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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
|(Rs m)||Q4 FY14||Q4 FY13||% yoy||Q3 FY14||% qoq|
|OPM (%)||24.8||21.0||374 bps||25.8||(102) bps|
|Effective tax rate (%)||36.6||32.7||32.0|
|Adj. PAT margin (%)||11.5||7.4||404 bps||11.3||17 bps|
|Extra ordinary items||124||-||-|
|Ann. EPS (Rs)||18.3||8.6||113.1||16.1||13.5|
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.
|As a % of net sales||Q4 FY14||Q4 FY13||bps yoy||Q3 FY14||bps qoq|
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.
|Y/e 31 Mar (Rs m)||FY13||FY14||FY15E||FY16E|
|yoy growth (%)||(17.7)||30.0||13.1||17.6|
|yoy growth (%)||(40.2)||110.8||9.6||29.4|