Exports power Bharat Forge's Q1 show; defence segment may scale up

Led by strong export revenues, Bharat Forge reported its seventh consecutive quarter of sequential growth for the June quarter. 

Exports, which, account for 57 per cent of standalone revenues, was up 26 per cent over the year-ago quarter, helping overall revenues grow 23 per cent in the quarter. 

Though domestic revenues were strong, gaining 19 per cent y-o-y, they fell 3 per cent on a sequential basis. The lower growth was largely on account of the industrial segment, which has been pegged back by delays in finalisation of tenders and also saw revenue decline 12 per cent. The auto segment is doing well, with commercial vehicle numbers growing strongly on a lower base last year, while the passenger vehicle business is gradually growing.

While the company is confident of the growth momentum in the domestic commercial business (half of India revenues), it believes that demand could turn volatile in the short term, given the recent relaxation of overloading norms in certain states and the government's recent proposal to increase truck axle load by 20-25 per cent. 

Though the long-term auto segment growth story is intact, incremental growth prospects for the India business is expected to come from the non-auto space, especially defence, aerospace and railways segments. The company indicated that a delay in orders and the process of awarding contracts, especially in defence, has pushed revenues into the next quarter. 

On the international front, the company is targeting growth both in the auto and non-auto space. While record class 8 orders should keep commercial vehicle portfolio revenues robust, steady oil and gas vertical driven by higher crude oil prices are expected to keep industrial revenues buoyant. 

The company, which has been derisking its business away from autos, has identified three strategic initiatives that would entail focus on electric vehicles, lighter components (aluminium based) and defence to deliver growth going ahead. 

Given the focus on new technologies and new order win in the auto sector, expect revenue momentum as well as margins to remain strong in the current fiscal.