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Shares of tyre maker Balkrishna Industries Ltd slumped 7.5% on the National Stock Exchange on Friday, reacting to the company's June quarter earnings.
The contraction in operating and gross margins was particularly disappointing.
In Q1FY23, Ebitda margin contracted 910 basis points (bps) year-on-year (y-o-y) to 20.1% and gross margins declined 380 bps y-o-y. One basis point is 0.01%. What's more, the road ahead is not smooth for the company as far as this parameter is concerned.
In a post earnings conference call with analysts, the company's management said it continues to grapple with elevated raw material and higher logistics expenses.
In Q1FY23, raw material costs were at 46.6% of sales compared with 42.8% in Q1FY22 and 45.3% in Q4FY22. Any relief on margins is unlikely before the end of Q3FY23, given that the company has inventory procured at a higher price, the management said.
Further, in Q1FY23, the company took a price hike of 5%, but in Q2 so far it has been unable to raise product prices because the market conditions were challenging, hampering its ability to pass on the burden of increased costs.
Meanwhile, there is no good news on the demand front, as well. In Q1FY23, its volumes grew 21% y-o-y to 83,153 mt and the company has guided for sales volumes of 320,000-330,000 mt in FY23.
The management, however, expects demand to be sluggish in 2QFY23 due to macro challenges in Europe, heat waves and inflationary trends in the US market.
Against this backdrop, analysts expect the stock to remain under pressure in the near term.