MOSL: BHARAT FORGE (Buy)-In-line-strong growth in Autos; Investing in new growth drivers
Bharat Forge: In-line; strong growth in Autos; Investing in new growth drivers
(BHFC IN, Mkt Cap USD4.3b, CMP INR631, TP INR747, 18% Upside, Buy)
- Strong growth in Autos drives revenue: Revenue grew 23% YoY to INR14.8b (in-line), led by tonnage growth of 21% YoY to 66.8k ton (est. of 68.9k ton) and realizations growth of 1.6% YoY (+3.7% QoQ) to INR221.5k/ton (est. of INR214.8k). Domestic and export revenue grew ~19% and ~26% YoY, respectively. Auto segment revenue grew ~39% YoY, while non-auto revenue increased by just 4%. EBITDA margin expanded 50bp QoQ (+120bp YoY) to 29% (in-line), benefiting from lower other expenses. A higher tax rate restricted PAT growth to 34% YoY (flat QoQ) to INR2.3b (est. of INR2.4b).
- Key highlights from earnings call: (a) Management expects broad-based growth across segments in FY19. (b) Growth outlook for both US class 8 truck sales (28% in CY18) and domestic CV sales (10-12% in FY19) is maintained. (c) Secured new business wins of INR1.2b across domestic and export markets in India, and a multi-year EUR40m business win for supply of aluminum forgings in German operations. (d) Expects strong growth in defense and aerospace from 2QFY19. (e) Capex of INR5b/4b in FY19/FY20 in S/A operations. Further, BF PMT (US subsidiary) is investing USD55m toward setting up of an aluminum forgings facility for PVs in Tennessee.
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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