Bharat Forge Ltd (Q3 FY13)

India Infoline News Service | Mumbai |

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

CMP Rs222, Target Rs235, Upside 5.8% 
  • 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.

Cost Analysis (Standalone)
As a % of net sales Q3 FY13 Q3 FY12 bps yoy Q2 FY13 bps qoq
Raw material 43.2 43.8 (63) 43.6 (41)
Manufacturing Expenses 19.7 17.4 229 18.7 102
Personnel Costs 9.3 6.6 268 7.4 191
Other overheads 6.6 6.7 (11) 7.9 (130)
Total costs 78.8 74.6 423 77.6 123
Source: Company, India Infoline Research
 
Result table (Standalone)
(Rs m) Q3 FY13 Q3 FY12 % yoy Q2 FY13 % qoq
Tonnage (MT) 37,483 55,412 (32.4) 46,350 (19.1)
Domestic 3,875 4,971 (22.1) 4,272 (9.3)
Exports 3,105 4,644 (33.1) 4,667 (33.5)
Net sales 6,726 9,412 (28.5) 8,676 (22.5)
Material costs (2,905) (4,124) (29.6) (3,783) (23.2)
Manufacturing Expense (1,325) (1,638) (19.1) (1,621) (18.2)
Personnel costs (627) (625) 0.3 (643) (2.5)
Other overheads (445) (633) (29.7) (686) (35.2)
Operating profit 1,424 2,391 (40.4) 1,944 (26.7)
OPM (%) 21.2 25.4 (423) bps 22.4 (123) bps
Depreciation (574) (558) 2.8 (555) 3.5
Interest (363) (473) (23.1) (289) 25.5
Other income 195 113 71.8 257 (24.1)
PBT 681 1,474 (53.8) 1,356 (49.8)
Tax (206) (442) (53.5) (434) (52.6)
Effective tax rate (%) 30.2 30.0   32.0  
Adjusted PAT 476 1,031 (53.9) 922 (48.4)
Adj. PAT margin (%) 7.1 11.0 (389) bps 10.6 (356) bps
Extra ordinary items - -   106  
Reported PAT 476 1,031 (53.9) 1,028 (53.7)
BSE 686.90 [10.50] ([1.51]%)
NSE 686.00 [11.80] ([1.69]%)

***Note: This is a NSE Chart

 

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