Bharat Forge - 3QFY2012 Result Update - Angel

Strong performance at the standalone level: BHFC reported in-line 21.1% yoy (3.4% qoq) growth in its standalone revenue to Rs.941cr, driven by the strength of its exports segment, which grew by 29.2% yoy (7.6% qoq). Strong growth in the CV segment in the U.S. and Europe continued to drive exports revenue, which grew by 35% and 27.3% yoy in the U.S. and Europe, respectively. Volumes in tonnage terms increased by 15.2% yoy (3.1% qoq) to 55,412MT and net average realization jumped by 6% yoy (1.5% qoq). EBITDA margin improved by 38bp yoy (99bp qoq) to 24.7%, driven by favorable product mix, higher proportion of machining component and operating leverage benefits. Net profit registered betterthan-expected 24.9% yoy (down 3% qoq) growth to Rs.103cr, led by stable operating performance. However, forex loss of Rs.9.1cr on forward contracts on exports led to lower other income (down 73.3% yoy and 83.8% qoq), which restricted profitability.

Consolidated performance impacted by China operations: The company's top line on a consolidated basis grew by healthy 14.2% yoy (2.6% qoq) to Rs.1,599cr, driven largely by standalone operations. China operations were impacted on account of weakness in Chinese automotive market, leading to lower capacity utilization. EBITDA margin improved by 97bp yoy (50bp qoq) to 16.8%, resulting in a 17.7% yoy (down 3% qoq) increase in PBT to Rs.151cr. Noticeably, China operations reported loss at the PBT level of Rs.2.2cr in 3QFY2012 (profit of Rs.1.4cr in 2QFY2012 and Rs.5.7cr in 3QFY2011).

Outlook and valuation: We expect BHFC to register a 20.4% revenue CAGR over FY2011-13E, led by revival in domestic CV sales and continued momentum in exports and non-auto segments. Further, margins are expected to remain stable, led by rationalization of overseas capacities and moderating raw-material prices, leading to a strong 33.3% net profit CAGR over the same period. At Rs.307, BHFC is trading at 13.9x FY2013E earnings. We maintain our Accumulate rating on the stock with a target price of Rs.332, valuing it at 15x FY2013E earnings.

Source : Equity Bulls

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