MOSL: BHARAT FORGE (Buy)-In-line operating performance-Headwinds emerging in key businesses
Bharat forge: In-line operating performance; Headwinds emerging in key businesses
(BHFC IN, Mkt Cap USD3.2b, CMP INR485, TP INR595, 23% Upside, Buy)
- S/A revenue grew 14% YoY to INR16.7b (our est. INR17.3b), as realization grew 24.7% YoY to INR266k/t, but tonnage declined ~4% YoY to 62.7k/t. EBITDA was in line at INR4.8b, up 22% YoY. EBITDA margin at 29.1% (our est. 28.3%) expanded 30bp QoQ (+200bp YoY). Higher other income, Fx gains and lower depreciation aided adj. PAT to grow 63% YoY to INR3b (our est. INR2.7b). FY19 Revenue/EBITDA/PAT grew 23%/19%/35%.
- Key highlights from earnings call: (a) In FY19, BHFC won new orders worth USD50m - of this, 60-70% was from the non-CV segment. (b) US Class 8 volumes expected at 330k in CY19 (+5% YoY). (c) Sees headwinds in CVs (domestic), PVs (global) and Oil &Gas (O&G) in 1QFY20, but expect recovery from 2QFY20. (d) Capex for FY20 at INR4-5b (FY19 at ~INR8.6b); expect capex intensity to decline significantly post FY20.
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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