Shares of Balkrishna Industries tumbled as much as 10 percent on May 26 after the company reported a sharp 25 percent decline in standalone net profit for the March quarter and laid out an aggressive capex plan to diversify into competitive tyre segments. The market appeared wary of rising costs and execution risks linked to the company’s strategic shift.

The Q4FY25 net profit stood at Rs 362 crore, weighed down by higher input, employee, and finance costs, even as revenue grew 5 percent year-on-year to Rs 2,838 crore. For the full year, however, the company delivered over 13 percent growth in net profit at Rs 1,628 crore, with revenue climbing to Rs 10,615 crore.

Following the development, Nomura downgraded the stock to Neutral from Buy and sharply cut its target price to Rs 2,644 from Rs 3,242, warning that the diversification could squeeze margins and dent returns. The brokerage noted that entering highly competitive categories would require hefty investment in brand-building and distribution.

It estimates that the company’s blended EBITDA margin could drop to the 22–23 percent range, while return on equity could fall by up to 200 basis points, depending on product mix. Nomura also flagged key downside risks including tepid demand recovery in the core off-highway segment, volatile commodity costs, and limited pricing flexibility in the face of stiff competition. Among tyre stocks, it currently prefers Ceat over Balkrishna on relative positioning and risk-reward.

Looking forward, Balkrishna is eyeing a capacity ramp-up to 4.25 lakh tonnes per annum through ongoing de-bottlenecking and a new 35,000-tonne off-road tyre facility at Bhuj, expected to be operational by end-FY26. It has also approved a Rs 3,500 crore capex over the next three years to expand its Bhuj campus, covering commercial vehicle tyres, carbon black, rubber tracks, passenger car radials, and captive power plants.

During the quarter, the operating performance was mixed. Quarterly EBITDA rose a modest 1 percent YoY to Rs 703 crore, but margins slipped 115 basis points to 24.78 percent due to raw material inflation. In contrast, full-year EBITDA grew 16 percent to Rs 2,682 crore, with a margin expansion of 50 basis points to 25.26 percent.

Sales volumes remained flat in Q4 at 82,062 tonnes, while annual volumes rose 8 percent to 3.15 lakh tonnes. Europe accounted for the lion’s share of volumes at 45.1 percent, followed by India (28.6 percent) and the Americas (15.2 percent). The company also declared a final dividend of Rs 4 per share.

At about 10:20 am, shares of the company were trading at Rs 2,416, lower by 9.2 percent from the last close on the NSE. Balkrishna Industries is down 17 percent since the beginning of the year.