Bharat Forge: Strong outlook across segments

Market share gains, new products helped to outperform in Q3

The Bharat Forge stock was up nearly 8 per cent on a better-than-expected December quarter performance, a strong outlook for the March quarter and FY19, and investments in an electric vehicle start-up.

Top line growth of 47 per cent over the year-ago period was led by 38 per cent growth in volumes, while the rest came from increasing share of value-added products.

Exports, which account for 56 per cent of revenue, grew 61 per cent. Domestic revenue, too, grew 33 per cent over the year-ago period. Given the top line performance, richer product mix and enhanced productivity, the company managed to improve its operating profit margins by 80 basis points to 29.6 per cent. The gain in margins came despite a sharp rise in steel prices, which is reflected in higher raw material costs. The bottom line, which grew 77 per cent, year-onyear, too, was better-thanexpected.

Within the auto segment, both commercial vehicles (CV) and passenger vehicles witnessed strong growth. In the CV business, while demand for North American Class VII trucks continues to be strong, heavy truck sales in India are also witnessing traction, driven by the goods and services tax and infrastructure space.

The company’s India sales growth in CVs was double that of the sector overall, aided by higher market share and new products. The firm indicated that the outlook for the CV business would continue to be strong in the US and India. It has received orders worth $60 million in the past three months in passenger vehicles and industrial applications, including the oil and gas segment.

Overseas subsidiaries, too, have seen a 42 per cent growth in revenues, with margins coming in at 9 per cent.

The company announced a strategic investment to tap the e-mobility opportunity with a ~300-million investment for a 45 per cent stake in Tork Motorcycles. The company is looking at using technology from the start-up for devising global e-mobility solutions.

Given the robust performance over the past few quarters as well as a strong outlook, operational performance is likely to be strong in the coming quarters for the standalone and overseas subsidiaries.

At the current price, the stock is trading at an expensive 32 times its FY19 estimates. Investors can look at buying the stock on dips.