Group 3

Abhishek Lanjewar | Nikith Reddy | Sashank Sharma

Sharan Gull | Sourav Kumar | Adithya Palakurthy
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The Indian Tyre Industry is an integral part of the Auto Sector – It contributes to ~3% of
the manufacturing GDP of India and ~0.5% of the total GDP directly.
Tyres • Indian tyre industry has almost doubled from ~Rs 30,000
crores in 2010-11 to ~Rs 59,500 crores in 2017-18 of
which 90-95% came from the domestic markets.
• The top three companies – MRF, Apollo Tyres and JK Tyres
End-Market Product
have ~60% of the market share in terms of revenue.

Based on End-Market Based on Product

30% 14%
10% Truck & Bus
38% 28%
13%

Passenger Vehicles
62% 55%
70%
22% 2/3-Wheeler
2010-11 2017-18 58% Vehicles
2010-11 2017-18 Off-The-Highway &
Replacement OEMs & Exports Others
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Global Tyre Makers Divesting their OHT

Segments
Year Seller Acquirer Business
Transferred
2004 Continental Mitas Farm Tyre
Business
2005 Goodyear Titan North American
International Farm Tyre Assets
2006 Continental Titan North American
International Off-The-Road
(OTR) Assets
2011 Goodyear Titan North American
International Farm Tyre Assets
2012 Goodyear Titan European Farm
International Tyre Business

Market Share –

a. Agri Business : 8% b. OTR : 2% c. Overall : 4%

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• Balkrishna Industries is primarily engaged into Specialty “Off Highway Tire segment” which is
consisting of Agriculture, Industrial, Construction, Earthmoving, Mining, Port, Lawn and Garden
and All-Terrain Vehicle (ATVs) Tires, etc.

• Agriculture industry, mining & construction form the two major end user segments, with volume
growth outlook for the company tied to global agriculture and economic growth prospects.

• About 80 percent of Balkrishna Industries' business in the United States is in the farm market.
More than 80% of our revenue is generated through exports.

• Balkrishna Industries is currently an OEM vendor for heavy equipment manufacturers like JCB,

John Deere and CNH Industrial.

• The company currently enjoys 2% market share of the global off-the-road tire segment.

• Balkrishna Industries predominantly caters to the replacement market in North America and
Europe.

• BKT follows a distributor-centric model wherein it provides a 15% margin to dealers/distributors

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2019 2020 Standalone Consolidated • The decrease in revenue and EBIDTA in standalone
and decrease in revenue in consolidated results have
Revenue from (8.81%) (7.7%) happened due to adverse factors explained
Operations hereinabove whereas the net profit has increased
EBITDA (1.79%) 0.12% despite lower revenue due to reduction in rate of tax
by the Government of India during the year and
Net Profit 20.84% 24.04% consequent adjustments in deferred tax liability.

Total Capacity Realizations per ton COGS per ton EBITDA per ton
(MTPD)
Balkrishna Industries 820 157.18 75.9 50.88
Apollo Tyres 1872 235.57 134.66 28.65
CEAT 1245 147.07 87.52 16
JK Tyre & Ind 1709 138.47 87.5 14.52
TVS Srichakra 250 230.55 137.37 24.67
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Porter’s Five Forces Framework – OTH Market

Bargaining Power • Low switching costs because the product is highly customized.
Low
of Buyers • Low Volume hence bargaining power of buyers is less

