Exports, non-auto add muscle to Bharat Forge Q4

Strong orders, smaller segments to keep revenue growth robust

The Bharat Forge stock on Wednesday gained four per cent on strong March quarter results, which beat expectations on all fronts. After falling year-on-year (yo-y) for the past five quarters, revenue, led by higher volumes and realisations, grew 11.6 per cent over a year in the quarter to ~,183 crore, compared to the consensus estimate of ~1,067 crore.

Growth was led by exports (half its overall revenue), which grew 12 per cent over a year ago. In addition to automobiles, the oil and gas space has seen some rebound. The company recorded revenue of ~300 crore in FY17 for this segment, half of which came in the March quarter. This was due to strong growth in US rig count and accelerated deployment of idle capacity.

The company indicated demand in the non-automobile exports was also coming back, as companies have started re-stocking. And, there will be a gradual improvement in the base business in mining and construction. Though aerospace and defence are still small (~35 crore- 175 crore), the company reiterated the 2020 target of $100 million (~650 crore each) for the two segments.

Higher raw material costs, employee and other expenses dented the operating performance. However, these beat estimates, with operating profit up four per cent to ~324 crore. Margins at 27.4 per cent, though over 200 basis points (bps) down over the year-ago quarter, were steady; the company maintained this for the four quarters of FY17. The management reiterated that margins will continue in the 2730 per cent band. Reported net profit was up 25 per cent to ~207 crore boosted by oneoff exceptional gains (sale of investments) of ~38 crore.

Growth in the automobile segment is expected to rebound. The company expects the Class-8 truck segment to see growth of 1518 per cent in FY18. The Class-8 market has been hit by lack of demand over the past couple of years. On the domestic commercial vehicles front, the company says demand after the implementation of BS-IV emission norms has been uncertain. The segment accounts for 37 per cent of revenue.

Going ahead, growth is expected to come from longterm export and domestic orders, annually $80 million and ~270 crore, respectively. The orders are spread across segments, regions and new products.

To diversify revenue streams and reduce risks, the company is targeting new products and businesses, to scale up from the current five per cent to 15 per cent over the next couple of years. The bulk of gains will come from the North America market, with rampup in the passenger car business and orders from other sectors.