Bharat Forge 3QFY2014 performance highlights and results update
February 6, 2014, Thursday, 06:18 GMT | 01:18 EST | 11:48 IST | 14:18 SGT
Strong 3QFY2014 results on expected line: Bharat Forge (BHFC) reported in-line results for 3QFY2014, aided by strong growth in exports and continued traction in the non-auto segment. The performance appears strong on a yoy basis mainly due to the base effect. On a sequential basis though, the results are broadly flat and are driven by exports (revenue up 3.5% qoq) even as the domestic operations (revenues down 13.8% qoq) continue to remain under pressure. The standalone top-line grew strongly by 23.7% yoy to Rs.832cr led by a strong 54.5% yoy growth in export revenues. The export performance was boosted by a strong growth across all the key geographies with Europe (pre buying effect ahead of emission norm changes due from CY2014) and US witnessing a growth of 89.6% and 26.1% yoy respectively. Domestic revenues, however, declined 9.2% yoy due to continued slowdown in the domestic commercial vehicle sales. Total volumes surged 13.9% yoy, while the net average realization increased 7.5% yoy on the back of better product-mix and favorable exchange rate. The EBITDA margin improved 461bp yoy to 25.8%, in-line with our expectation of 25.9%, driven by cost control measures, favorable realization on the exports front and also due to superior product-mix. Led by a strong operating performance, net profit grew 97.7% yoy to Rs.94cr, in-line with our expectations of Rs.93cr. The wholly owned subsidiaries (WoS) reported a strong performance led by improving utilization levels and cost control measures. The EBITDA margin for WoS stood at 8.6% in 3QFY2014 vs 5.2% in 3QFY2013. The company recently divested its 51.85% stake in its Chinese JV to the JV partner for US$28.2mn.
Outlook and valuation: BHFC continues to witness strong traction in exports, led by improved order inflows from most of the global truck OEMs and also due to the introduction of new products in the auto as well as the not-auto segments. Additionally, higher exports realization, increasing share of machining component, and cost control measures are likely to ensure margin sustenance at ~17% levels going ahead. We increase our consolidated earnings estimates led by higher EBITDA margin estimates. We retain our positive view on the company given its presence across automotive and industrial sectors, improving product-mix and strong relationships with global OEMs. At the CMP, BHFC is trading at 16.3x FY2015E earnings. We maintain our Accumulate rating on the stock with a target price of Rs.380.