MOSL: BHARAT FORGE (Buy)-Below est.-Sharp decline across businesses hurts performance
BHARAT FORGE: Below est.; Sharp decline across businesses hurts performanceBHARAT FORGE: Below est.; Sharp decline across businesses hurts performance(BHFC IN, Mkt Cap USD2.8b, CMP INR428, TP INR540, 26% Upside, Buy)
** 2QFY20 standalone (S/A) revenues declined 25% YoY to INR12.6b (v/s est. INR13.5b) due to lower tonnage (-23% YoY). Realizations declined 2.4% YoY to INR235.2k/t (v/s est. ~INR217.1k). EBITDA declined ~37% YoY to INR3b (v/s est. ~INR3.5b). EBITDA margins declined 450bp YoY (-230bp QoQ) to ~24% (v/s est. 26.2%) due to operating deleverage. PBT declined ~27% YoY. Lower tax boosted PAT to INR2.4b (v/s est. INR2.3b), a growth of ~8% YoY.
** 1HFY20 CFO grew ~151% to ~INR7.8b, benefiting from the reduction in working capital. Further, lower capex boosted FCFF to ~INR3.9b (v/s -INR4.5b in 1HFY19). 1HFY20 revenue/EBITDA/PAT declined ~17.5%/28%/9%.
** Key highlights from earnings call: (a) Expect 2HFY20 to be weaker than 1HFY20 due weakness in India, US and EU; (b) US Class 8 trucks should decline 20-25% in CY20; EU trucks are expected to decline 8-10%; (c) Focus is on cutting costs, improving productivity and new product development. Also, company will concentrate on strengthening its balance sheet, FCF generation and inorganic opportunities; (d) Current utilization is at ~50%; and (e) Company has transferred Nellore plant (CLWT) to wholly-owned subsidiary to avail ~17% tax rate for new manufacturing units.
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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