Bharat Forge has posted a sharp rise in revenues and net profit for the first quarter ended June 2003. The conscious effort by the company to grow revenues from international markets continues to lead growth in revenues and profitability. However, manufacturing cost related pressures has affected operating margins in 1QFY04 marginally.
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Gross sales have risen by 40% in 1QFY04 primarily on account of robust export revenues. While exports grew by 79%, revenues from domestic operations have increased by 22%. In line with FY03 performance, exports accounted for 40% of revenues in 1QFY04 (31% in 1QFY03). One of the key factors that has resulted in higher export growth is the commencement of service to the second Chinese automaker, Second Automotive Works. The 1QFY04 export numbers also include acceleration in delivery to the other Chinese client (First Automotive Works).
Revenue growth on the domestic market front has to be viewed in light of the continuation in demand for commercial vehicles (CVs). Telco, the market leader in the heavy CV segment, has indicated that demand is likely to increase by 7%-8% in FY04. Bharat Forge, as a major supplier to key CV manufacturers in the country, has benefited in a large way. Operating margins however, are lower in 1QFY04 due to higher manufacturing related expenses. But this has been negated by lower staff costs, which is line with the trend witnessed in the last six quarters.
The stock currently trades at Rs 380 implying a P/E multiple of 13.6x annualised 1QFY04. As we have maintained in our FY03 result analysis, current valuations seem to be on the higher side. However, as regards the long-term, considering the company's scale of capacities and the likely client additions, growth in revenues and profitability is likely to be on the higher side.
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