Deven Choksey Research has maintained its positive stance on Balkrishna Industries Limited with an “Accumulate” rating, assigning a target price of Rs 2,350 against the current market price of Rs 2,148, implying an upside potential of nearly 9.4%. The brokerage believes the company’s aggressive expansion into the on-highway tyre segment, integrated carbon black operations, and capacity-led growth strategy could position the business for a stronger earnings cycle over the next three years. However, despite reporting record quarterly volumes in Q4FY26, margin compression caused by raw material inflation and elevated operating expenses weighed on profitability. The report suggests that Balkrishna Industries is currently navigating a heavy investment cycle that could unlock long-term operating leverage once utilization ramps up.

Record Volumes Highlight Strong Underlying Demand Momentum

Balkrishna Industries delivered its highest-ever quarterly sales volumes during Q4FY26, reflecting continued resilience in the global off-highway tyre (OHT) market despite broader macroeconomic uncertainties. The company recorded OHT sales volume of 85,820 metric tonnes during the quarter, representing a 5% year-on-year increase. Annual volumes for FY26 also reached a record 317,356 metric tonnes, underscoring the strength of BKT’s export-driven business model.

The European market, which remains one of the company’s largest revenue contributors, showed a significant recovery during the second half of FY26 as dealer inventories normalized. Meanwhile, India continued to outperform management expectations, supported by sustained replacement demand and optimism surrounding a favorable monsoon forecast.

The Americas region also demonstrated improving traction, particularly in the United States market, where BKT is sharpening its go-to-market strategy to expand market penetration. Management expects the US contribution to exceed 10% of overall volumes during FY27.

Margins Come Under Pressure Despite Revenue Expansion

While revenue growth remained healthy, profitability metrics witnessed pressure due to rising raw material costs and higher operating expenditure. Balkrishna Industries reported Q4FY26 revenue from operations of Rs 2,932.82 crore, registering a 7% year-on-year increase. However, profit after tax declined nearly 19% YoY to Rs 299.46 crore.

EBITDA margins contracted as raw material inflation accelerated during the quarter. The company indicated that its raw material basket rose by approximately 4-5% in Q4FY26 and could witness an additional 7-8% increase in Q1FY27. Freight costs also remained elevated amid global supply-chain disruptions.

Despite these challenges, management reiterated its long-term EBITDA margin aspiration of 23-25%, supported by a gradual shift toward premium radialized products and operational efficiencies from new investments.

On-Highway Expansion Opens Massive Revenue Opportunity

The company’s strategic entry into the on-highway tyre category could substantially transform its long-term revenue profile. Traditionally known for its dominance in the global off-highway tyre market, Balkrishna Industries is now entering the truck-bus radial (TBR), passenger car radial (PCR), and two-wheeler tyre segments.

Management believes this expansion materially enlarges the company’s addressable market. While the global OHT opportunity is estimated at around Rs 25,000 crore, India’s domestic replacement market for on-highway tyres alone exceeds Rs 1.4 lakh crore.

BKT has already operationalized Phase-1 commercial vehicle radial capacity of 800 tyres per day. Passenger car radial tyres are expected to be launched by the end of CY26 with an initial capacity of nearly 6,700 tyres daily.

The company is targeting on-highway revenues of approximately Rs 5,000 crore by FY30, accounting for nearly 20% of its projected FY30 revenue base. Importantly, management emphasized that the company is entering the segment without resorting to aggressive discounting, signaling confidence in product quality and brand positioning.

Carbon Black Integration Emerges as a Hidden Profitability Engine

BKT’s backward-integrated carbon black business continues to strengthen its cost structure and diversify earnings streams. The company currently operates carbon black capacity of 265,000 metric tonnes annually, which is expected to rise to 360,000 metric tonnes by Q1FY27.

Around 30% of the production is consumed internally, helping optimize raw material costs for tyre manufacturing, while the remaining output is sold externally at industry-standard margins. The business contributed approximately 9% of overall revenue during FY26, with management targeting 10% contribution by FY30.

The company has additionally expanded its co-generation power capacity at Bhuj to 64 MW, enhancing energy efficiency and reducing dependence on external power procurement. Management is also expanding specialty carbon black applications across plastics, pipes, cables, and ink industries.

Heavy Capex Cycle Expected to Peak Before Earnings Inflection

Balkrishna Industries remains in the most capital-intensive phase of its growth journey. The company has outlined a total capex plan of Rs 6,800 crore through FY29, of which nearly Rs 3,000 crore has already been deployed.

FY27 capex guidance stands between Rs 1,500 crore and Rs 1,800 crore, with a portion allocated toward AI-enabled automation systems within the on-highway business.

Net debt stood at Rs 895 crore during FY26, while the debt-to-equity ratio increased to 0.37x from 0.31x a year ago. However, analysts believe the leverage expansion primarily reflects project execution timing rather than any structural balance-sheet weakness.

Operational cash flow remained robust at Rs 2,224 crore during FY26, providing confidence that the company can comfortably navigate the ongoing investment cycle.

US Market Recovery Could Become a Major Margin Catalyst

The United States market may emerge as a key earnings accelerator over the next several quarters. The current reciprocal tariff on Indian tyre exports to the US has stabilized at roughly 10%, significantly lower than earlier punitive levels.

Management indicated that BKT has already filed for reciprocal tariff refunds as the importer of record in the US market. Any potential refunds could partially flow back to customers while still supporting profitability.

Given the superior margin profile of the US OHT business, analysts believe a sustained recovery in American volumes could materially improve EBITDA realization going forward.

Valuation Outlook and Investment View

Deven Choksey Research expects Balkrishna Industries to deliver revenue, EBITDA, and PAT CAGR of 10%, 13%, and 12%, respectively, between FY26 and FY28. The brokerage values the company at 29x FY28 estimated earnings and has assigned a target price of Rs 2,350.

Key projected financial metrics include FY28 revenue of Rs 1,31,575 million, EBITDA of Rs 29,604 million, and earnings per share of Rs 81.03. Analysts believe the stock’s long-term investment appeal lies in its diversification strategy, global brand positioning, premium product mix, and integrated manufacturing ecosystem.

However, near-term risks remain tied to raw material inflation, geopolitical uncertainty, freight volatility, and execution risks associated with the on-highway expansion strategy. Still, the brokerage maintains that the current investment cycle could eventually pave the way for a stronger earnings scale-up phase.

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