Bharat Forge (Q1 FY14)

India Infoline News Service | Mumbai |

We retain our Market Performer rating with a 9-month price target of Rs250.

        CMP Rs231, Target Rs250, Upside 8.2%

  • It was reasonably good quarter for Bharat forge, which reported an improved performance on a sequential basis. While on yoy basis, the standalone business of Bharat Forge Ltd (BFL) witnessed net sales decline of 15.5%, the sharp sequential growth of 17.3% qoq was heartening. The sharp sequential improvement was led by export markets wherein Europe and USA operations clocked in revenue growth of 40% and 15% qoq respectively. Export revenues grew by 28% qoq and domestic revenues improved by 7% qoq. The sharp sequential recovery in Europe markets came after continued inventory de-stocking by OEMs (mainly CV and non-auto segments) during previous quarters. Total tonnage handled was 11.2% qoq higher at 41,279mt. 
  • OPM improved 376bps qoq to 24.8%. The sequential improvements were mainly driven by 1) Higher volumes kicking in operational leverage 2) Currency benefits at exports front 3) Slightly higher machining in the quarter. Notably the company improved its utilization levels in Indian operations from ~50% in Q4 FY13 to ~60-65% in Q1 FY14. At gross margin level also, an improvement of 100bps was recorded.
  • Non-automotive revenue contribution was 39% in Q1 FY14 vis-à-vis ~33% in Q4 FY13. The mix of non-auto revenues in domestic and export markets was 45:55. Machining mix was 54% in the quarter vis-a-vis 52% in Q4 FY13.
  • Among the overseas subsidiaries, the Chinese subsidiary did not show any recovery and its performance remained largely weak with unsatisfactory operating margins of 1%. Fierce local competition and slowdown in CV (-30% yoy) and construction sector (-60% yoy) will keep the subsidiary under pressure for some quarters ahead. Getting rid of USA unit helped profitability of BFL to the tune of ~Rs40mn in the quarter. WOS operations did well to improve margins to 8.9%. While the utilization levels in Chinese operation continue to remain under 50%, European operations were noted to be operating at ~67% utilization levels.
  • Average dollar realization for the exports was ~Rs57/USD in the quarter. Going ahead for FY14 the company has ~50% of its dollar exposure hedged in the band of ~Rs58-59/USD. On the tonnage, management expects the improved run-rate to continue ahead with growth coming in from non-auto exports. It continues to have a muted outlook on the domestic business with no green-shoots visible yet.
  • US markets have seen a robust recovery in the recent past. However, sustainability of the trend post tapering off of Fed’s bond buying program will be critical for BFL’s business. Europe too has its own share of worries. Domestic market is plagued with many headwinds including paucity in infrastructure investments, near stalemate in mining activities and overcapacity in CV industry. These factors create downside risks to our earnings estimate and hence we retain our Market Performer rating with a 9-month price target of Rs250.
Cost Analysis (Standalone)
As a % of net sales Q1 FY14 Q1 FY13 bps yoy Q4 FY13 bps qoq
Raw material 41.1 43.2 (213) 42.1 (99)
Manufacturing Expenses 17.5 18.4 (88) 19.1 (156)
Personnel Costs 8.9 7.3 161 9.1 (15)
Other overheads 7.7 5.1 265 8.8 (106)
Total costs 75.2 74.0 125 79.0 (376)
Source: Company, India Infoline Research

Result table (Standalone)
(Rs m) Q1 FY14 Q1 FY13 % yoy Q4 FY13 % qoq
Tonnage (MT) 41,279 51,077 (19.2) 37,119 11.2
Domestic 4,146 4,613 (10.1) 3,863 7.3
Exports 3,972 4,983 (20.3) 3,112 27.6
Net sales 7,916 9,364 (15.5) 6,747 17.3
Material costs (3,252) (4,047) (19.6) (2,838) 14.6
Manufacturing Expense (1,385) (1,721) (19.5) (1,286) 7.7
Personnel costs (707) (685) 3.2 (613) 15.4
Other overheads (611) (475) 28.7 (592) 3.1
Operating profit 1,961 2,437 (19.5) 1,418 38.3
OPM (%) 24.8 26.0 (125) bps 21.0 376 bps
Depreciation (611) (565) 8.1 (545) 12.0
Interest (354) (547) (35.3) (334) 6.2
Other income 354 194 82.6 205 72.6
PBT 1,350 1,518 (11.1) 744 81.5
Tax (444) (466) (4.7) (243) 82.6
Effective tax rate (%) 32.9 30.7
32.7
Adjusted PAT 906 1,053 (13.9) 501 80.9
Adj. PAT margin (%) 11.4 11.2 21 bps 7.4 402 bps
Reported PAT 906 1,053 (13.9) 501 80.9
Ann. EPS (Rs) 15.6 18.1 (13.9) 8.6 80.9
Source: Company, India Infoline Research

Financial Summary (Consolidated)
Y/e 31 Mar (Rs m) FY12 FY13 FY14E FY15E
Revenues 62,791 57,022 66,338 74,321
yoy growth (%) 23.4 (9.2) 16.3 12.0
Operating profit 9,964 7,694 8,869 10,545
OPM (%) 15.9 13.5 13.4 14.2
Pre-exceptional PAT 4,134 2,108 3,276 4,478
Reported PAT 4,134 2,474 3,276 4,478
yoy growth (%) 42.4 (40.2) 32.4 36.7





EPS (Rs) 17.8 9.1 14.1 19.2
P/E (x) 13.0 25.4 16.3 12.0
Price/Book (x) 2.5 2.4 2.1 1.8
EV/EBITDA (x)
BSE 698.40 [8.45] ([1.20]%)
NSE 699.50 [7.40] ([1.05]%)

***Note: This is a NSE Chart

 

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