Shares of tyre maker Balkrishna Industries traded in the green on November 15 despite poor second-quarter results. Investors see the light at the end of the tunnel, analysts believe, as the company expects margins to improve starting in the fourth quarter.

The shares were quoted at Rs 1,900 per share on the National Stock Exchange at 11:30 am, up 1.9%. Shares were up 4 per cent at 10 am, touching an intraday high of Rs 1,968 per share. The stock has underperformed the Nifty Auto index through 2022. It fell 18%, while the auto index also rose.

“Recent price adjustments in raw materials and logistics bode well for our margins. As guided, benefits are expected to materialise in early Q4,” management said on an analyst call. In the second quarter of fiscal 2023, the company’s profit margin contracted to 16% from 25.9% a year ago.

The tire maker’s consolidated profit fell 2.2% year-on-year to Rs 382.3 crore during the period under review. Revenue soared 28.2% to Rs 2,657.5 crore in the quarter, but EBITDA decreased 20.7% to Rs 426.2 crore compared to the same quarter in the previous fiscal.

The company said it could not guide annual sales in FY23 due to the challenging macro environment. “The current challenging situation in Europe will impact our earnings in the year’s second half. Demand patterns in North America are better, but recession fears are likely to weigh on growth,” management said.

Analysts, however, sounded optimistic. They believe the company will deliver on its earlier guidance. “Raw material prices are falling. Ocean freight rates are also falling. As the company completed 170,000 tonnes of production in the first half of this financial year, FY23 production will reach 310,000 tonnes to 320,000 tonnes,” said one reluctance. An unnamed person said. Analysts at the domestic brokerage firm of the same name said. Analysts say the stock looks attractive at 20 times FY24 earnings.

In an update on its Capex status, the company said management had earlier intended to replace the old Waluj plant with a newly commissioned new build plant. “But then it was decided that the two factories would continue to operate while modernising the old factory,” according to the investor presentation.

The company will spend Rs 350 crore to achieve economies of scale. The company added that the current achievable capacity will be reduced to 335,000 MTPA and will increase to 360,000 MTPA by H1FY24 after the Waluj brownfield project comes on stream.