Balkrishna Industries Q2 FY27 Earnings Call: Pirelli Tie-Up to Scale 8 Lakh Tires, Raw Material Pressure to Persist (BALKRISIND)

Strong Top Line, Margin Squeezed by Input Costs

• Q2 FY 2026-2027 standalone revenue at Rs.3,450 crore, up 49% YoY — includes a realized FX loss on sales of Rs.41 crore; H1 FY 2026-2027 revenue at Rs.6,859 crore, up 35% YoY (Rs.76 crore FX loss).
• Q2 EBITDA at Rs.629 crore (18.24% margin) — impacted by raw material prices from the global geopolitical situation and supply chain effects; H1 EBITDA at Rs.1,332 crore (19.42% margin).
• Q2 PAT at Rs.291 crore; H1 PAT at Rs.723 crore — H1 tire sales volume at 185,187 MT, with the on-road portfolio contributing an early single-digit share of Q2 volume.
• India's volume share rose to ~40% — management noted this mix shift also impacted margin slightly.
• Price increase of ~2-3% passed on in Q2 FY 2026-2027 — mainly from the Indian market; cost inflation could not be fully passed through despite the hikes.
• Second interim dividend of Rs.4 per share recommended — in addition to Rs.4 paid for Q1 FY 2026-2027; Euro rate for Q2 at ~Rs.103.

Premium PCR Entry Anchored by Pirelli Tie-Up

• Strategic offtake agreement signed with Pirelli — for production of Pirelli-branded premium car tires at the Bhuj facility; Phase 1 production and sales expected to start in CY 2027, ramping gradually to 8 lakh tires per year in year four, i.e., 2030.
• Second phase contemplates a 50:50 joint venture with Pirelli — subject to fulfillment of certain conditions, comprising a dedicated plant for high-value passenger car tires for both Pirelli and BKT brands, serving India and international markets.
• Vision Map for 2030 reiterated — 5% market share and 20% of turnover to come from the new on-road vertical by 2030; management expressed confidence in meeting it.
• PCR launch planned for January 2027 (Q4 FY 2026-2027) — the Pirelli tie-up has evoked very strong positive sentiment among channel partners; TBR and two-wheeler ranges are ramping steeply on strong channel and end-user acceptance.
• BK3 2.0 is a branding exercise, not a financial split — Rajiv Poddar said separating carbon black and tires into two segments is "more for marketing and branding purposes"; no separate P&L or balance sheet — "It's one company."
• On-road tires currently a single low-digit percentage of revenue — as of Q2 FY 2026-2027; the new vertical forms part of the 8,000 tons "others" volume in Q2.

Raw Material and Freight Inflation to Persist

• Raw material costs jumped ~17% in Q2 FY 2026-2027 — flagged by Nomura's Siddharth Bera, versus the 5-6% cost pressure management had highlighted on the previous call; Rajiv Poddar confirmed pressure will continue for the next couple of quarters (Q3–Q4 FY 2026-2027).
• Freight cost at ~6.5% of total sales value in Q2 FY 2026-2027 — per CFO Saroj Kuntia; management estimates sea freight to remain at elevated levels with maybe a marginal increase, and the higher freight cost has not yet been passed on through ASP.
• Carbon black raw material volatility driven by higher crude prices — the business continued to see input cost swings in Q2 FY 2026-2027.
• Long-term EBITDA margin endeavor of 20% to 25% — Rajiv Poddar framed this as a long-term average range (period unspecified), in response to a question on mix shifts (US share declining, India rising; PCR/TBR/two-wheeler and Pirelli manufacturing scaling in FY 2027-2028).
• Management declined to quantify commodity inflation — no Q2 FY 2026-2027 quantum or Q3 FY 2026-2027 expectation was shared; on gross margin per kg vs. the 160-165 reference, management said it could not comment on forward-looking statements.
• IPL promotion spend seasonality — Q2 FY 2026-2027 other expenses (ex-freight) fell sharply QoQ as IPL promotion costs were booked entirely in Q1 FY 2026-2027 when paid; spend is expected to again fall in the Q1 period (specific future FY not specified).

India Outperforming; Europe Weather-Hit, Americas Stable

• India continued to outperform — positive trends across all micro markets despite erratic monsoons; the Americas saw stable sales with a focus on sharper execution to increase market share in this larger geography.
• Europe faced challenges from extreme weather conditions — and related pressures on the agricultural market, though BKT continued to build its strong brand position across major European countries.
• OHT delivered good sales volume growth in Q2 FY 2026-2027 — growth is not directly comparable YoY as Q2 FY 2025-2026 was marred by very low US sales owing to the tariff situation.
• Channel inventory at normal levels across key markets — Europe, US and India; management acknowledged demand headwinds but aims to continue the run rate achieved over Q1–Q2 FY 2026-2027.
• Management declined to commit to sustaining the 90,000 MT+ quarterly run-rate in H2 FY 2026-2027 — saying it will be the company's endeavor to hit those levels and maximize sales and revenue growth.
• All-steel radial mining tire range emerging as a growth lever — increasingly finding acceptance in major mining markets across the world.

Carbon Black Scaling Third-Party Sales; Capex On Track

• Carbon black contributes ~10% of overall business in FY 2026-2027 — recorded decent YoY revenue growth in Q2 FY27 with robust demand across the product range.
• Carbon black capex fully completed — the new capacity line (announced in Q1 FY 2026-2027) is being worked toward full utilization; old capacity is completely utilized and the new line will primarily feed third-party external sales.
• Specialty blacks roadmap initiated — the company is expanding its customer base with a roadmap for accelerated product development toward better-margin specialty blacks.
• H1 FY 2026-2027 capex spend at ~Rs.1,850 crore — CFO Saroj Kuntia said the Rs.3,000 crore FY 2026-2027 capex target remains on track, with remaining spend to be executed over FY 2027-2028–FY 2028-2029.
• Gross debt ~Rs.5,985 crore and cash ~Rs.3,100 crore as on 30 September 2026 — implying net debt of ~Rs.2,887 crore; the loan was taken because capex investment was preponed a couple of quarters to speed up project completion and will be paid off through future earnings.

Growth-Driven WC Outflow; EUDR and Supply Disruption Weigh

• Significant H1 FY 2026-2027 working capital outflow — CFO Saroj Kuntia attributed the inventory and trade receivables build to growth, in line with the H1 revenue increase of 35%, close to Rs.1,800 crore.
• Inventory rose slightly due to supply chain disruption — management hopes inventory will come down further once the disruption settles (period unspecified).
• EUDR regulation driving additional inventory build — Rajiv Poddar noted the company was building up inventory to cater to the EUDR regulation, which kicks in, requiring doubly added inventory; this should also start easing up.
• Raw material and freight headwinds expected to persist over the coming few quarters — per management's opening remarks, despite price hikes taken in Q2 FY 2026-2027.
• Next quarterly call scheduled for next quarter, in calendar year 2027 — following two back-to-back calls (strategic alliance update and Q2 FY 2026-2027 results); no new guidance was provided in closing remarks.