MOSL: BHARAT FORGE (Buy)-In-line at operating level-Strong performance across segments

​Bharat Forge: In-line at operating level; Strong performance across segments

(BHFC IN, Mkt Cap USD4.2b, CMP INR1,142, TP INR1,353, 18% Upside, Buy)

• Tonnage grew 12% YoY to 55,100MT (est. of 53.5k), while realizations rose 18% YoY (+7% QoQ) to INR218k/ton (est. of INR208k). Net revenues rose 33% YoY (+7% QoQ) to INR12b (est. of INR11.1b).
• The company delivered strong performance across segments, particularly Non-auto (+80% YoY/+15% QoQ). The share of Non-auto is now at 45% v/s 42% in 4QFY17, mainly driven by US revenue growth of 101% YoY (+21% QoQ). Domestic revenues grew 5% YoY, led by Non- Auto (+12% YoY). Auto segment, however, declined 2% YoY.
• EBITDA margin contracted 60bp QoQ (+80bp YoY) to 27.8% (est. of 28.7%), led by RM cost inflation pass-through (though EBITDA/ton improved 4% QoQ). Adj. PAT grew 43.5% YoY (-3% QoQ) to INR1.75b, below our estimate of INR1.87b, led by a higher tax rate of 33.5% (est. of 27%).
• Key highlights from earnings call: a) Outlook remains robust in Non-auto, both in domestic and export markets, led by new programs and presence in fast-growing shale oil. Also, auto exports outlook is positive, with US and EU CVs outlook improving and ramp-up in PV orders. b) Drive train products driving market share gain in domestic CVs. Exports of drive train products are at testing stage. c) Won maiden contract in defense of INR2b, which would be executed in FY19. d) Machining content is expected to increase from 47-48%, as all new order wins are for machined components.