Golden chance to buy Balkrishna Industries?

Balkrishna Industries is down about 7% now because it has announced a capex plan of upto $100 million for setting up a Greenfield tyre plant in US. Capex plan is in addition to the current capex underway for a Carbon Black Plant.

The capex will be partly funded by debt.

Is this an opportunity to buy the stock?

 

Please mentions pros and cons.

 

Balkrishna Industries has been a great wealth creator in the past. It has a monopoly of some sort in off-road tyres.

There is a good write up about Balkrishna Industries in Outlook Business where Samir Vartak of SageOne Investment has recommended it.

Big growth opportunity

With a market share of less than 2% in the mining/construction (OTR) segment and less than 8% in the agriculture segment, the growth opportunity for BKT is humongous. OTR is a high-margin business and the market is more than 2x of the agriculture segment. BKT has only 1/3rd sales in this category. The company is now taking steps to target the mining sector: (1) launch of higher-sized mining tyres through internal R&D efforts (the company has launched 39-inch plus tyres; earlier it was manufacturing up to 25 inch tyres) and (2) network expansion though tie-ups with mining service providers.

BKT significantly underpenetrated in India as well as the US, and the company is expanding its distribution network in these two geographies. Contribution from OEM sales for BKT is currently less than 25% though it has doubled in the past seven years. The company is now an approved vendor with all global OEMs and as discounts get lower, this segment will be a big growth driver. Given that it has one of the widest product offerings, BKT will also be able to increase its market share in the replacement market.

https://www.outlookbusiness.com/specials/my-best-pick_2018/samit-vartak-4059

 

100% agreed