Standalone business of Bharat Forge Ltd (BFL) witnessed net sales decline of 28.5% yoy led by steep fall of 32.4% yoy in the total tonnage (MT) in Q3 FY13
Standalone business of Bharat Forge Ltd (BFL) witnessed net sales decline of 28.5% yoy led by steep fall of 32.4% yoy in the total tonnage (MT) in Q3 FY13. While the domestic revenues were hit (22.1% lower yoy) owing to the sharp slowdown in the CV volumes, the export revenues also plummeted (shrunk 33.1% yoy) owing to continued weakness in the European and US markets. Management attributed the sharp declines in export revenues to inventory de-stocking being taken by its customers in the export markets. The company guided for continued weakness in the next two quarters.
OPM declined 423bps yoy and 123bps qoq mainly on back of sharp rises in manufacturing expenses and personnel costs (as % of sales) on back of operating de-leverage. Notable the company operated its Indian operations at ~50% capacity utilization levels.
Non-automotive revenue contribution improved to 40% in Q3 FY13, but the sustained improvement in share of non auto revenues came in wake of an absolute decline in topline led by sharper fall in automotive revenues.
Among the overseas subsidiaries, while the European operations are operating at utilization levels of ~60% and are breaking even, Chinese operations continue to be straddled with overcapacity as CV volumes have shrunk sharply (H2 CY13 CV volumes declined by ~50% yoy). At EBITDA level, the Chinese operations continue to make losses as the management notes of utilization levels in region ~35-40%. The USA operations have been shut down completely and the capacity is being shipped to India.
In the domestic business, management informed of having won new business in passenger cars of substantial value, which will only start accruing to topline from FY15 onwards. There is no fresh capex being planned for any capacity addition as of now.
With muted outlook on the commercial vehicles volumes in India, and no expectations of immediate pickup in global infrastructure demand, we expect the business of Bharat Forge to remain under pressure in near term. However the stock has been an underperformer pricing in majorly the negatives. We maintain our rating of Market performer but decrease our 9-month price target to Rs235.
|As a % of net sales||Q3 FY13||Q3 FY12||bps yoy||Q2 FY13||bps qoq|
|(Rs m)||Q3 FY13||Q3 FY12||% yoy||Q2 FY13||% qoq|
|OPM (%)||21.2||25.4||(423) bps||22.4||(123) bps|
|Effective tax rate (%)||30.2||30.0||32.0|
|Adj. PAT margin (%)||7.1||11.0||(389) bps||10.6||(356) bps|
|Extra ordinary items||-||-||106|
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