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Bharat Forge: Robust all round growth - Views on News from Equitymaster
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Bharat Forge: Robust all round growth
Feb 5, 2015

Bharat Forge has announced its December 2014 quarter results. The company has reported a 44% YoY and 109% YoY growth in sales and net profits respectively. Here is our analysis of the results.

Performance summary
  • Standalone topline for the quarter grows 44% YoY, exports grow by a strong 53% YoY
  • Operating margins see a strong improvement, leading to a 69% growth in operating profits
  • Bottomline grows by a robust 109% YoY on the back of strong operating performance and lower interest costs

Standalone performance snapshot
(Rs m) 3QFY14  3QFY15  Change  9mFY14   9mFY15  Change
Sales 8,321 11,978 43.9% 24,688 33,242 34.6%
Expenditure 6,176 8,355 35.3% 18,354 23,539 28.2%
Operating profit (EBDITA) 2,145 3,623 68.9% 6,334 9,703 53.2%
Operating profit margin (%) 25.8% 30.2%   25.7% 29.2%  
Other income 254 191 -24.7% 821  733 -10.7%
Interest 399 264 -33.9% 1,147  894 -22.1%
Depreciation 617 687 11.4% 1,855 2,008 8.2%
Profit before tax 1,383 2,863 107.0% 4,152 7,534 81.4%
Tax 443 899 103.0% 1,343 2,334 73.8%
Exceptional items - -   - (41)  
Profit after tax/(loss) 940 1,963 108.9% 2,810 5,158 83.6%
Net profit margin (%) 11.3% 16.4%   11.4% 15.5%  
No. of shares (m)       232.9 232.9  
Diluted earnings per share (Rs)*         26.9  
P/E ratio (x)*         40.6  
*On a trailing 12-month basis and excluding extraordinary items

What has driven performance in 3QFY15?
  • The company's sales were up an impressive 44% YoY during the quarter. This was largely due to the 53% growth in export revenues as domestic revenues were up by 24% YoY. Exports did strongly largely led by the North American market. The CV market in this region continued to be robust on the back of sustained levels of construction activity and improving economic scenario. Thus, the US grew 113% YoY during the quarter. Revenue growth from Europe, however, was muted at 1% YoY on account of stagnation in growth in the Eurozone economy. High base effect also played a role because there was a significant pre-buy of CVs in Europe in 3QFY14 in advance of the new emission norms.

  • Coming back to India, the CV sector continued showing improvement in market performance with volumes increasing, albeit on a smaller base. Further, with industrial growth starting to show signs of a revival and with GDP growth expected to improve, the company's outlook for the sector remains positive.

  • Operating profits grew by 69% YoY during the quarter as all the cost heads grew at a lower rate than the sales. Margins also improved on the back of a favourable product mix and operating leverage.

  • PBT of the company came in higher by 107% YoY as besides higher operating profits, lower than proportionate increase in depreciation charges and reduction in interest costs helped matters.

  • At the bottomline level, profits came in higher by 109% YoY in tandem with the growth in PBT.
What to expect?
At the current price of Rs 1,093, the stock trades at 33.5 times our estimated FY17 earnings per share on a standalone basis. As part of the company’s strategy of focusing on the global passenger vehicle segment and reducing dependence on CVs, the company is beginning to see signs of good growth on that front. As the past order wins start ramping up, Bharat Forge expects the contribution of passenger vehicles to standalone sales to increase further. The company is confident of more traction in terms of order wins from both global and domestic OEMs in this space. Growth going forward will also be driven by exports. That said, despite good growth prospects, given that the stock of Bharat Forge is fairly valued at the current price, our view is that investors not buy it at current levels.

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