BKT Pirelli Deal: Nomura Retains Rs 2,410 Target

The short version

• Balkrishna Industries will manufacture up to 800,000 Pirelli branded passenger car tyres by 2030.
• The agreement includes a planned 50:50 joint venture, with supply expected to start in 2027.
• Nomura sees limited near term financial gains and retains its Neutral rating with a Rs 2,410 target price.

Balkrishna Industries has entered an agreement with Italy's Pirelli Tyre to manufacture passenger car radial tyres at its Bhuj plant in Gujarat. Nomura has retained its Neutral rating on the stock with a target price of Rs 2,410 following the announcement on October 22.

Under the agreement, Balkrishna Industries, also known as BKT, will manufacture up to 800,000 Pirelli branded passenger car radial (PCR) tyres by calendar year 2030. Supplies are expected to begin in 2027, with production increasing gradually over the following years.

The arrangement gives BKT an entry into a new product segment through a global tyre maker. However, Nomura expects the initial financial contribution to remain limited, with commodity costs and weaker European demand for off highway tyres continuing to weigh on its assessment.

What the Pirelli agreement includes

The agreement covers contract manufacturing at BKT's Bhuj facility and a framework for a separate joint venture in India. The proposed venture will manufacture higher value passenger car radial tyres under both the Pirelli and BKT brands.

The joint venture is expected to become operational by calendar year 2030 and will have a five year lock in period. The companies have agreed on a 50:50 ownership structure, although the supplied details do not specify the proposed venture's investment amount or production capacity.

The contract manufacturing arrangement and the proposed joint venture are separate parts of the partnership. Initial supplies will come through the manufacturing agreement, while the joint venture is intended to support the companies' longer term plans in the passenger car tyre segment.

Particulars	Details
Companies	Balkrishna Industries and Pirelli Tyre
Agreement announced	October 22
Manufacturing location	Bhuj, Gujarat
Product	Passenger car radial tyres
Maximum planned annual output	800,000 tyres by calendar year 2030
Expected supply start	2027
Proposed joint venture ownership	50:50
Expected joint venture operations	Calendar year 2030
Joint venture lock in period	Five years

Why Pirelli is a strategic fit for BKT

Nomura described the partnership as a "good strategic fit". Its reasoning centres on Pirelli's presence in larger passenger car tyres and the technical support that the Italian company can provide.

Around 80% of Pirelli's global revenue comes from tyres measuring above 18 inches, according to the brokerage's assessment. This product mix could help BKT build experience in a segment where product specifications, testing and technical capabilities matter.

Access to Pirelli's testing facilities and technical support could also help BKT establish credibility with customers in the passenger car tyre market. The manufacturing arrangement gives BKT a route into the segment while working with an established international tyre brand.

Exports supported by Pirelli could become a longer term opportunity. However, the extent of that opportunity will depend on demand, the companies' commercial arrangements and BKT's ability to build a presence in the segment. The supplied announcement does not quantify potential export volumes or revenue from the proposed joint venture.

What the agreement could mean for revenue

Nomura expects the contract manufacturing arrangement to make a relatively small contribution to BKT's financial performance in the near term. At full utilisation, the arrangement could generate revenue of around Rs 3.5 billion, equivalent to approximately 3% of BKT's forecast revenue for FY29.

This estimate assumes the planned manufacturing capacity is fully used. Production is expected to scale up gradually from the start of supplies in 2027, so the revenue contribution may build over several years rather than appear immediately.

The contribution at the EBITDA level is expected to be lower than the revenue contribution because BKT will manufacture tyres under a contract manufacturing arrangement. EBITDA measures earnings before interest, taxes, depreciation and amortisation. The source material does not provide an estimated EBITDA margin or a specific profit figure for the agreement.

Financial measure	Estimate or timeline
Revenue at full utilisation	Around Rs 3.5 billion
Share of forecast FY29 revenue	Approximately 3%
Expected supply start	2027
Target production level	800,000 tyres by calendar year 2030
EBITDA contribution	Expected to be lower relative to revenue

The revenue estimate is a forecast, not a confirmed outcome. Actual contribution will depend on production levels, the timing of capacity ramp up and the commercial terms of the arrangement.

