MOSL: ANNUAL REPORT THREADBARE (ART) | BHARAT FORGE FY17-High capital intensity keeps return ratios subdued
​ANNUAL REPORT THREADBARE (ART) | BHARAT FORGE FY17: High capital intensity keeps return ratios subdued
Bharat Forge’s (BHFC) FY17 annual report analysis highlights rising capital intensity and a weak operating performance, which led to a muted RoCE of 9.6% (FY16: 10.5%). RoE (adjusted for exceptional gain) stood at 15% (FY16: 19%), aided by a high equity multiplier ratio. Consolidated revenue declined 6% to INR66.0b, while the EBITDA margin shrunk 115bp to 19% due to rising personnel cost. The cash conversion cycle deteriorated to 107 days (FY16: 94 days), leading to low OCF of INR10.5b in FY17 (FY16: INR13.6b). Capex remained high (but declined YoY) at INR6.6b (FY16: INR9.0b), which led to FCF of INR2.9b (FY16:INR3.4b). Purchases from related party transactions stood at 28% (FY16: 53%) of raw material cost. Cash and investments stood at INR15.3b (37% of NW), with a yield of 5.1%. Borrowing cost declined to 3.2% (FY16: 3.4%), aided by the replacement of high interest debentures with cheaper foreign currency borrowings.
Weak operating performance continues: BHFC’s consolidated revenue declined 6% to INR66b (FY16: INR70b) owing to the sluggish US class 8 truck market and commodity-related sectors, while the EBITDA margin shrunk 115bp to 19%. PBT stood muted at INR9.5b (FY16: INR9.7b). Subsidiaries continued with its minimal contribution to profitability, with PBT (before exceptional gain) of INR0.1b, as against pre-tax loss of INR0.6b in FY16. This has dragged the standalone RoCE (at 11.8%) to lower consolidated RoCE (at 9.6%).
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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