The Bharat Forge stock has gained 5.3 per cent on expectations of a gradual growth uptick in the coming quarters, upside from defence orders, and margin outlook. While the June quarter was a washout given the lockdown, the management indicated there have been some "green shoots" in most segments, both in domestic and export markets.
For the September quarter, the company expects domestic sales to be at the same levels as in the year-ago quarter, led by the upcoming festival season. Domestic sales accounted for 36 per cent of sales in the June quarter. On the exports front, while heavy commercial vehicles are expected to see traction in the US and European markets, what is expected to peg back revenue momentum is the weakness in the oil and gas vertical.
Even in the June quarter, the demand collapse in key verticals of oil and gas, construction, and mining led to a 47 per cent fall in export revenues over the year-ago quarter.
On the operational front, the company highlighted steps taken to reduce fixed costs on both administrative and marketing fronts which should help limit the impact of weak operating leverage. The measures are expected to result in significant cost efficiencies over the next year.
In the June quarter, given the low capacity utilisation (20 per cent), the company barely made money at the operating level, with a profit of around Rs 1.7 crore on revenues of Rs 4,270 crore. The weak revenue performance led to a pre-tax loss of Rs 72 crore, while the bottom line was in the negative at Rs 56 crore.
Going ahead, in addition to recovery in the auto and industrial segments, the Street will keep an eye on its defence opportunities after the policy announcement on indigenisation of defence production. This should help Bharat Forge, which is present in multiple segments, including artillery guns. While the stock has gained about 7 per cent in two trading sessions because of defence opportunities, investors should await progress on the order front and an improvement in core businesses before considering the stock.
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