite of Apollo Tyres is a moderate. It has
made late but well calculated forays in new segments
like two wheeler tyres
❖ Has formulated a vigil mechanism through Whistle
Blower Policy to deal with instances of unethical
behaviour,
❖ As on March 31, 2021, Apollo Tyres had 34 Overseas
Subsidiary Companies (including step subsidiaries), 1
wholly owned Subsidiary in India, 1 Associate Company
and 1 Joint Venture
❖ The Company has formulated a Code of Conduct for
Directors and Senior Management Personnel and has
complied with all the requirements mentioned in the
aforesaid code
❖ With a global and culturally diversified management
team, the Company drives growth across geographies
❖ Apollo continues to have a cautious approach. The
focus is on employee safety and conserving cash.
❖ The Company is re-engineering production and
rethinking avoidable costs while investing in R&D,
eTraining and brand building
Management risk rating: 5
 JK Tyres Ltd.
Market Position Factors
❖ Pioneer of radial technology in India and No. 1 in Truck/Bus
Radial (TBR) manufacturer with market share of ~30%.
❖ Ranked top 24th tyre company in the world. Wide range of
Products with presence in over 100 countries
❖ JK Tyre increased its market presence by achieving the
greatest sales in Q3FY21 and Q4FY21. Profitability
increased dramatically as a result of strong capacity
utilisation, cost reduction, and lower working capital, as well
as a special focus on customer outreach and premium
product offerings.
❖ Has a centralized R&D center in Mysore, Karnataka and
constantly makes efforts focused on the field of advanced
materials, alternate materials, nanotechnology, process and
product simulations, predictive technology, advanced tyre
mechanics, etc.
❖ A Leading Indian Tyre Manufacturer with over four decades
of experience and enjoy leadership position in the industry
Sources: JK tyre annual report, The Hindu (Business Line), Business Today, NDTV.com
Operational Efficiency Factors
❖ Globally among the top five in lowest energy consumption
(9.81 Gj/Ton). Extensive Distribution Network in India,
Mexico and many other geographies
❖ Total 12 Manufacturing Facilities with Annual Production
Capacity ~32 million tyres.
❖ It has a total of 4,600 Dealers, 345 distributors, tie up with
870 fleet operators and tie up with 3 oil marketing
companies 140 sales, service and stocking firms.
❖ Its revenue from operations advanced 63 per cent to ₹
2,927.28 crore compared with ₹ 1,792.56 crore in the
same quarter of last year. (Comparing 2020 and 2021)
❖ In FY19 ~39% of power requirement was from solar and
wind power sources and has a target to achieve 50% of
power requirements from captive renewable sources.
Business risk rating: 4+
 JK Tyres Ltd.
Financial Risk Factors
❖ JK Tyre & Industries has liabilities of $46.4 billion due within a
year that is 2020, and liabilities of $42.6 billion due beyond that,
according to its most current balance sheet. It had 1.322 billion in
cash and 21.0 billion in receivables due. As a result, its liabilities
exceed its cash and short-term receivables by $66.7 billion. So,
all these aspects are a matter of concern.
❖ Weak interest cover of 1.4 times and an alarmingly high net debt
to EBITDA ratio of 5.5 took a one-two blow to our faith in JK Tyre
& Industries. There is a significant amount of debt in this area. JK
Tyre & Industries' EBIT fell by 7.9% in 2020, which is
problematic.
❖ JK Tyre & Industries generated free cash flow of 2.6 percent of
EBIT for the last three years, which is relatively low. And a poor
cash conversion rate raises concerns about the ability to pay off
debt.
❖ The Rs 675 crore investment in Cavendish was supposed to
increase the capacity of the truck and bus radial plant by half a
million tyres by 2020, but that was delayed a year and is still not
happening because the commercial vehicle market is expected
to remain in the risky zone due to an expected increase in
acquisition price.
Financial risk rating: 4-
Sources: JK tyre annual report, Financial reports, Investment reports, Business Today, NDTV.com
Management Risk Factors
❖ According to a court filing, the Competition Commission of
India (CCI) initiated an investigation in 2020 after the
northern state of Haryana claimed JK Tyre used unfair trade
practises when bidding to supply tyres for public
transportation vehicles.
