Bharat Forge (Q4 FY14)

India Infoline News Service | Mumbai |

Bharat Forge reported a reasonably good set of Q4 FY14 financial results. Standalone revenues grew by 37.9% yoy.

CMP Rs500, Target Rs575, Upside 15.0% 
  • Revenues at Rs9.3bn higher by 37.9% yoy; better than our estimates

  • Tonnage volumes surged 29.4% yoy and 12.4% qoq

  • Realizations were higher by 6.6% yoy but were flat qoq

  • OPM at 24.8% was higher by 374bps yoy but declined 102 bps qoq, yoy improvement was on the back of benefits of operating leverage, sequential decline was owing to one time business development expenses and adverse geographic mix

  • PAT at Rs1bn more than doubled on yoy basis and was better than estimates

  • Upgrade our rating to BUY with a revised 9-month target of Rs575 

Result table
(Rs m) Q4 FY14 Q4 FY13 % yoy Q3 FY14 % qoq
Tonnage (MT) 48,015 37,119 29.4 42,702 12.4
Domestic 4,355 3,863 12.7 3,620 20.3
Exports 5,079 3,112 63.2 4,797 5.9
Net sales 9,305 6,747 37.9 8,321 11.8
Material costs (3,853) (2,838) 35.8 (3,196) 20.6
Manufacturing Expense (1,720) (1,286) 33.7 (1,601) 7.4
Personnel costs (690) (613) 12.6 (697) (1.1)
Other overheads (740) (592) 24.9 (682) 8.4
Operating profit 2,303 1,418 62.5 2,145 7.4
OPM (%) 24.8 21.0 374 bps 25.8 (102) bps
Depreciation (598) (545) 9.7 (617) (3.0)
Interest (349) (334) 4.5 (399) (12.7)
Other income 326 205 58.9 254 28.4
PBT 1,683 744 126.2 1,382 21.7
Tax (616) (243) 153.3 (443) 39.1
Effective tax rate (%) 36.6 32.7 32.0
Adjusted PAT 1,067 500 113.1 939 13.5
Adj. PAT margin (%) 11.5 7.4 404 bps 11.3 17 bps
Extra ordinary items 124 - -
Reported PAT 1,190 500 137.8 939 26.7
Ann. EPS (Rs) 18.3 8.6 113.1 16.1 13.5
Source: Company, India Infoline Research

Revenues better than expectations

Bharat Forge reported a reasonably good set of Q4 FY14 financial results. Standalone revenues grew by 37.9% yoy. This was led by 12.7% yoy growth in tonnage and 6.6% yoy growth in realizations. While domestic sales were higher by 12.7% yoy in spite of weak CV sales, export growth was strong at 63.2% yoy. Export growth was led by strong growth across all regions (Europe – 33%, US – 81% and Others – 122%). On a sequential basis, revenues were higher by 11.8% mainly owing to 12.4% rise in tonnage was as realizations declined moderately by 0.5%. Domestic sales jumped by 20.3% in a seasonally strong quarter for the commercial vehicles. Exports were higher by 5.9% driven by 31.5% surge in US sales. Europe following a very strong quarter in Q3 FY14 reported a 17.1% qoq decline and other countries too saw a decline of 11.7% qoq. 


Yoy growth in revenues was driven by a 65% jump in the non-Auto revenues to Rs3.8bn. Non-auto segment now contributes to 43% of the standalone revenues and 40% of the consolidated revenues. The key sub-segments that drove the growth for the non-Auto business were Energy and power.


OPM surges 374bps yoy to 24.8% but lower than expectations

Bharat Forge reported OPM of 24.8% compared to our expectations of 25.7%. While the margins were lower than per expectations owing to one time business development expenses, it represented a growth of 374bps on yoy basis. With 29.4% volume growth benefits of operating leverage were visible wherein personnel costs, manufacturing expenses and other overheads were lower by 167bps, 58bps and 83bps yoy respectively. On a sequential basis, OPM was lower by 102bps as gross margins fell 300bps due to 1) one time inventory write-offs forming a part of raw material costs and 2) adverse geographic mix.


Cost analysis
As a % of net sales Q4 FY14 Q4 FY13 bps yoy Q3 FY14 bps qoq
Raw material 41.4 42.1 (66) 38.4 300
Manufacturing Expenses 18.5 19.1 (58) 19.2 (76)
Personnel Costs 7.4 9.1 (167) 8.4 (97)
Other overheads 7.9 8.8 (83) 8.2 (25)
Total costs 75.2 79.0 (374) 74.2 102
Source: Company, India Infoline Research

Strong volume prospects ahead

The company believes that domestic CV business has hit a bottom in Q3 FY14 and expects a modest recovery seen in Q4 FY14 to continue into FY15. 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 65% 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 Rs10bn and at consolidated level is Rs13.6bn. In the standalone entity the company has lined up a capex of Rs1.5bn primarily for maintenance capex. The company has a target to be net-debt free in three years. One of the wholly owned foreign subsidiaries Bharat Forge Aluminumtechnik GmBH recently won a multiyear (7-10 year) €250mn contract from a German OEM. The company is setting up a plant at gross capex of €31mn. Net off 30% subsidy cash out flow will be close to €20mn. The company sees great opportunity for this plant as aluminum components are gaining prominence in the passenger car market. On the standalone business the company is hopeful of huge investments in oil & gas, power generation, mining and railways bringing in strong order inflow for the industrial segment of Bharat Forge. The Alstom JV has an order book of Rs45bn of which Rs8bn was booked in FY14. We upgrade our rating to BUY with a price target of Rs575.


Financial Summary
Y/e 31 Mar (Rs m) FY13 FY14 FY15E FY16E
Revenues 51,666 67,161 75,932 89,261
yoy growth (%) (17.7) 30.0 13.1 17.6
Operating profit 7,915 10,271 12,644 15,136
OPM (%) 15.3 15.3 16.7 17.0
Pre-exceptional PAT 2,108 4,178 5,717 7,400
Reported PAT 2,474 5,215 5,717 7,400
yoy growth (%) (40.2) 110.8 9.6 29.4
         
EPS (Rs) 9.1 17.9 24.6 31.8
P/E (x) 55.2 27.9 20.4 15.7
Price/Book (x) 5.2 4.2 3.5 2.9
EV/EBITDA (x) 17.5 12.5 9.5 7.3
Debt/Equity (x) 1.2 0.7 0.5 0.4
RoE (%) 9.5 16.7 18.8 20.0
RoCE (%) 11.1 15.4 19.2 21.8
Source: Company, India Infoline Research

***Note: This is a NSE Chart

 

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