Balkrishna Industries' consolidated operating cash flow fell nearly 98% year-on-year to ₹27 crore in the first half of FY27, as higher inventories and receivables absorbed cash despite strong revenue and profit growth.
The decline came as working-capital movements absorbed ₹1,221 crore during the period, compared with a positive contribution of ₹259 crore a year earlier. This offset an increase in operating profit before working-capital changes, which rose to ₹1,400 crore from ₹1,163 crore.
The company's consolidated inventories increased to ₹2,563 crore at the end of September from ₹1,808 crore in March 2026. Trade receivables also rose to ₹1,898 crore from ₹1,447 crore over the same period.
Management attributed the inventory build-up partly to supply-chain disruptions and preparations for the European Union's upcoming deforestation regulations. "There was a slight increase in the inventory level. That is mainly from the supply chain disruption," Chief Financial Officer Saroj Khuntia said during the company's Q2 FY27 earnings call.
Rajiv Poddar, Joint Managing Director of Balkrishna Industries, said the company had also increased stocks to prepare for the EU Deforestation Regulation (EUDR).
"We were also building up for the EUDR regulation, which kicks in. So, we had to doubly add some inventory to cater to the regulation there," Poddar said.
The European Union's Deforestation Regulation covers natural rubber and certain products derived from it, including tyres. The rules require businesses placing covered products on the European market to establish that they meet deforestation-free sourcing requirements. The regulation is scheduled to apply to large and medium-sized operators from December 30, 2026.
BKT has a substantial presence in Europe, which accounted for around 39% of its tyre sales volumes during H1 FY27, according to its investor presentation. However, the company did not quantify how much of its additional inventory was specifically related to EUDR compliance.
The company's management expects the inventory position to improve as supply-chain disruptions ease. Khuntia also said the rise in working capital should be viewed against the company's 35% standalone revenue growth during the first half.
Alongside the working-capital increase, Balkrishna Industries has stepped up investment spending. The company incurred capital expenditure of approximately ₹1,850 crore during H1 FY27, according to management.
Its consolidated borrowings increased to approximately ₹6,047 crore at the end of September from ₹4,106 crore at the end of March 2026, according to the company's financial statements.
Khuntia attributed the additional borrowing partly to the company's decision to bring forward capital expenditure to accelerate project completion.
"We have preponed the CAPEX investment for a couple of quarters to speed up the project completion," he said.
The investment comes as Balkrishna Industries expands beyond its traditional off-highway tyre business into passenger car, truck and bus, and two-wheeler tyres, alongside additional carbon black capacity.
The company has outlined a cumulative investment programme of ₹6,800 crore through FY29. In May, it had indicated planned FY27 capital expenditure of ₹1,500-1,800 crore, along with around ₹200 crore towards maintenance.
The higher working-capital requirement comes despite strong business growth. Consolidated revenue from operations increased 34% year-on-year to ₹6,927 crore during H1 FY27, while net profit rose 32% to ₹743 crore.
During the September quarter alone, consolidated revenue increased 45% to ₹3,472 crore, while net profit rose 7% to ₹293 crore. However, the company continued to face profitability pressure from higher raw material and freight costs. Its EBITDA margin contracted by 310 basis points year-on-year to 18.2%.
Management expects these cost pressures to persist over the coming quarters, while efforts to normalise inventory and recover increased costs from customers continue.