❖ One difficulty for management is to sustain output, as there
has been a recent increase in rubber prices due to a lean
season of poor productivity and unseasonably hot weather
in April and May with no summer showers, which hampered
output. Natural rubber prices have risen as a result of this.
And nations that export rubber, such as Thailand and
Malaysia, reduced their exports, driving up prices even
further.
❖ The Company retained more than 95% of the senior
management and 91% employees on the overall during the
year under review in 2020 which showcase the internal
system of the company that is employee engagement and
productivity.
❖ The government's decision to change axle load standards
resulted in a decrease in tyre sales. And, as the OEM
category accounts for 35% of tyre demand in India, there
was a slowing in the impact on this segment; the slowdown
moderated the Company's truck and bus segment by 44%.
With a 6% increase, the company outperformed.
Management risk rating: 4
 CEAT Tyres Ltd.
Market Position Factors
❖ CEAT is the second largest tyre manufacturer of the country with
annual turnover of 7572.79 cr with a market share of 30%
❖ The company has been operating in more than 100 countries
and have 50+ key OMEs partner
❖ 1st Indian Company to receive Deming Award and received JD
Power award for customer satisfaction
❖ A prominent tyre manufacturer with an imagination to innovate
and producing and selling quality tyres through more than 3,400
dealers across the country
❖ CEAT has achieved PAT ( Profit after tax) in 2006-2007 of Rs 39
crore and made an increase of about 279% in 2007-2008 and
made a PAT of Rs 139 crore which highest at that time
❖ From 2 wheeler tyre to car tyres to giant OTR tyres CEAT
produces every kind of tyre
❖ CEAT has the best Risk management Framework systems in
"Auto Ancillary" category
❖ CEAT is expected to increase their production by 54,000
tyres/month by FY23 and after having a profit of Rs 24 crore in
Q1 of FY 22 it is expected to grow
Sources: CEAT annual reports, Live mint, CEAT.com, InfrontAnalytics
Operational Efficiency Factors
❖ CEAT is the first company in India to get the ISO/TS 16949 certification
which is a combination of ISO 9000 and QS 9000.
❖ CEAT has a total of 6 manufacturing plant with a production of 140,000+
capacity per day
❖ CEAT has a 300+ CEAT shoppe, more than 3400 dealers and and 30,000
sub-dealers serving the customers
❖ In 2021 CEAT has partnered with TATA powers to set up 10 MW plant.
This plant will help CEAT offset 17.43 million kg of CO2 annually
❖ Has one centralized R&D centres in Halol and the first R&D centre at
Mumbai and made some advancement whether in self sealing tyres or
sensor in tyres for better monitoring
❖ Ceat Ltd in Mar 2021, Q4 profits up 3-fold at Rs 152.8cr on operating
efficiencies
❖ Future Plans:
CEAT will invest about Rs 1,200 crore to increase production capacity
over the next 18-24 months as a part of Rs 3500 cr capex which got
stand still due to covid - 19 pandemic
Business risk rating: 4 ~ 4+
 CEAT Tyres Ltd.
Financial Risk
❖ The company's trailing twelve-month profits per share (EPS) is Rs 56.9, down
from Rs 62.1 last year. At the present price of Rs 1,115.2, the price to
earnings (P/E) ratio is 46.4 times the trailing twelve months earnings.
❖ Ceat Limited revenue climbed 70% to Rs.19.06 billion in the three months
ending 30 June 2021. The net income was RS239.8 million, compared to a
loss of Rs.347.6 million.
❖ Because of the favourable market conditions, revenues indicate a rise in
demand for the Company's products and services. Equity Earnings - Net
Income Finance costs fell by 6% to RS460 million before taxes, from Rs.34.8
million to Rs.70 million (income) (expense).
❖ The total revenue fell from 2019 -2020 due to coronavirus from 69 thousand
crore to 67 thousand crore but bounced back hardly by earning total revenue
of 76 thousand crore in the 2020-2021
❖ CEATs robust capacity expansion in TBR/PCR (up 2.3x from FY19 to FY23F)
should result in a respectable 14 percent revenue CAGR from FY20 to FY23F.
❖ CEAT latest investment plan of Rs.1200 crore in truck and Bus plant will help
in the improvement and increase production which will help them to capture
more of the market share in these segments.
❖ The current ratio and quick ratio has been on a decline falling from 2018 one
