Below est.; Sharp decline across businesses hurts performance
* 2QFY20 standalone (S/A) revenues declined 25% YoY to INR12.6b (v/s est. INR13.5b) due to lower tonnage (-23% YoY). Realizations declined 2.4% YoY to INR235.2k/t (v/s est. ~INR217.1k). EBITDA declined ~37% YoY to INR3b (v/s est. ~INR3.5b). EBITDA margins declined 450bp YoY (-230bp QoQ) to ~24% (v/s est. 26.2%) due to operating deleverage. PBT declined ~27% YoY. Lower tax boosted PAT to INR2.4b (v/s est. INR2.3b), a growth of ~8% YoY.
* 1HFY20 CFO grew ~151% to ~INR7.8b, benefiting from the reduction in working capital. Further, lower capex boosted FCFF to ~INR3.9b (v/s - INR4.5b in 1HFY19). 1HFY20 revenue/EBITDA/PAT declined ~17.5%/28%/9%.
* Key highlights from earnings call:
(a) Expect 2HFY20 to be weaker than 1HFY20 due weakness in India, US and EU;
(b) US Class 8 trucks should decline 20-25% in CY20; EU trucks are expected to decline 8-10%;
(c) Focus is on cutting costs, improving productivity and new product development. Also, company will concentrate on strengthening its balance sheet, FCF generation and inorganic opportunities;
(d) Current utilization is at ~50%; and
(e) Company has transferred Nellore plant (CLWT) to wholly-owned subsidiary to avail ~17% tax rate for new manufacturing units.
* Valuation view
We cut our FY20/21 consol. EPS estimate by 8-9% to factor in the headwinds seen in all key businesses. Over the last two years, BHFC has witnessed strong performance in all core businesses and ramp-up in nascent businesses. However, the cycle has turned negative for its core businesses of CVs and Oil & Gas. While the near-term outlook is challenging, we believe that BHFC is much better placed now than in the previous cycles and would emerge stronger with more diversified revenue streams. Valuations are attractive at 24.2x/19.4x on downcycle FY20/21E consol. EPS. Maintain Buy.
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