DU-PONT ANALYSIS

Beta 1.12
Market premium 8.93
%
BKT 18% = 17% 0.8 36% + 1 Risk free rate 5.95
%
Industry average 8.03% = 4.1% 1.4 40% + 1
Return expected by the 16%
investors

Competitive advantage – Extracting higher margins

• The company is consistently delivering 18% RoE, which exceeds the cost of capital expected by the investors
• Major portion of that RoE comes from the Profit Margin (NPM = 17%) which is way above the industry average
 ECONOMIC MOATS
Specialist in Off-Highway Tire manufacturer catering to Europe & North-America, with
its low-cost manufacturing based out of India
Manufacturing industries have natural barriers to deter new entries
• Technology (long R&D lead times)
• High Capital requirements and Economies of Scale in supply chain (Procurement, distribution, etc)
Off-Highway Tire Market
• DKT has a wide portfolio of products in a diversified market based on similar technology (Mining,
Construction, Farming, heavy duty equipment)
• The aftermarket/replacement tire market is resilient in the recessionary phase of the business cycle
Well defined international distribution network – Supplies to 160+ countries

High operating margin → Headroom to offer discounts and capture market share

Vertical integration – manufacturing carbon black in-house

 CONCLUSION
Price to Free Cash flow adjusted Name P/E PEG
Price to freecashflow
for growth adjusted for growth
•Some companies have high earnings, but MRF 25.41 2.7 41
they also have high recurring capital Balkrishna Inds 34.64 2.94 9.91
investments which reduce the returns
Apollo Tyres 38.06 -2.62 -1.74
available to the investor
CEAT 16.76 -3.48 -2.54
•So Price / free cash flow per share is a
better alternative to the PE ratio Goodyear India 32.46 -12.83 -53.8
JK Tyre & Indust     -0.03
•This ratio has been adjusted for the
growth TVS Srichakra 36.15 -7.35 -0.51

Overall we believe Balkrishna Industries to be relatively undervalued which has a high return prospects
in the long term which can consistently deliver around 15% total returns as required by the investors
 Growth of the industry
Global Replacement Tire Industry 3%
Growth Rate Sashank, use this if you can
USD/EURO-INR exchange 3-4% Sure ra
depreciation
Overall industry growth in INR 6-7%