Balkrishna Industries shares fall 10% after Q4 results, Nomura downgrade on competition concerns

Nomura has downgraded shares of Balkrishna Industries Ltd. to "neutral" from its earlier rating of "buy", slashing its price target to ₹2,644 from ₹3,242, citing increased risks as the company plans to diversify into more competitive tyre segments.

The revised price target is nearly the same price at which the stock had closed last Friday.

The management’s strategic move to enter the truck and car radial (TBR/PCR) tyre markets marks a significant shift from its core off-highway tyre business. However, Nomura cautions that these segments are already dominated by well-established players in India, making the competitive landscape particularly challenging.

According to Nomura, Balkrishna Industries may need to incur significantly higher upfront investments to establish distribution networks and build brand visibility in these new segments. The brokerage’s scenario analysis suggests that such expansion could compress the company's blended EBITDA margins to the 22–23% range, with Return on Equity (RoE) potentially facing a 200 basis point decline depending on the product mix.

This is below the company's earlier ratios of 26% margins and 20%-plus RoE.

Despite these strategic risks, Nomura notes that its FY26/27 earnings estimates remain largely unchanged. However, it now expects Balkrishna’s valuation multiples to moderate to 12x – 16x, down from the earlier 14x – 18x range, reflecting the expected return dilution from venturing into lower-margin, high-competition markets.

A slower-than-expected demand recovery in the off-highway tyre market, any sharp jump in commodity prices that impact margins, and the inability to pass on higher costs due to higher competition are some of the key risks cited by Nomura in its note.

Within the tyre space, Nomura currently prefers Ceat over Balkrishna Industries due to more favorable competitive positioning and risk-reward balance.

Shares of Balkrishna Industries are locked in a 10% lower circuit at ₹2,412.