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Bharat Forge: Forges a strong finish - Views on News from Equitymaster

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Bharat Forge: Forges a strong finish

May 26, 2011

Bharat Forge Ltd announced the fourth quarter results of financial year 2010-2011 (4QFY11). The company has reported a 46% YoY increase in revenues, while profits grew by 64% YoY. Here is our analysis of the results.

Performance summary
  • Standalone net sales up by 46% YoY during the quarter led by a 64% YoY and 34% YoY increase in exports and domestic markets respectively.
  • Operating margins contract by 1% YoY to 24.2% during the quarter due to higher raw material and staff costs (as a percentage of sales).
  • Profits rise by 64% YoY led by higher other income coupled with a relatively benign increase in interest and depreciation costs.
  • Standalone net sales and profits increase by 59% YoY and 145% YoY during FY11 respectively.

Standalone performance snapshot
(Rs m) 4QFY10 4QFY11 Change FY10 FY11 Change
Sales 5,636 8,216 45.8% 18,564 29,474 58.8%
Expenditure 4,218 6,227 47.6% 14,194 22,312 57.2%
Operating profit (EBDITA) 1,419 1,989 40.2% 4,370 7,161 63.9%
Operating profit margin (%) 25.2% 24.2%   23.5% 24.3%  
Other income 108 149 38.4% 323 462 42.9%
Interest 261 294 12.6% 1,028 1,214 18.2%
Depreciation 443 478 8.0% 1,644 1,933 17.5%
Exceptional income/(expense) (7) -   (214) -  
Profit before tax 816 1,366 67.4% 1,807 4,476 147.7%
Tax 203 362 78.1% 537 1,370 155.3%
Profit after tax/(loss) 613 1,004 63.9% 1,270 3,106 144.5%
Net profit margin (%) 10.9% 12.2%   6.8% 10.5%  
No. of shares (m)       222.7 232.9  
Diluted earnings per share (Rs)*         13.3  
P/E ratio (x)*         23.5  
(*On a trailing 12-month basis)

What has driven performance in FY11?
  • Bharat Forge (BFRG) reported a topline growth of 59% YoY during FY11. Growth during the year was led by a 73% YoY increase in exports, while domestic revenues increased by 50% YoY. Exports contributed to about 41% of revenues (38% last year), while domestic markets contributed to the balance. As per the company, total shipments rose by 48% YoY to about 188,166 tonnes during the year as against 127,539 tonnes last year. This was on back of a buoyant automotive market globally and strong off-take from new non automotive facilities. Realisations improved driven by better product mix and value addition. Coming to the geographical breakup of revenues, while details of the Indian markets are mentioned above, revenues from Europe and the US grew by 90% YoY and 44.5% YoY respectively and contributed to about 18% and 20% of revenues respectively. During last year, these markets contributed to 15% and 22% respectively.

    Cost break-up...
    (Rs m) 4QFY10 4QFY11 Change FY10 FY11 Change
    Raw materials 2,460 3,653 48.5% 8,224 13,303 61.8%
    % sales 43.6% 44.5%   44.3% 45.1%  
    Staff cost 347 549 58.2% 1,436 2,013 40.2%
    % sales 6.2% 6.7%   7.7% 6.8%  
    Manufacturing expenses 1,042 1,386 33.0% 3,161 4,919 55.6%
    % sales 18.5% 16.9%   17.0% 16.7%  
    Other expenditure 369 640 73.3% 1,374 2,078 51.2%
    % sales 6.5% 7.8%   7.4% 7.0%  
    Total 4,218 6,227   14,194 22,312  

  • BFRG's strong performance at the operating level continued during the year as its profits increased by 64% YoY. Margins during the year stood at 24.3% as compared to 23.5% during FY10. While the company saw an increase in raw material costs (as a percentage of sales), other expenses and employee costs declined, thereby aiding in margin expansion.

  • BFRG's profits grew by 145% YoY during the quarter. In addition to a strong operating performance, higher other income helped in boosting profits during the year.

What to expect?
At the current price of Rs 314, the stock trades at a multiple of nearly 15.2 times our estimated FY13 earnings per share (ResearchPro subscribers, kindly click here.

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. This is especially considering the strong volumes recorded by the industry over the past two years. 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. But at current levels, the same seems to be factored in the stock's price currently. We advise investors to be cautious on the stock at current levels.

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Mar 19, 2019 10:55 AM


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