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Bharat Forge: Exports pack a punch - Views on News from Equitymaster

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Bharat Forge: Exports pack a punch

Feb 6, 2014

Bharat Forge has announced its December quarter results. The company has reported standalone topline growth of 24% YoY while the bottomline has nearly doubled. Here is our analysis of the results.

Performance summary
  • Standalone topline for the quarter grows 24% YoY, exports grow by a strong 55% YoY
  • Operating margins witness a strong improvement, leading to a 51% growth in operating profits
  • Bottomline nearly doubles on the back of strong operating performance and less than proportionate growth in interest and depreciation charges
  • Profit for the nine month period goes up 10% YoY on the back of a flat topline

Consolidated financial performance
(Rs m) 3QFY13 3QFY14 Change 9m FY13 9m FY14 Change
Net sales 6,726 8,321 23.7% 24,766 24,688 -0.3%
Expenditure 5,302 6,176 16.5% 19,028 18,354 -3.5%
Operating profit (EBDITA) 1,424 2,145 50.6% 5,738 6,334 10.4%
EBDITA margin (%) 21.2% 25.8%   23.2% 25.7%  
Other income 195 254 30.5% 711 821 15.5%
Interest (net) 363 399 9.9% 1,200 1,147 -4.4%
Depreciation 574 617 7.4% 1,694 1,855 9.5%
Profit before tax 681 1,383 103.1% 3,555 4,152 16.8%
Extraordinary items - -   106 -  
Tax 206 443 115.5% 1,106 1,343  
Profit after tax/(loss) 475 940 97.7% 2,555 2,810 10.0%
Net profit margin (%) 7.1% 11.3%   10.3% 11.4%  
No. of shares (m) 232.9 232.9   232.9 232.9  
Diluted earnings per share (Rs)*         14.2  
Price to earnings ratio (x)*         24.0  
(* on trailing twelve months earnings)

What has driven performance in 3QFY14?
  • The company's sales were up an impressive 24% YoY during the quarter. This was largely due to the 55% growth in export revenues as domestic revenues were actually down by 6% YoY. The company's strategy of venturing into non-automotive segments seems to be paying off handsomely as it was this area of business that mainly drove the growth in export revenues. If one were to look geographically then while US grew 26% YoY, Europe and Asia Pacific were up 90% and 102% respectively.

  • Coming back to the domestic market, the decline in auto market in general has impacted the company's performance. The total auto market was down 10% YoY and this led to the poor performance on the domestic front. However, the company is seeing some signs of revival and hopefully the next quarter should be much better.

  • Important to add that the company's shipment tonnage was up 14% YoY, indicating an improvement in the product mix of the company.

    Cost break-up...
    (Rs m) 3QFY13 3QFY14 Change 9 FY13 9 m FY14 Change
    Cost of materials consumed 2,905 3,196 10.0% 10,734 9,885 -7.9%
    % sales 43.2% 38.4%   43.3% 40.0%  
    Manufacturing expenses 1,325 1,601 20.8% 4,667 4,406 -5.6%
    % sales 19.7% 19.2%   18.8% 17.8%  
    Employee benefits 630 697 10.7% 1,961 2,099 7.0%
    % sales 9.4% 8.4%   7.9% 8.5%  
    Others 442 682 54.3% 1,666 1,965 18.0%
    % sales 6.6% 8.2%   6.7% 8.0%  

  • Consolidated operating profits grew by 51% YoY during the quarter as barring other expenses all the other cost heads grew at a lower rate than the sales. Other expenses were up 54% YoY mainly on account of higher freight expenses as also marketing related costs.

  • PBT of the company came in higher by 103% YoY as besides higher operating profits, lower than proportionate increase in interest and depreciation charges also helped matters a great deal.

  • At the bottomline level, profits came in higher by 98% YoY on the back of a slightly higher tax rate.
What to expect?
At the current price of Rs 341, the stock trades at 15.5 times our estimated FY16 earnings per share. The stock of Bharat Forge has breached our target price as a result of which we have closed the position on the same. Thus, given that it is fairly valued at the current price, our view is that investors Sell the stock.

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Mar 26, 2019 (Close)


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