Bharat Forge (Q3 FY14)

India Infoline News Service | Mumbai |

Bharat Forge reported a reasonably good set of Q3 FY14 financial results. Revenues grew by 23.7% yoy, first yoy growth in six quarters.

CMP Rs340, Target Rs345, Upside 1.6% 
  • Bharat Forge reported a reasonably good set of Q3 FY14 financial results. Revenues grew by 23.7% yoy, first yoy growth in six quarters. This was led by 13.9% yoy growth in tonnage and 8.6% yoy growth in realizations. While domestic sales declined by 6.6% yoy on the back of weak CV sales impacted by macro headwinds, export growth was strong at 54.5% yoy. Total exports were up 54.5% yoy led by strong growth across all regions (Europe – 90%, US – 26% and Others – 101%).


  • On a sequential basis, revenues were down by 1.5% as tonnage was lower by 0.3% and realizations declined by 1.3%. Domestic sales fell sharply by 8.4% but were better than fall in CV industry volumes indicating market share gains. Exports were higher by 3.5% driven by 5.8% rise in US sales and 22% jump in sales to other markets. Europe reported a sequential fall of 2% as effect of pre-buying seen in Q2 FY14 faded a bit in Q3 FY14.


  • Non-automotive segment was the key driver with 48% growth in revenues to Rs3.4bn. Export growth in this business was also strong and it contributed 42% of the total exports.


  • Operating margins were ahead of expectations at 25.8% resulting in operating profit growth of 50.6% yoy. Gross margins were higher 478bps, which the company attributed to better product mix, higher realizations and cost cutting initiatives. Increase in gross margins was partially offset by higher manufacturing expenses (rise in power cost) and rise in other expenditure (higher freight and business expenses for increased export revenues). Operating profit/ton increased by 32.2% yoy.


  • The company believes that domestic CV business has hit a bottom in Q3 FY14 and expects a modest recovery Q4 FY14 onwards. Recovery in US and European markets is expected to sustain. Non-auto demand in India and export markets is likely to remain strong, all of which will be supplied from the standalone operations. With capacity utilization at 60% in standalone operations and 70% in European operations, the scope for margin expansion from here on is limited.


  • The company’s net debt at standalone level is Rs13bn and at consolidated level is Rs16bn. Receipt of Rs1.6bn from sale of stake in the China JV has further reduced net debt. With no major capex plans and expected strong cash flow generation over the next couple of years the company expects to substantially reduce its debt position.


  • We believe that the recent rally in the stock price adequately factors in the upside potential and retain our Market Performer rating with a revised price target of Rs345.

Cost Analysis (Standalone)
As a % of net sales
Q3 FY14
Q3 FY13
bps yoy
Q2 FY14
bps qoq
Raw material
38.4
43.2
(478)
40.7
(226)
Manufacturing Expenses
19.2
19.7
(46)
16.8
244
Personnel Costs
8.4
9.3
(95)
8.2
16
Other overheads
8.2
6.6
159
7.9
25
Total costs
74.2
78.8
(460)
73.6
59
Source: Company, India Infoline Research
 
Result table (Standalone)
BSE 696.00 [3.60] ([0.51]%)
NSE 697.80 [1.70] ([0.24]%)

***Note: This is a NSE Chart

 

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(Rs m)
Q3 FY14
Q3 FY13
% yoy
Q2 FY14
% qoq
Tonnage (MT)
42,702
37,483
13.9
42,812
(0.3)
Domestic
3,620
3,875
(6.6)
3,952
(8.4)
Exports
4,797
3,105
54.5
4,634
3.5
Net sales
8,321
6,726
23.7
8,451
(1.5)
Material costs
(3,196)
(2,905)
10.0
(3,437)
(7.0)
Manufacturing Expense
(1,601)
(1,325)
20.8
(1,420)
12.7
Personnel costs
(697)
(627)
11.1
(695)
0.3
Other overheads
(682)
(445)
53.5
(672)
1.6
Operating profit
2,145
1,424
50.6
2,228
(3.7)