BKT Flags Further Margin Pressure as Raw-Material Costs Rise

Balkrishna Industries Ltd (BKT) expects raw-material inflation to affect margins by around 2% in the coming quarter, even as the tyre maker receives the full benefit of price increases taken during Q1 FY27.

Management said raw-material prices had risen by about 5% on the cost base. This would have an impact equivalent to around 3% of sales, with part of the increase expected to be offset by the price hikes already implemented.

“The raw-material price has increased by 5% on the cost basis of the raw material. The impact on the sales price is approximately 3%. Out of that, we are expecting it may impact 2% of our margins in the coming quarter,” M.S. Bajaj, Special Adviser to Chairman and Managing Director, said during the company’s Q1 earnings conference.

The call transcript, however, does not clearly establish when the impact will be felt. Management initially said the cost increase would flow through Q2 and Q3, before referring to a 2% margin impact in the “coming quarter”. It also did not clarify whether the 2% referred to a two-percentage-point contraction or a relative decline.

BKT’s standalone EBITDA margin fell 315 basis points year on year to 20.61% in Q1 FY27, even as revenue and volumes grew sharply. Its revenue increased 24% to ₹3,409 crore, while EBITDA rose at a slower pace of 7% to ₹703 crore. Profit after tax increased 50% to ₹432 crore. Off-highway tyre volumes grew 16% to a record 93,770 tonnes.

During the June quarter, the company’s raw-material expenses rose to ₹1,935 crore, up from ₹1,285 crore in the year-ago period. The increase also reflected the higher production and sales volumes during the period.

The off-highway tyre business accounted for around 90% of BKT’s revenue, while carbon black contributed about 10%, according to the investor presentation.

Management attributed the margin contraction mainly to higher raw-material prices and supply-chain disruption caused by geopolitical tensions. An increase in India’s share of volumes also weighed slightly on profitability because domestic sales carry lower margins than exports.

India accounted for 39.7% of Q1 tyre volumes, up from 34.9% in the year-ago period. Europe’s share was flat at 38.4%, while the Americas contributed 12.3%, compared with 17% in Q1 FY26.

Management said the margin on Indian sales was now only marginally lower than the export business, with the gap narrowing from earlier levels.

Price Hike to Provide Partial Relief

BKT raised prices by about 5% in stages during Q1. Since the increases were spread across the quarter, their full benefit will be reflected in the subsequent quarter.

“We have taken a price hike of about 5%, scattered across various parts of the quarter. You will see the full pass-through coming in this quarter,” Joint Managing Director Rajiv Poddar said.

The company has not announced another increase and will assess market conditions before deciding on further price action.

However, price increases may not fully offset the near-term rise in costs. The extent of the margin impact will depend on how quickly raw-material inflation flows through and BKT’s ability to pass it on to customers without affecting demand.

Freight and Supply-Chain Risks Persist

BKT flagged risks from geopolitical uncertainty, including possible disruptions to the availability and cost of raw materials, vessels and containers.

Freight costs accounted for around 5% of revenue in Q1. Management said rates could rise further if the present disruption continued and that the company would assess how much of the increase could be passed on to customers.

Weather conditions in Europe and uncertainty around the Indian monsoon were also identified as variables that could affect near-term performance.

Carbon Black Integration Offers Some Protection

BKT has expanded its in-house carbon black capacity to reduce dependence on external suppliers and secure access to a key tyre input.

The company commissioned the second phase of its Bhuj carbon black plant during Q1, raising total capacity to 360,000 tonnes per annum. It also increased captive power capacity to 64 MW.

The expansion was aimed at improving raw-material availability, energy integration and sustainability, according to the investor presentation. It would also strengthen BKT’s position as a carbon black supplier to tyre and non-tyre customers in India and overseas.

BKT said its integrated carbon black facility gives it greater control over a critical raw material and supplies power to its tyre plants, helping reduce a major manufacturing cost.

However, management warned that higher crude prices and geopolitical disruption could still affect carbon black costs and supplies. The company may increase carbon black prices to offset raw-material inflation.