Balkrishna Industries shares down 11% on disappointing Q3 earnings

The company disappointed investors on all three fronts as sales, EBIDTA margin as well as bottomline declined on year in Oct-Dec

Shares of Balkrishna Industries plummeted on February 13 as a disappointing set of earnings for the December quarter prompted investors to shun the stock.

At 10.48 am, Balkrishna Industries was trading 9.84 percent lower at Rs 2,081.75 on the National Stock Exchange. The stock also hit an intraday low of Rs 2,041.00.

The company’s earnings for the Oct-Dec period disappointed investors on all three fronts. Net sales declined 5 percent on year to Rs 66,480 crore in Oct-Dec, largely dragged by weak volumes.

On the other hand, a high cost inventory dragged the company’s EBIDTA margin down 990 basis points year-on-year to 12.4 percent in the December quarter.

“High inventory costs almost negated the impact of easing freight costs. While raw material prices have corrected, the company did not fully enjoy the benefits due to high-cost raw material inventory in the system,” brokerage firm YES Securities said in a report.

As the fall in net sales added to the pressure from rising expenditures, the company’s bottomline also collapsed 70 percent on year to Rs 100 crore. Forex loss and lower other income also impacted the fall in net profit.

Nonetheless, Asian Markets Securities believes the drag on margins to be a one quarter phenomenon as going forward, the gross margins will likely improve on the back of lower commodity prices.

Motilal Oswal Financial Services also expects further benefits on account of freight, to reflect in the coming quarters. “Lower raw material and freight costs, better hedge rate, better end market situation gives hope for a margin recovery in next financial year,” the firm said in a report.

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