Shares of Balkrishna Industries Ltd. rose more than 2% after the company announced the signing of a framework agreement with Pirelli Tyre to establish a proposed 50:50 joint venture (JV) in India to manufacture passenger car radial tyres, along with separate offtake and service agreements.
The proposed joint venture will set up and operate a new manufacturing plant in India, subject to certain conditions. The two companies plan to execute the joint venture agreement in the future, with incorporation targeted by December 31, 2030.
Under the offtake agreement, Balkrishna Industries will manufacture Pirelli-branded passenger car radial tyres at its plant in Bhuj, Gujarat, according to Pirelli’s specifications. Pirelli and / or its affiliates will purchase the tyres, with a minimum annual offtake commitment and a corresponding capacity commitment from Balkrishna Industries.
The offtake agreement will remain in effect until the joint venture becomes operational and can meet Pirelli’s demand. Otherwise, it will continue until December 31, 2031, subject to a mutual extension.
Under the service agreement, Pirelli will provide tyre-testing and technical support to Balkrishna Industries for BKT-branded sport utility vehicle, passenger car and two-wheeler tyres. The services will use Pirelli’s testing facilities outside India, including its proving grounds, simulation systems and equipment.
Balkrishna Industries said the agreement would support its expansion into the passenger car tyre segment and create opportunities in domestic and international markets. For Pirelli, the arrangement is expected to strengthen its presence in India’s high-value tyre segment.
The proposed JV will have a four-member board, with each company nominating two directors and the chairperson rotating between the partners. Manufacturing capacity will be shared equally between Balkrishna Industries and Pirelli.
The framework agreement also contains an exclusivity clause that restricts both companies from entering into similar joint ventures or arrangements with third parties in India to manufacture car, light truck, motorcycle or bicycle tyres while the agreement remains in force. However, wholly owned plants of either company are excluded from this restriction.
Under the offtake agreement, pricing for Pirelli-branded tyres will be based on actual raw material costs plus conversion costs. Payments will be made in rupees for domestic supplies and euros for exports.
Balkrishna Industries will also be restricted from manufacturing tyres for third parties that are comparable to or compete with Pirelli’s passenger car radial tyres, while retaining the right to develop and sell its own BKT-branded passenger car radial tyres.
Shares of the company were trading 1.9% up at the day’s highs at ₹2,077.90, following the JV announcement. The stock has fallen nearly 12% over the last 12 months.
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