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Bharat Forge: All round growth

Feb 14, 2012

Bharat Forge Ltd announced the third quarter results of financial year 2011-2012 (3QFY12). The company has reported a 21% YoY increase in revenues, while profits grew by 25% YoY. Here is our analysis of the results.

Performance summary
  • Standalone net sales up by 21% YoY during the quarter led by a healthy 29% YoY growth in exports.
  • Operating margins expand by 0.4% YoY to 24.7% during the quarter due to lower raw material and staff costs (as a percentage of sales).
  • Profits rise by 25% YoY in tandem with the growth in operating profits despite substantial reduction in other income.

Standalone performance snapshot
(Rs m) 3QFY11 3QFY12 Change 9mFY11 9mFY12 Change
Sales 7,770 9,412 21.1% 21,257 27,088 27.4%
Expenditure 5,884 7,091 20.5% 16,085 20,530 27.6%
Operating profit (EBDITA) 1,886 2,321 23.0% 5,172 6,559 26.8%
Operating profit margin (%) 24.3% 24.7%   24.3% 24.2%  
Other income 126 33 -73.6% 313 387 23.8%
Interest 301 322 6.8% 920 932 1.2%
Depreciation 496 558 12.5% 1,454 1,614 11.0%
Profit before tax 1,214 1,474 21.4% 3,110 4,400 41.5%
Tax 388 442 14.0% 1,008 1,331 32.0%
Profit after tax/(loss) 826 1,031 24.8% 2,102 3,070 46.0%
Net profit margin (%) 10.6% 11.0%   9.9% 11.3%  
No. of shares (m)       232.9 232.9  
Diluted earnings per share (Rs)*         17.5  
P/E ratio (x)*         17.3  
(*On a trailing 12-month basis)

What has driven performance in 3QFY12?
  • Bharat Forge (BFRG) reported a topline growth of 21% YoY during 3QFY12. Growth during the quarter was led by a 29% YoY increase in exports, while domestic revenues increased by a decent 16% YoY. Exports contributed to about 50% of revenues during the quarter, while domestic markets contributed to the balance. Exports did well led by strong demand from the US and European CV market on the back of need to replace aging fleet with fuel efficient models. Despite many headwinds, the domestic business grew by 16% YoY following the healthy growth in the commercial vehicles industry. Coming to the geographical breakup of revenues, while details of the Indian markets are mentioned above, revenues from Europe and the US grew by 27% YoY and 35% YoY respectively and contributed to about 25% and 21% of revenues respectively.

    Cost break-up...
    (Rs m) 3QFY11 3QFY12 Change 9mFY11 9mFY12 Change
    Raw materials 3,538 4,124 16.6% 9,651 12,091 25.3%
    % sales 45.5% 43.8%   45.4% 44.6%  
    Staff cost 518 595 14.8% 1,464 1,819 24.2%
    % sales 6.7% 6.3%   6.9% 6.7%  
    Manufacturing expenses 1,309 1,638 25.2% 3,533 4,696 32.9%
    % sales 16.8% 17.4%   16.6% 17.3%  
    Other expenditure 519 733 41.2% 1,438 1,924 33.8%
    % sales 6.7% 7.8%   6.8% 7.1%  
    Total 5,884 7,091   16,085 20,530  

  • BFRG's operating margins during the quarter expanded by 0.4% to 24.7% largely on account of lower raw material and staff costs (as percentage of sales). This resulted in operating profits growing at a higher pace (up 23% YoY) as compared to the growth in sales.

  • BFRG's net profits grew by 25% YoY during the quarter in tandem with the growth in operating profits despite the substantial reduction in other income.

What to expect?
At the current price of Rs 302, the stock trades at a multiple of nearly 11.4 times our estimated FY14 earnings per share. Bharat Forge's management expects exports to do well on the back of strong growth forecasted for the North American CV markets and continuation of the demand pick-up in Europe. As far as the Indian market is concerned, the management believes that the Indian auto market will grow steadily in the long run and this region will remain the company's key area of focus. While BFRG seems to be well placed on the back of it gaining market share and business from many new entrants in the auto space, we believe that over the medium term many factors such as high interest rates, high input costs and high fuel costs will tend to slow down the auto demand. As for the non-auto business, the management expects momentum to continue on the back of a growing order pipeline. On an overall basis, we believe that the company's future prospects are strong. We maintain our positive view on the stock from a long term perspective.

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Dec 13, 2019 11:23 AM


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