Why Nomura retained its Neutral rating

Nomura's assessment reflects the balance between BKT's entry into passenger car tyres and the pressures affecting its existing business. The Pirelli arrangement could help the company develop a presence in a new segment, but the brokerage does not expect a large near term financial benefit from contract manufacturing alone.

A second concern is the Indian replacement market for larger tyres. Nomura noted that replacement tyres above 17 inches account for a small share of India's overall tyre industry. This limits the size of the domestic market available to manufacturers targeting that category and adds to competition among local players.

Exports supported by Pirelli may provide another route for growth. However, the supplied details do not establish how much export demand the partnership could generate or how quickly it might translate into earnings.

Investors following other brokerage assessments can also read WeloMoney's coverage of Nomura's view on Petronet LNG and its analysis of Nomura's cement price assessment. These reports cover different sectors, but illustrate how brokerage ratings can reflect both company specific developments and wider operating conditions.

Market analysis

BKT's agreement with Pirelli concerns passenger car radial tyres, while the brokerage's stated concern about weaker demand relates to off highway tyres in Europe. These are different product markets, and their demand trends may affect the company in different ways.

The partnership could help BKT diversify its business by adding passenger car tyre manufacturing to its existing operations. Pirelli's technical support and potential export access may help BKT develop capabilities in a segment where it is seeking to establish credibility.

Still, the size of India's replacement market for tyres above 17 inches remains a constraint in Nomura's assessment. The proposed joint venture may provide a longer term route to expand the business, but its financial contribution cannot be assessed fully from the available details because the companies have not provided investment figures or a revenue forecast for the venture in the supplied material.

What investors should watch

The next stage of the agreement will depend on execution and the pace at which production increases. Investors tracking BKT will be watching:

• The start of Pirelli branded tyre supplies in 2027.
• Progress towards the planned annual output of 800,000 tyres by calendar year 2030.
• The operational timeline and commercial details of the proposed 50:50 joint venture.
• Revenue and EBITDA contribution as manufacturing capacity increases.
• Demand for larger passenger car tyres in India and the scope for exports through Pirelli.
• European off highway demand and changes in commodity costs, which Nomura cited as concerns.

These factors will help show whether the partnership develops into a meaningful source of revenue and earnings over time. For now, Nomura's Rs 2,410 target price and Neutral rating indicate a measured assessment of the agreement's potential financial impact.

Frequently asked questions

What is the Pirelli deal announced by Balkrishna Industries?

Balkrishna Industries has agreed to manufacture Pirelli branded passenger car radial tyres at its Bhuj plant in Gujarat. The agreement, announced on October 22, sets a target of up to 800,000 tyres by calendar year 2030, with supplies expected to begin in 2027.

What is Nomura's target price for Balkrishna Industries?

Nomura has retained a target price of Rs 2,410 for Balkrishna Industries along with its Neutral rating. The brokerage cited limited near term financial benefits from the manufacturing agreement, weaker European off highway demand and rising commodity costs.

How much revenue could the Pirelli agreement generate for BKT?

The contract manufacturing arrangement could generate around Rs 3.5 billion in revenue at full utilisation, according to Nomura's assessment. This would equal approximately 3% of BKT's forecast FY29 revenue, while the EBITDA contribution is expected to be lower relative to revenue.

When will Balkrishna Industries start supplying Pirelli tyres?

Balkrishna Industries is expected to begin supplying Pirelli branded passenger car radial tyres in 2027. Production is planned to increase gradually towards 800,000 tyres by calendar year 2030.

What is the proposed BKT and Pirelli joint venture?

Balkrishna Industries and Pirelli have agreed on a framework for a 50:50 joint venture to manufacture higher value passenger car radial tyres in India under both brands. The venture is expected to become operational by calendar year 2030 and will have a five year lock in period.

Why does Nomura remain cautious about Balkrishna Industries?

Nomura remains cautious because the contract manufacturing agreement is expected to contribute limited earnings in the near term. The brokerage also cited the small size of India's replacement market for tyres above 17 inches, weaker European off highway demand and rising commodity costs.