MOSL: BHARAT FORGE (Buy)-Above estimate driven by favorable mix; focus on broad-basing revenue
Bharat Forge: Above estimate driven by favorable mix; focus on broad-basing revenue
(BHFC IN, Mkt Cap USD3.1b, CMP INR477, TP INR568, 19% Upside, Buy)
- Revenue marginally exceeds estimate: Revenue grew 22% YoY (flat QoQ) to INR16.9b (our estimate: INR16.6b), led by tonnage growth of 3% YoY to 66.8k tons (our estimate: 71.6k tons) and realization growth of 18.6% YoY (+5.2% QoQ) to INR253.5k/ton (our estimate: INR231.3k/ton; driven by a favorable mix and RM pass-through). Domestic /export revenue grew 17%/25% YoY. Auto/non-auto segment revenues grew 11/30% YoY.
- EBITDA (adj. for forex) grew 18% YoY (+2% QoQ) to INR4.9b (our estimate: INR4.6b). Adj. EBITDA margin expanded 50bp QoQ (-80bp YoY) to 28.8% (our estimate: 27.5%), primarily led by lower RM cost and a favorable mix. Further, higher other income (due to dividend from subsidiary), FX gain and lower interest cost led to PAT growth of 36% YoY/QoQ to INR3.1b (our estimate: INR2.4b). For 9MFY19, revenue/PAT grew 26%/27% YoY.
- Key highlights from earnings call: (a) BHFC secured new orders worth USD6.5m from the CV and industrial segments in 3QFY19. (b) US CV segment to benefit from order backlog, with CY19 volumes expected at ~335k (v/s ~320k in CY18). (c) Domestic CV outlook for FY20 is positive on the back of BSVI-related pre-buy in FY20. (d) Expect revenue opportunity of INR25-30b from nascent segments (rail, aerospace, defence, light weighting, etc.) and new orders over the next 3-5 years. (e) New facilities at Baramati and Vellore would commence production over the next two quarters, with revenue potential of INR10b at full ramp-up in 2-3 years.
Bharat Forge Limited is engaged in the business of steel forgings, finished machined crankshafts, and front axles assembly and components. The Company's segments include Forgings and Projects (Capital goods). Forgings produces and sells steel forging products comprising forgings, finished machined crankshafts, front axle assembly and components, and ring rolling, among others. Projects (Capital goods) include engineering, procurement and commissioning business for power and infrastructure related projects. It manufactures a range of components for various sectors, including automobiles (across commercial and passenger vehicle), oil and gas, aerospace, locomotives, marine, energy (across renewable and non-renewable sources), construction, mining and general engineering. It has factories at Pune, Satara and Baramati. Its manufacturing facilities are spread across India, Germany, France and Sweden. It operates in Delhi, Noida, Hyderabad, Jamshedpur, Kolkata, Chennai and Mumbai.
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