reason is COVID-19 and one reason is also rising prices of raw material as
current ratio fell from 1.14 to 0.68 and quick fell from 0.62 to 0.36. Also
inventory turnover took some hit going from 8.16 in 2018-19 to 6.95 in 2019-
2020 due to pandemic but now improving as moving to 7.32 and showing
signs of recovery.
Financial risk rating: 4
Sources: CEAT annual reports, Live mint, CEAT.com, InfrontAnalytics
Management Risk
❖ CEAT is backed by a huge parent company called RPG and
RPG is operating in many different fields and has huge funds so
CEAT can expand easily and swiftly with this huge parent
company
❖ The Deming Prize has been awarded to CEAT. This is one of the
greatest accolades in the world, honouring organisations who
have made significant progress in TQM (Total Quality
Management) and effectively applied it.
❖ CEAT has been ranked 35th as best company to work for by
Great place to work institute which provides trust in the
management system
❖ Timely payment of the employees even during the coronavirus
pandemic made sure the management and trust on company
remains intact even during tough times.
❖ 91% of all new recruits in year 2020 were under the age of 30
which indicates that the company is moving towards having a
young and energetic employees who can work with rest of 40%
of more than 30+ years of age so that they can create an
environment who understands the current technology with
people who have traditional knowledge of the company.
❖ As the prices of Natural rubber is increasing due to low
production in this fiscal year it is becoming hard for CEAT to
increase production on a high level even though ATMA has
asked to government to make Natural Rubber import free but
government is hesitating a bit and 70% of natural rubber is used
in making of tyres so it can be problem for CEAT management to
handle this issue and might hit them during this stage.
Management risk rating: 4+ ~ 5
 Goodyear India Ltd (GIL)
Market Position Factors
❖ Leader in tractor tyres segment (more than 1/3rd market share)
| Niche player (majorly focused on commercial vehicle segment
(especially tractors and trucks - source of more than 50%
revenue) | Pioneer of tubeless radial tyres in India
❖ Global market leadership (one amongst top 5 worldwide) and
presence of over 120+ years, extended R&D support makes
GIL one of the most prominent innovators in the tyre segment
❖ Around 4% market share in India (6th or 7th position) serving
OEMs with higher quality and performance preference
❖ Premium tyre manufacturer (4-5% share) with focus on high
value (niche) segment (prices are 20-30% more than that of
competitors') | Strong financials (almost debt free)
❖ Segments catered: PV, CV, Farm and Industrial vehicles
❖ GIL has been associated with major OEMs (Mahindra &
Mahindra, Tata Motors, Honda, Fiat, etc) preferring higher
quality for bulk orders, replacement demand (more regular)
gets affected by availability of cheaper substitutes
Sources: Goodyear India Annual Reports, EMIS, CRISIL Research, Goodyear.com, Moneycontrol.com
Operational Efficiency Factors
❖ Cost structure: 70% RMs (out of which 47% is Natural Rubber and
24% is Carbon Black), 9% Employee costs, 21% Other costs.
❖ GIL imports more than 30% of its raw material and faces risk of
fluctuating raw material prices.
❖ 2 manufacturing plants (Ballabgarh and Aurangabad [ JV with
GSATPL]), Production capacity: more than 1200 tonnes/day
❖ 2:1 for manufacturing: trading of tyres
❖ Control over countrywide distribution network (2000+ GIL retailers,
450+ other branded retailers, and several others)
❖ Exports are negligible ( 1.22% of the total revenue in FY20)
❖ R&D and innovation excellence:
- RunOnFlat Technology (run for 80km even after punctures)
- Fuel Saving Technology (reduce emissions)
- Usage of Soybean Oil (increase tread life by 10%)
- Conversion of rice harvest waste into fuel efficient treads
❖ Branding and other Initiatives:
-BH03 tyre generates electricity when in motion and that
electricity is used for recharging batteries of electric vehicles
-Collaboration with Skechers (Goodyear rubber technology to
deliver increased grip, stability, and durability of outsoles)
❖ Future Plans:
-Open up 150 luxurious tyre outlets in India
-Planning to dive into automotive lubricants business
Business risk rating: 5-
 Goodyear India Ltd (GIL)