Bargaining Power • Vertically Integrated Industry

Mediu
of Suppliers m
• Key Ingredient – Natural Rubber - Strong global suppliers

Intensity of • Small Competitors • Highly differentiated product

Low
Rivalry • Divestiture of OTH business from large competitors

Threat of New • Capital Intensive • High differentiation

Low
Entrants • Labour Intensive • Vertically Integrated – ensuring
supply

Threat of • Substitutes are poor performers

Low
Substitutes • Low priced but require laborious manual intervention
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Opportunities
• Off-The-Highway segment is predominantly
known as “large varieties - low volume
segment”.
• There is an incremental opportunity in the form
of developing “Earthmovers & mining tires”
markets.
• Balkrishna Industries can take advantage of the
shift from bias to radial tires, which is growing
continuously.
• BKT is also continuously expanding its base
into various sub-segments like agricultural,
industrial, construction, mining, winter and
solid tires under both technologies – bias as
well as radials.
• The COVID-19 issue has led to a situation
which may open a lot of opportunities for BKT.
FINANCIAL
ECONOMIC MOATS FUTURE OUTLOOK
Threats
• Majority of the Company revenue is generated
through exports and any change in regulatory
policies can adversely affect the company’s
position.
• Almost 1/3rd of the Company’s revenue is
generated through a product category which is
cyclical in nature and therefore it is exposed to
market risk.
• Since the manufacturing process labour intensive.
Maintaining a huge work force is a big challenge.
• Since the company’s revenues, most of the raw
materials and capital equipment are imported, the
Company is exposed to foreign currency risk.
• The Company’s major raw material is Natural
Rubber, volatility in its pricing can adversely affect
the company’s strategy.
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Days payable Days receivable Inventory Days

RANK
MRF 50.19 51.69 110.26
EFFICIENCY 1. Green
RATIOS Balkrishna Inds 39.58 44.75 105.07 2. Orange
3. Yellow
Apollo Tyres 58.56 21.01 128.98
CEAT 72.01 36.31 87.54
Goodyear India 60.37 45.99 45.86

ROE ROIC ROA

MRF 12.26 15.07 9.94
Balkrishna Inds 17.07 19.18 14.25
RETURN Apollo Tyres 4.76 4.38 2.76
RATIOS
CEAT 8.77 9.10 5.27
Goodyear India 9.97 10.11 9.63
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Debt / Equity Int Coverage

MRF 0.15 5.53
Balkrishna Inds 0.15 111.35
LEVERAGE Apollo Tyres 0.61 2.00
RATIO
CEAT 0.59 2.95
Goodyear India 0.02 26.38

5 -Year Sales Growth 5 -Year Profit Growth

MRF 4.03 9.41
Balkrishna Inds 4.76 11.79
GROWTH
Apollo Tyres 4.96 -14.51
RATIO
CEAT 3.51 -4.81
Goodyear India 2.22 -2.53
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Current ratio Quick ratio

MRF 1.51 1.15
Balkrishna Inds 1.31 0.83
LIQUIDITY Apollo Tyres 1.15 0.69
RATIO
CEAT 0.74 0.42
Goodyear India 2.58 2.33

EPS 12M . P/E CMP / Sales PEG CMP / BV EV / EBITDA

MRF 3170.69 25.41 2.36 2.70 2.72 12.15
Balkrishna In 49.71 34.64 6.59 2.94 6.15 20.50
VALUATION ds
RATIOS Apollo Tyres 5.54 38.06 0.81 -2.62 1.15 8.09
CEAT 62.24 16.76 0.75 -3.48 1.59 8.00
Goodyear In 29.76 32.46 1.48 -12.83 2.39 10.64
dia
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120%

100%

80%

60%

40%

20%

0%
1 2 3 4 5 6 7 8 9 10 11

-20%

-40%

sales growth OM
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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

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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 Ind 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 & Ind     -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
THANK YOU!
 Strengths Threats

1. Innovative financial products of diverse

categories
2.  Kotak Mahindra Finance Ltd. is the first
company in the Indian banking history to 1.  Economic slowdown
convert to a bank 2.  Highly competitive environment
3.  Comprehensive Cash Management System 3. Stringent Banking Norms
4. Has over 20,000 employees
5. Customer account base of over 2.7 million

Weakness
1. Lesser penetration as being late
entrants
2. Low publicity and marketing as
compared to other premium banks in
the urban areas
Opportunities
1. Increase in Industry banking
2. Explore opportunities abroad
by International banking
 INDUSTRY ABOUT THE FINANCIAL
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Porter’s Five Forces Framework – OTH Market

Bargaining Power • Low switching costs because the product is highly customized.
Low
of Buyers • Low Volume hence bargaining power of buyers is less

Bargaining Power • Vertically Integrated Industry

Mediu
of Suppliers m
• Key Ingredient – Natural Rubber - Strong global suppliers

Intensity of • Small Competitors • Highly differentiated product

Low
Rivalry • Divestiture of OTH business from large competitors

Threat of New • Capital Intensive • High differentiation

Low
Entrants • Labour Intensive • Vertically Integrated – ensuring
supply

Threat of • Substitutes are poor performers

Low
Substitutes • Low priced but require laborious manual intervention