 "Bharat Forge: Domestic recovery key")
Bharat Forge, the Pune-headquartered manufacturer of forged and machined automobile components, has been riding the wave of revival in the automobile manufacturing segment. The share price has rallied over threefold since early August last year, from Rs 195 to Rs 795 now. From April 1 this year to September 20, the price has more than doubled.
Bharat Forge is among a handful of companies in the diversified auto ancillary space that has seen a good rise in demand.
“Export demand is firing on all cylinders, courtesy of non-auto demand in key export markets in the energy and utilities space, combined with a recovery in the US heavy duty CV (commercial vehicle) market. At present, the company is benefiting from an industrial recovery in the US. In terms of domestic demand, we are close to a much-awaited recovery in the CV cycle, with a favourable base-led high growth set to reflect in the monthly numbers pretty soon,” say Basudeb Banerjee and Saksham Kaushal of Antique Stock Broking in a report.
“Although we operated at sub-optimal utilisation through 2013-14, it was one of the better years in performance,” said Baba Kalyani, chairman, in the company’s annual report.
While exports have been the mainstay for revenue growth, domestic revenue (sales in India) has seen a downtrend, with average net sales under Rs 400 crore in each of the past five quarters. After Rs 2,052 crore revenue in FY12, these were sluggish in FY13 and FY14, posting Rs 1,500 crore in both years.
The flattish growth was due to dependence on the medium and heavy CV segment, facing a severe downturn, with volumes down 21 per cent in FY14. A recovery in the CV segment, coupled with progress of its non-automobile business, should see domestic revenue catch up. Since the latter accounts for about a third of consolidated sales, a recovery will boost the overall numbers. Investors will also keenly watch the joint venture with Alstom to manufacture equipment for the power sector. This is expected to be operational next year and has orders worth Rs 5,500 crore.
Given the revenue growth and improving margins, net profits are likely to triple by FY15 from the FY13 number of Rs 247 crore. The stock has already been re-rated, making investors richer threefold in a little over a year. At the current price of Rs 795, it trades at 19.6 times its FY16 estimated earnings. Most of the expected gains seem to be factored into the current price.
The management has also chalked out an aggressive road. Kalyani says from 2004 to 2014, the company’s industrial segment saw a revenue jump of nearly 10 times, from around $27 million in 2003-04 to $230 mn in 2013-14. “The segment has grown from 21 per cent to 41 per cent (of revenue). The company aims to double this revenue in the next four to five years, to around $500 mn. This will create five different verticals -- across oil & gas, power, rail & marine, construction & mining and aerospace -- each contributing around $100 mn,” he said.
Bharat Forge is among a handful of companies in the diversified auto ancillary space that has seen a good rise in demand.
“Export demand is firing on all cylinders, courtesy of non-auto demand in key export markets in the energy and utilities space, combined with a recovery in the US heavy duty CV (commercial vehicle) market. At present, the company is benefiting from an industrial recovery in the US. In terms of domestic demand, we are close to a much-awaited recovery in the CV cycle, with a favourable base-led high growth set to reflect in the monthly numbers pretty soon,” say Basudeb Banerjee and Saksham Kaushal of Antique Stock Broking in a report.
“Although we operated at sub-optimal utilisation through 2013-14, it was one of the better years in performance,” said Baba Kalyani, chairman, in the company’s annual report.
While exports have been the mainstay for revenue growth, domestic revenue (sales in India) has seen a downtrend, with average net sales under Rs 400 crore in each of the past five quarters. After Rs 2,052 crore revenue in FY12, these were sluggish in FY13 and FY14, posting Rs 1,500 crore in both years.
The flattish growth was due to dependence on the medium and heavy CV segment, facing a severe downturn, with volumes down 21 per cent in FY14. A recovery in the CV segment, coupled with progress of its non-automobile business, should see domestic revenue catch up. Since the latter accounts for about a third of consolidated sales, a recovery will boost the overall numbers. Investors will also keenly watch the joint venture with Alstom to manufacture equipment for the power sector. This is expected to be operational next year and has orders worth Rs 5,500 crore.
Given the revenue growth and improving margins, net profits are likely to triple by FY15 from the FY13 number of Rs 247 crore. The stock has already been re-rated, making investors richer threefold in a little over a year. At the current price of Rs 795, it trades at 19.6 times its FY16 estimated earnings. Most of the expected gains seem to be factored into the current price.
The management has also chalked out an aggressive road. Kalyani says from 2004 to 2014, the company’s industrial segment saw a revenue jump of nearly 10 times, from around $27 million in 2003-04 to $230 mn in 2013-14. “The segment has grown from 21 per cent to 41 per cent (of revenue). The company aims to double this revenue in the next four to five years, to around $500 mn. This will create five different verticals -- across oil & gas, power, rail & marine, construction & mining and aerospace -- each contributing around $100 mn,” he said.