Bharat Forge: Q1FY15 Result Analysis

Auto components firm Bharat Forge reported robust numbers for the quarter ended June 2014.  On a standalone basis the bottomline of the company reported 60% growth on YoY basis to stand at Rs 145 crore.

Total net sales of the company in Q1FY15 stood at Rs 964.33 crore, up by 25% compared to Rs 771.65 crore during the same period in Q1FY14. 

EBITDA during the quarter grew by 48% on YoY basis to stand at Rs 290.8 crore. EBITDA margins expanded by 460 bps on the back of favorable product mix & exchange realization and increased capacity utilization.

In the media release, the company has stated that the automotive industry continues to witness depressed demand across segments despite the reduction in the excise duty from 12% to 10% which was expected to act as a catalyst in reviving the sector outlook in the near to medium term. The CV sector volumes declined 7.4% and 15.4% on sequential basis and YoY basis respectively, clearly a sign of the weak freight movement and other headwinds. It expects that with industrial growth starting to show signs of revival as visible from the past few month data and GDP growth expected to head northbound in a steady manner, the sector outlook for the rest of the year is looking positive.

In the overseas market, the CV market in North America continues to be robust on back of sustained levels of construction activity & improving economic activity. It is also being aided by the replacement of older fleets with more fuel efficient models. The EU markets have been soft in six months till June 2014 due to the pre-buy effect however OEM’s are indicating a revival in the 2nd half. Overall, the North American truck market is expected to register a strong double digit growth while EU is expected to witness volumes similar to CY 2013. The company continues to focus on enhancing its presence outside its traditional market and simultaneously focus on increasing share of business with their existing marquee clients and new client additions.

The industrial side of the business is starting to witness demand improvement from the domestic market, on back of improved sentiment and anticipated recovery in infrastructure spending while the export market continues to perform well driven by the company’s de-risked business model ensuring that any sluggishness in a particular segment is compensated by the other sectors. Industrial segment in Q1 FY15 has grown by around 10% on a sequential basis to Rs 417.6 crore. Industrial sector now accounts for 46% of standalone revenues, up from 39% in the corresponding period previous year.

Bharat Forge CMD B N Kalyani said: "Sales improvement coupled with favourable product mix resulted in improvement in EBITDA (earnings before interest, taxes, depreciation and amortisation) and robust cash flow." 

He said the company will continue to develop newer products for global markets and focus on improving product performance. "Looking ahead in Q2, we expect demand to improve across all segments with volumes increasing, except domestic market where improvement may take some time," he added. Backed by robust results, the stock may trade with a positive bias in the coming few sessions.