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Bharat Forge: Exports pack a punch
Nov 17, 2014

Bharat Forge has announced its September 2014 quarter results. The company has reported a 35% YoY and 81% YoY growth in sales and net profits respectively. Here is our analysis of the results.

Performance summary
  • Standalone topline for the quarter grows 35% YoY, exports grow by a strong 51% YoY
  • Operating margins see a strong improvement, leading to a 46% growth in operating profits
  • Bottomline grows by a robust 81% YoY on the back of strong operating performance and lower interest costs

Standalone performance snapshot
(Rs m) 2QFY14  2QFY15  Change  1HFY14   1HFY15  Change
Sales 8,451 11,383 34.7% 16,367 21,264 29.9%
Expenditure 6,223 8,135 30.7% 12,178 15,184 24.7%
Operating profit (EBDITA) 2,228 3,247 45.8% 4,189 6,080 45.2%
Operating profit margin (%) 26.4% 28.5%   25.6% 28.6%  
Other income 213 300 40.8% 567 542 -4.5%
Interest 394 314 -20.3% 748 630 -15.8%
Depreciation 628 664 5.7% 1,238 1,321 6.7%
Profit before tax 1,420 2,570 81.0% 2,770 4,671 68.6%
Tax 456 784 72.0% 900 1,435 59.5%
Exceptional item - (41)   - (41)  
Profit after tax/(loss) 964 1,745 81.0% 1,870 3,195 70.9%
Net profit margin (%) 11.4% 15.3%   11.4% 15.0%  
No. of shares (m)       232.9 232.9  
Diluted earnings per share (Rs)*         22.5  
P/E ratio (x)*         40.4  
*On a trailing 12-month basis and excluding extraordinary items

What has driven performance in 2QFY15?
  • The company's sales were up an impressive 35% YoY during the quarter. This was largely due to the 51% growth in export revenues as domestic revenues were up by 15% YoY. Exports did strongly largely led by the North American market. The CV market in this region continued to be robust on the back of sustained levels of construction activity and improving economic scenario. Thus, the US grew 30% YoY during the quarter. Europe and Asia Pacific were up 22% YoY and 19% YoY respectively.

  • Coming back to India, the CV sector started showing improvement in market performance with volumes increasing, albeit on a smaller base. Further, with industrial growth starting to show signs of a revival and with GDP growth expected to improve, the company's outlook for the sector remains positive.

  • Operating profits grew by 46% YoY during the quarter as barring manufacturing expenses all the other cost heads grew at a lower rate than the sales. Margins also improved on the back of a favourable product mix and exchange realization and increased capacity utilization.

  • PBT of the company came in higher by 81% YoY as besides higher operating profits, lower than proportionate increase in depreciation charges and reduction in interest costs also helped matters a great deal.

  • At the bottomline level, profits came in higher by 81% YoY in tandem with the growth in PBT.
What to expect?
At the current price of Rs 910, the stock trades at 27.9 times our estimated FY17 earnings per share on a standalone basis. As part of the company's strategy of focusing on the global passenger vehicle segment and reducing dependence on CVs, the company is beginning to see signs of good growth on that front. As the past order wins start ramping up, Bharat Forge expects the contribution of passenger vehicles to standalone sales to increase further. The company is confident of more traction in terms of order wins from both global and domestic OEMs in this space. Growth going forward will also be driven by the industrial segment as demand improves and also from exports. That said, despite good growth prospects, given that the stock of Bharat Forge is fairly valued at the current price, our view is that investors not buy it at current levels.

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