The Bharat Forge stock was up four per cent on strong March quarter results which beat expectations on all fronts. After falling year on year for the last five quarters, revenues led by higher volumes and realisations grew 11.6 per cent year on year in the March quarter to Rs 1,183 crore compared to consensus estimates which pegged it at Rs 1,067 crore. Growth was led by exports (half its overall revenues) which grew 12 per cent over the year ago quarter. In addition to auto, one of the key sectors that has seen a bit of a rebound is oil and gas space. The company recorded revenues of Rs 300 crore in FY17 for this segment, half of which came in the March quarter. This was due to strong growth in US rig count and an accelerated deployment of idle capacity in the March quarter. The company indicated that demand in the non-auto exports space is also coming back as companies have started restocking and there will be a gradual improvement in the base business in mining and construction. Though segments like aerospace and defence are still small (Rs 35 crore-Rs 175 crore), the company reiterated the 2020 target of $100 million (Rs 650 crore each) for the two segments.
Higher raw material costs, employee and other expenses dented the operating performance which however beat estimates with operating profit up four per cent to Rs 324 crore. Margins at 27.4 per cent though over 200 basis points down over the year ago quarter were steady as the company has maintained this number for the four quarters of FY17. The management reiterated that margins will continue to be in the 27-30 per cent band. Reported net profit was up 25 per cent to Rs 207 crore boosted by one-off exceptional gains (sale of investments) of Rs 38 crore.
Growth in the auto segment is expected to rebound as the company highlighted class 8 truck segment to see a growth of 15-18 per cent in FY18. The class 8 truck market has been hit by lack of demand over the last couple of years and has been witnessing a falling trend barring recent months. On the domestic CV front, the company highlighted that demand post implementation of BSIV emission norms has been uncertain. Commercial vehicles is the single largest segment for Bharat Forge accounting for about 37 per cent of the company's revenues.
Going ahead, growth is expected to come from the long term export and domestic orders which has an annual value of $80 million and Rs 270 crore respectively. The orders are spread across various segments, geographies and new products.
To diversify its revenue streams and reduce risks, the company is targeting new products and businesses to scale up from the current five per cent to 15 per cent over the next couple of years. A bulk of the gains will come from the North American market with the ramp up in passenger car business and new orders from various sectors.
