July 31: BKT delivered strong volume growth in Q1FY26 despite a challenging global demand environment, supported by robust performance in India and Europe. The company’s volumes grew 16percentage year-on-year, led by a 32percentage increase in India and 16percentage growth in Europe. Volumes in the Americas declined 16 percentage year-on-year amid disruptions related to US tariffs, although a 19percentage quarter-on-quarter improvement offers encouraging signs of a gradual recovery.
The company is expected to benefit from sustained momentum in India, stable demand in Europe, improving US market conditions, and low inventory levels across key overseas markets. Incremental contributions from the Truck-Bus-Radial and Passenger-Car-Radial segments as new capacities ramp up are also expected to support future growth.
While near-term risks remain, particularly from weather-related disruptions in Europe, the European Off-Highway Tyre market appears to be approaching a potential inflection point. The region has experienced nearly four years of subdued demand, with declining agricultural commodity prices weighing on farm incomes. However, historical trends suggest that a recovery in agricultural commodity prices could provide a meaningful boost to farm incomes and trigger the next volume upcycle in the European OHT market.
The current market environment is viewed as similar to the FY21-FY22 period, when COVID-19 disruptions and the Russia-Ukraine conflict created significant uncertainties. Despite the initial weakness, a sharp recovery in agricultural commodity prices subsequently supported farm incomes and drove a strong upcycle in European OHT demand. With the prolonged downturn potentially nearing an end, improving agricultural fundamentals could pave the way for a recovery in volumes.
BKT’s strategic entry into the TBR and PCR segments is also considered well-timed, particularly amid geopolitical and policy-related disruptions in overseas markets. The expansion into these segments is expected to provide greater stability to the company’s operations and support long-term volume growth. While the new businesses may remain margin-dilutive and modestly weigh on Return on Capital Employed in the near term, the company is expected to maintain stronger long-term return ratios compared with domestic peers.
BKT’s stock has remained range-bound over the past four years, weighed down by weak overseas operations and subdued operating performance. However, the recent de-rating amid concerns around growth and margins is viewed as largely priced in, with the company now positioned for a potential turnaround.
Accordingly, estimates factor in high single-digit volume growth in the base case, while remaining mindful of potential risks. With healthy volume recovery, improving overseas prospects, and the strategic expansion into TBR and PCR segments, the outlook for BKT remains constructive.
The company has been upgraded to LONG, with a revised September 2027 target price of INR 2,670, valued at 25x September 2028 EPS, compared with the earlier March 2027 target price of INR 2,334.