Financial Risk Factors Management Risk Factors

❖ Raised debt for the first time since incorporation in the end of
❖ Huge Parent & other Subsidiary companies support: Goodyear
2020 because of the fall in income over last year pertaining to
is one of the largest tyre manufacturers in world and as per
slow down in automobile industry and ongoing pandemic
revenue, it is one of top 4 (one plant in India is in partnership)
❖ Profitability ratios indicate that profitability has returned to pre-
❖ Centralised innovation done by the parent group helps GIL to
covid levels but it maybe due to lower base effect
take risky bets (like venturing into automotive lubricants in India
❖ GIL is readily above to turnover its inventories and reduced the
and Goodyear’s partnership with Skechers on the global level).
average days required for one inventory turnover significantly ❖ Managing Director of GIL got replaced recently (Jun 2020)
but on receivables side, the average days for final collection of
which is a little risky because businesses are in sensitive
payment from debtors have increased over past few years
position as they got impacted due to Covid-19, but the
which indicates GIL’s inefficiency (& might increase the risk of
company has managed to retain the rest of the management
bad debts), current assets turnover has mostly remained same.
team even in tough times and the top management has been
❖ Current and Quick Ratio has reduced in past year from more
quite stable since the inception of the company.
than 2 to less than 2 but it is primarily due to the pandemic ❖ Due to superior quality and good relations of management with
which the company is coping well with and have positive free
OEMs, the firm has been able to pass on the hike in input
cash flows which actually turned negative in FY2020.
prices by pegging the final prices with a raw material price
❖ Considering the size of the firm, interest coverage ratio is
index to pass on the risk to OEMs which actually impacted the
around 54 which seems to be decently well but concern over
demand for Goodyear tyres in replacement industry.
absolute profits is still there by leveraging their strengths in agri
and sporty vehicles with their innovative management.
❖ Debt raised is quite a small amount of equity and total assets,
so it is difficult to interpret these leverage ratios as the company
didn’t have any credit history.

Financial risk rating: 4+ Management risk rating: 4+

 Balkrishna Industries Ltd
Market Position Factors
❖ Focus on OHT: agricultural and OTR segments
❖ Over 2700 SKUs - high customization, niche markets; low
volumes but higher margins; supported by shorter
replacement cycle for OHT
❖ Agri 64% | OTR 32% | ATV and others 4%
❖ OEM 26% | Replacement market 70% | Others 4%
❖ Sells in: Europe 50% | Americas 15% | India 23% | ROW 13%
❖ Building brand awareness, brand loyalty through strong
distribution presence and high quality
➢ OEM supplier; also established and sells its own brand
❖ Not price-setter, but prices in this segment are higher than for
normal road tyres
❖ Price competition or new entrants are not common in this low-
volume segment, and BKT's low-cost manufacturing in India
is its moat
➢ Inflation in India could be a risk to this
❖ ~6% global market share; goal 10% in 3-4 years
➢ Competition is mostly foreign players like Michelin,
Bridgestone, Titan International
❖ Agri segment is the main contributor - not cyclical but subject to
seasonal and other factors
❖ Positive outlook for higher-value industrial segment is a plus
(but this segment is also highly cyclical)
❖ Marketing and promotional spend for increased market share in
America, India industrial, agri segments
Sources: BKT, Chola Wealth Direct, ICICI Direct Research, earnings call transcripts on finance.yahoo.com (more in notes)
Operational Efficiency Factors
❖ Subject to raw material price volatility (industry risk factor)
❖ In-sourcing of carbon black (partial backward integration)
❖ Long-term contracts and stocks to manage RM uncertainty
❖ Gross margins absorb changes in commodity prices
❖ Overall, RM costs estimated to increase → sustainable estimate
from BKT for gross margin within the 28-30% band
❖ BKT undertakes price hikes to cover rising input costs
❖ Mostly variable costs (RM 40%); Low fixed cost, ~10% of EBITDA
❖ Export-heavy - subject to foreign currency risk
➢ Naturally hedged through export earnings; also forward
contracts
❖ JIT system; only temporary intra-order inventory is maintained
❖ Setting up warehouses in NA, EU (closeness to customers,
importance of stock)
❖ Strong global distribution network with 200+ distributors across 130
countries
❖ Strong partnership with OEMs
❖ 3-4% of annual sales invested into R&D → improving product
quality and meeting new niche demands
❖ Captive power plant at carbon black plant in Bhuj to address energy
requirements (cogeneration; energy-positive)
❖ Fabrication of tyres is done wrt European directive REACH
(managing and controlling the utilization of synthetic compounds)
Business risk rating: 5+
 Balkrishna Industries Ltd
Financial Risk Factors
❖ BIL has an extremely strong financial risk profile on
account of consistently high margins (gross margins
typically ~30% over the last 4 years) and ROCE
(~20%-25%)
❖ Its fairly low debt position (below 0.2) and excellent
coverage reflect a conservative position, focused on
measured capex and unwillingness to take on fixed
obligations in the face of cyclical industry demand.
Therefore, this healthy profile is likely to be
maintained over the medium term as well
❖ Its liquidity is solid as well, with increasing reserves
of cash (2X cash in hand over the past 4 years) and
moderate bank limits utilization (~50%^). It is likely
to put this cash to use in planned market share
expansion efforts in the OTR segment in Europe
and in North America and India
Financial risk rating: 6-
Sources: BKT Annual Reports and Analyst Presentations, ^CRISIL
Management Risk Factors
❖ Balkrishna Industries Limited’s (BIL) domestic company is
Balkrishna Tyres (BKT); it also has 4 overseas wholly owned
subsidiaries all involved in tyres
➢ Not much diversification - sustained focus on tyres
➢ Recently installed carbon black plant is primarily to
support the tyre business’ requirements as well
➢ Astute move by the management, to mitigate some
input cost risk through in-sourcing
❖ Management have maintained plans to expand global market
share from 5%-6% to a goal of 10% over at least the last
decade
➢ While this market share growth has not been
observed, they have maintained their presence
across 130 countries, perception of high quality, solid
niche positioning, and also been mostly successful in
handling a key industry risk factor of volatile input
material costs and protecting their high margins by
passing on the same in their prices
➢ Plans of setting up a US production base (approved in
FY20 but shelved in FY21) may possibly threaten
their low-cost manufacturing moat - management’s
plans to avoid the same and still grow their market
share will be key moving forward
Management risk rating: 4+
 Business-risk summary and comparison
Industry risk rating: 4 Industry risk summary:
Positive: demand outlook, high industry consolidation, timely capacity expansion, high utilization, import restrictions on tyres
Neutral: power limited to protected domestic market's demand, capacity expansion payoff tied to this__________________
Negative: RM commodity price variability, high cyclicality and dependence on automotive industry ______________________

