Bharat Forge's March results hit as key segments face multiple headwinds

Analysts expect the M&HCV segment to fall by another 13-15% in FY21

The Bharat Forge stock slipped over 10 per cent on weak March quarter (Q4) results and a muted outlook for its key business segments. Falling demand in end-user sectors and the impact during the second half of March because of Covid-19 led to a fall in revenues by 47 per cent, while operating profit fell by nearly 70 per cent year-on-year (YoY) in Q4. 

The company indicated a Rs 200-crore impact on the top line and Rs 90 crore on profitability in the quarter because of the pandemic. 

The company, which reported a profit before tax in the year-ago quarter of Rs 300 crore and Rs 128 crore in the December quarter, could generate a pre-tax profit of just Rs 21 crore in Q4 this year. 

However, it reported a loss of Rs 73 crore because of a Rs 94-crore impairment of investments in the UK-based Tevva Motors and a voluntary retirement scheme. 

The biggest drag for Bharat Forge is the medium- and heavy-commercial vehicle (M&HCV) segment. 

After recording a 47 per cent decline in FY20 sales in India, the first two months of the financial year saw vehicle sales decline by over 90 per cent over the year-ago period.

 

 

Despite the sharply lower base, analysts expect the M&HCV segment to fall by another 13-15 per cent in FY21 before recovering next year. In the North American market, a key export destination, Class 8 truck orders declined 60 per cent in CY19 and a further 20 per cent till date this year. 

In the industrial segment, the crash in crude oil prices has led to a stoppage of drilling activities (fracking) in the US market, thus impacting its component business. The company indicated that revenue from this segment, which was at Rs 1,000 crore in FY19, fell by half to less than Rs 500 crore in FY20. 

This is expected to come down further in FY21. Amyn Pirani of CLSA believes that a 20 per cent decline in the US-based construction machinery and equipment maker Caterpillar’s retail sales in CY20 is an indication of Bharat Forge’s non-auto revenues. 

The company, however, said that it has gained market share in multiple segments including passenger vehicles and has won new customers in aerospace and oil & gas. 

It is hopeful of a demand uptick in the US, given the infra push in that geography. 

While the company indicated a sales dip in FY21, it guided that it will make profits at the net level. The is expected to be led by cost-cutting efforts, market share gains, new customer wins, and de-risking by expanding into new areas.