MOSL: BHARAT FORGE (Buy)-Higher RM cost, Fx loss dent op. performance-Strong FY19 outlook

Bharat Forge: Higher RM cost, Fx loss dent op. performance; Strong FY19 outlook

(BHFC IN, Mkt Cap USD3.9b, CMP INR680, TP INR806, 19% Upside, Buy)

• Strong demand across segments drives revenue: Revenues increased 30% YoY to INR14.7b (est INR14.3b) led by tonnage growth of 24.5% YoY to 67.7kMT (est. of 67.2kMT) and realizations growth of 4.7% YoY (flat QoQ) to INR213.5k/ton (in-line). EBITDA margin contracted 150bp QoQ (flat YoY) to 28.5% (est 30.2%), impacted by higher RM cost and forex loss on Fx loan. Higher other income and lower depreciation boosted adj. PAT growth to ~30% YoY (+2% QoQ) to INR2.3b (in-line).
• BHFC's FY18 consol. revenue grew 31%, with EBITDA margin expanding ~100bp. Adj. PAT grew 35% to INR8.2b.
• Key highlights from earnings call: a) Management expects double digit revenue growth in FY19 with broad based contribution across segment, b) US class 8 truck sales is expected to grow ~28% in CY18, while domestic CV sales is expected to grow 10-12% in FY19, c) New order wins in last two years of INR15b p.a largely in PVs and non-autos, with execution starting from FY19 and full ramp-up by FY21, d) Expects ~12% growth in revenue from subs to be driven by ramp-up in aluminum business and new order wins in hybrids, e) Capex of INR5b in FY19, out of which INR4b would be towards expansion of forging and machining capacity at Baramati facility.