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In-line operating performance; Headwinds emerging in key businesses
* S/A revenue grew 14% YoY to INR16.7b (our est. INR17.3b), as realization grew 24.7% YoY to INR266k/t, but tonnage declined ~4% YoY to 62.7k/t. EBITDA was in line at INR4.8b, up 22% YoY. EBITDA margin at 29.1% (our est. 28.3%) expanded 30bp QoQ (+200bp YoY). Higher other income, Fx gains and lower depreciation aided adj. PAT to grow 63% YoY to INR3b (our est. INR2.7b). FY19 Revenue/EBITDA/PAT grew 23%/19%/35%.
* Key highlights from earnings call:
(a) In FY19, BHFC won new orders worth USD50m — of this, 60-70% was from the non-CV segment. (b) US Class 8 volumes expected at 330k in CY19 (+5% YoY). (c) Sees headwinds in CVs (domestic), PVs (global) and Oil &Gas (O&G) in 1QFY20, but expect recovery from 2QFY20. (d) Capex for FY20 at INR4-5b (FY19 at ~INR8.6b); expect capex intensity to decline significantly post FY20.
* Valuation view:
We have lowered our FY20/21 consol. EPS by ~10%/2% to factor in headwinds in key businesses. BHFC has delivered strong operating performance over the last two years, led by strong recovery in all its key segments (CVs in the US and India, and Oil & Gas) and ramp-up in nascent businesses like PVs, aerospace, defense, etc. However, all three key businesses are staring at weakness in FY21, though BHFC would continue to outperform due to new products/customers. Also, noise surrounding the US-China trade war has resulted in the stock correcting over 30% from the recent highs (despite PAT growth of ~35% in FY19). Post correction, valuations are attractive at 19.8x/18x FY20/21 consol. EPS. Maintain Buy with TP of ~INR595 (~22x Mar-21 consol EPS)
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