Balkrishna Industries skids on new capex

Last Wednesday, Balkrishna Industries had hit a new high at Rs.1467.40 and today, right since the opening bell, it is the top loser. The stock price fell over 7.5% to Rs.1261.

The market is not very happy with the decision of its Board to set up a new tyre plant in Sreenfield, USA, raising a capex of $100 million. The company is also planning to incur a capex of Rs.1000 crore  for its lndian operations.

The entire capex is to be completed within a period of 30 months.

This is in addition to the current capex underway for the Carbon Black Plant.

The USA project, set up through a wholly owned subsidiary, will be funded via investments from the parent company and local debt.

In India, it is setting up a greenfield plant in Waluj, adjacent to its existing plant and capex is planned at Rs.500 crore.  For the plant at Bhuj, the Board has approved a capex of up to Rs.500 crore towards setting up a new line of 5,000 MT p.a. for layers of All Steel Radial OTR Tires and additional Mixing line in Bhuj.

The entire capex of Rs.1,700 crore is to be funded via a mix of Debt and internal accruals.

More than the addition to the capacity and increasing efficiencies, the market’s immediate reaction is to reject the increase in debt as ‘debt’ has today become a bad word. Only later, once better sense prevails, will the market look at the advantages accrued.