Company-level MRF Apollo JK Tyre & Ind. CEAT Goodyear Balkrishna Ind

Market position risk 5 5 4 5 5- 5-

rating

Operating efficiency 4 4+ 4+ 4 4+ 5+ ~ 6-
risk rating

Business-level risk 4 4 4+ 4 ~ 4+ 5- 5+
rating

Key differentiators ●Wide distribution ●Strong ●Strong presence ●Variety ●Niche; tractor ●Agri + OTR
reach and diversified presence in in high-volume ●Distribution tyre segment segments; niche;
product profile high-volume domestic ●Geographical leader export focus
●Strong presence in domestic segments (T&B) diversity, exports, ●Global player; ●Highly custom,
high-volume segments (PCV) ●Great distribution OEM partners OEM partners low-volume, high-
domestic segments ●Backward network ●High operational ●Domestic focus margin
(T&B) integration for ●High operational efficiency, ●R&D and ●Backward
●Lower operational RM (acquired efficiency, centralized innovation integration
efficiency rubber centralized functions excellence (insourcing carbon
●Geographical plantation in functions ●To go into luxury black)
diversity, exports Laos) ●Geographical tyres in India + ●Strong int’l
diversity, exports partnership for distribution, JIT,
automotive OEM partners
lubricants
 Overall-risk summary and comparison
Industry risk rating: 4 Industry risk summary:
Positive: demand outlook, high industry consolidation, timely capacity expansion, high utilization, import restrictions on tyres
Neutral: power limited to protected domestic market's demand, capacity expansion payoff tied to this__________________
Negative: RM commodity price variability, high cyclicality and dependence on automotive industry ______________________

Company-level MRF Apollo JK Tyre & Ind. CEAT Goodyear Balkrishna Ind

Business Risk 4 4+ 5- 5+

Financial Risk 4- 4- 4+ 6-

Management Risk 5 4 4+ 4+

Overall Risk 4+ 4+ 5- 6-
 Thank You!
Group 1
Amita Annette Joseph PGP/24/010

Komal Bansal PGP/24/039

Rishabh Tyagi PGP/24/235

Prachi Mallick PGP/24/296

Ryan Nazir PGP/24/300

Yashwant Holkar PGPLSM/01/040