Industrial segment boost for Bharat Forge

Domestic commercial vehicles segment remains key area of concern

Bharat Forge reported a better-than-expected performance in the June quarter (Q1), helped by strong performance in the exports segment and higher traction in the domestic non-auto business.

Aided by higher realisations as well as a volume growth of 12 per cent, the company reported revenue growth of 33 per cent at ~1,201 crore, against expectations pegged at around the ~1,000crore mark. The growth in revenue was led by exports, which account for 55 per cent of revenue. Exports were up nearly 65 per cent year-onyear (y-o-y) to ~671 crore. Operating profit margins were a shade lower than expectations at 28 per cent due to higher other expenses as a percentage of sales and lower share of high-margin exports. Net profit stood at ~175 crore, up 43 per cent y-o-y. The number was better than estimates, driven by a strong top line and lower depreciation.

While the auto segment accounts for 60 per cent of overall sales, most of which are commercial vehicles, it is the non-auto segment which was the growth driver. Within exports, oil & gas contributed the most. The segment accounted for half of all nonauto exports pegged at ~330 crore in Q1. The company expects the growth momentum in the shale fracking business to continue, as this is one of the few sub-segments, along with oil & gas, which is witnessing good growth. A sharp fall in the cost of shale production has made it viable to operate the wells despite moderating crude oil prices. Unless prices fall further, the company expects strong growth in this segment, which had been the biggest drag on its industrial or non-export revenues over a year ago.

The company recorded its higher-ever sales in the domestic non-auto or industrial business ranging from product sales to verticals such as oil & gas, defence and railways. The quarter included the company’s maiden defence order win worth ~200 crore. The company is confident that the policy of domestic preference for defence supplies, Make in India and higher demand trajectory for defence products will translate into strong sales growth for this vertical.

While the company is making inroads in the domestic passenger car segment with the new orders, slowing commercial vehicle sales is a cause for worry. The company, however, indicated it had gained market share with sales falling less than the overall market.

Though the industrial segment, both domestic and exports, will continue to be the company’s focus area, how the commercial vehicles segment fares, especially in India, will be key for revenue growth and profitability.

At the current price, the stock, which shed 2.2 per cent on Thursday, is trading at 25.8 times its FY19 earnings estimates.