Bharat Forge: Growth story continues - Views on News from Equitymaster

Helping You Build Wealth With Honest Research
Since 1996. Try Now

  • MyStocks


Login Failure
(Please do not use this option on a public machine)
  Sign Up | Forgot Password?  

Bharat Forge: Growth story continues

Oct 26, 2004

Performance summary:
Bharat Forge, world’s second largest forging company, has reported robust 2QFY05 and 1HFY05 results. During the quarter, while the topline of the company has grown by a strong 42% YoY, pressure at the operating level and higher tax provisioning has resulted into the bottomline growing at a lower rate of 29% YoY. The corresponding figures for the first half stood at 40% and 29% respectively.

(Rs m)2QFY042QFY05Change1HFY041HFY05Change
Net sales 2,038 2,902 42.4% 3,898 5,469 40.3%
Expenditure 1,450 2,091 44.2% 2,766 3,969 43.5%
Operating profit (EBDITA) 587 810 38.0% 1,133 1,501 32.5%
EBDITA margin (%)28.8%27.9% 29.1%27.4% 
Other income 43 7 -83.1% 78 49 -37.1%
Interest (net) 88 83 -5.7% 175 162 -7.8%
Depreciation 116 132 13.6% 227 255 12.2%
Profit before tax 426 603 41.4% 808 1,133 40.2%
Extraordinary item - -   -   
Tax 133 225 68.9% 251 415 65.0%
Profit after tax/(loss) 294 378 28.9% 557 718 29.1%
Net profit margin (%)14.4%13.0% 14.3%13.1% 
No. of shares (m) 37.7 37.7   37.7 37.7  
Diluted earnings per share (Rs)* 31.2 40.2   29.6 38.1  
Price to earnings ratio (x)  20.9    22.1  
(* annualised)      

Bharat Forge (BFRG) is a global player in the auto ancillary sector, focusing primarily on the manufacturing of forgings for automotive manufacturers. Apart from catering to the automobile-forging segment, it also has products catering to drilling equipments used in the oil and gas sector. Exports accounted for 39% of revenues in FY04. It acquired Germany based forging company Carl Den Peddinghaus in FY04. The acquired company is a leading player in Europe in the passenger car forgings business and has some of the top automakers as its customers.

What has driven performance in 2QFY05?
Sales:  Both domestic as well as exports sales have continued to remain strong during the second quarter. While exports grew by 33%, revenues from the domestic markets were higher by 48% as compared to the same quarter last year. Company’s major customers in the domestic market include Maruti, Tata Motors and Ashok Leyland. With all the three companies recording good growth in sales volumes, it has benefited Bharat Forge by way of bigger orders from these players. Highlight of the quarter, however, was the performance of its exports division, which logged in revenues of more than Rs 1 bn for the first time ever. It should be remembered that the company has commenced supplies of passenger car components to European car manufacturers and this has helped the company put up a good show on the exports front.

Operating margin:  Higher expenses incurred towards raw materials purchases have resulted into a 90 basis points hit in the company’s operating margins. Further, with the company foraying into passenger car components, where competition is much more intense, we expect the margin pressure to continue in the near future. Had it not been for the savings on the manufacturing cost front and a lower wage bill, the fall in margins could have been even more severe.

Cost break-up...
(Rs m)2QFY042QFY05%Change1HFY041HFY05%Change
Raw materials 771 1,230 59.6% 1,427 223356.5%
% sales37.8%42.4% 36.6%40.8% 
Manufacturing cost 381 469 23.2% 753 90620.4%
% sales18.7%16.2% 19.3%16.6% 
Staff cost 139 173 24.3% 270 33122.6%
% sales6.8%6.0% 6.9%6.0% 
Other expenses 160 220 37.3% 316 49957.8%
% sales7.8%7.6% 8.1%9.1% 

Net profits:  Apart from the pressure at the operating level, higher tax provisioning has also affected the bottomline performance of the company. We expect the depreciation charges to increase significantly from the current levels as the company has lined up some major expansion plans. Already, a fair amount of it has been implemented and the enhanced capacity will be available for a substantial part of the year.

What to expect?
At Rs 841, the stock trades at a rich P/E of 22 times its annualised 1HFY05 earnings. The valuations are on account of expectations of significant growth from the company following its expansion plans. The company is doubling its forging capacity and substantially enhancing its component machining capacity. It has already won major long-term contracts from global customers for significant part of the enhanced capacity. To that extent, the valuations look attractive from a long-term perspective. However, investors need to guard against the risk of slowdown in global auto industry and possibility of further erosion in margins following the company’s foray into other businesses.

Equitymaster requests your view! Post a comment on "Bharat Forge: Growth story continues". Click here!


More Views on News

BHARAT FORGE Announces Quarterly Results (1QFY22); Net Profit Up 229.0% (Quarterly Result Update)

Aug 16, 2021 | Updated on Aug 16, 2021

For the quarter ended June 2021, BHARAT FORGE has posted a net profit of Rs 2 bn (up 229.0% YoY). Sales on the other hand came in at Rs 21 bn (up 82.6% YoY). Read on for a complete analysis of BHARAT FORGE's quarterly results.

BHARAT FORGE 2020-21 Annual Report Analysis (Annual Result Update)

Aug 10, 2021 | Updated on Aug 10, 2021

Here's an analysis of the annual report of BHARAT FORGE for 2020-21. It includes a full income statement, balance sheet and cash flow analysis of BHARAT FORGE. Also includes updates on the valuation of BHARAT FORGE.

India's Best Drone Stocks podcast (Views On News)

Jul 30, 2021

Impact of Drone Policy on the megatrend in India's Drone ecosystem.

India's Top EV Battery Makers are set for Sky High Returns (Views On News)

Sep 30, 2021

These 5 leading EV battery makers are poised to transform India's EV ecosystem.

Amara Raja Batteries Dips 1% Even as Net Profit Doubles (Views On News)

Aug 16, 2021

The company's net profit doubled to Rs 1.2 bn on strong aftermarket demand across product segments.

More Views on News

Most Popular

Infosys vs TCS: Which is Better? (Views On News)

Nov 26, 2021

In the post pandemic era, the top two IT companies in India are fighting to capture the growing demand for IT.

This Multibagger Stock Zooms 20% After Dolly Khanna Buys Stake (Views On News)

Nov 24, 2021

Shares of this edible oil company zoomed over 50% in three days after ace investor bought around 1% stake.

6 Popular Stocks that Turned into Penny Stocks (Views On News)

Nov 27, 2021

A look at popular stocks that crashed big time and never recovered, i.e. which went from 'Multibaggers to Multibeggers'.

How to Find Your Next 10-Bagger in this Market (Profit Hunter)

Nov 19, 2021

The #1 make or break factor in your portfolio you shouldn't ignore.

MobiKwik IPO Opens for Subscription Soon. Key Things to Know Before Subscribing. (Views On News)

Nov 20, 2021

The Rs 19 bn issue is set to hit the market soon.


Become A Smarter Investor
In Just 5 Minutes

Multibagger Stock Guide 2022
Get our special report Multibagger Stocks Guide (2022 Edition) Now!
We will never sell or rent your email id.
Please read our Terms


Dec 1, 2021 01:02 PM


  • Track your investment in BHARAT FORGE with Equitymaster's Portfolio Tracker. Set live price alerts, get research alerts and more. Get access now...
  • Add To MyStocks