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Strong performance in a weak environment
BHFC’s Q4FY19 operating performance surpassed expectations with OPM at 31% against PLe of 29.3%, on the back of better realisations (up 24% YoY / 5% QoQ driven by a better product mix – higher share of exports). While the management plans to neutralise the impact of OEM production decline post BS VI implementation by way of higher content per vehicle and increasing market share, it seems like a long drawn strategy and we expect domestic auto segment revenue over FY21 to remain subdued. The company has also increased its capex spend over FY19 & FY20 to Rs8.5bn for its Baramati, Nelor and other capacity expansions, ramping up of which will have an impact on margins over FY20/21E. Given that we are already at the down cycle for the class 8 truck market and revenues from other businesses are not sizeable enough still to compensate for the same, we maintain Hold with a target price of Rs513, based on 21x Mar’21E Standalone EPS.
Revenue in-line; OPM ahead of expectations at 31%:
BHFC’s Q4FY19 revenues were higher 14% YoY (down 1% QoQ) to Rs16.7bn (PLe: Rs16.9bn), wherein shipment tonnage declined ~9% YoY (lower 6% QoQ), while net realisations surged ~24% YoY (up 5% QoQ) on account of a better revenue mix. In the geographical mix, domestic sales grew ~6% YoY, while exports were up a stronger 18% YoY (down 1% QoQ), forming 59.4% of net sales (v/s 56.8% in Q4FY18 & 59.1% in Q3FY19). Segment wise for domestic revenues, CV segment revenue plummeted 31% YoY, PV revenue was up 29% YoY while the Industrial segment for the company surged 58% YoY. As for exports, CV segment was up 14%, PV segment was higher 35% and the industrial segment rose 17% YoY. EBITDA margins stood at 31%, up 250bps YoY / down 10bps QoQ (PLe: 29.3%; Consensus: 29.3%), where absolute EBITDA grew 24% YoY (down 2% QoQ) to Rs5.2bn. With slightly higher non-operating income (up 46.5% YoY), net profit for the quarter stood at ~Rs3bn, up 58% YoY, against our estimate of Rs2.7bn.
Key con-call takeaways:
(1) Decline in the domestic CV segment revenue at 31% was more than the production decline owing to capacity constraints. (2) The management expects to compensate for the decline in the production expected in FY21 post BS VI by increase in market share and content per vehicle (expecting ~Rs8K rise in content per vehicle with BS VI implementation over time). (3) BHFC has increased its project capex spend over FY19 & FY20 to Rs8.5bn (earlier Rs7.5bn). (4) FY19 revenues reflect <20% of the total order wins from last year. 60- 70% of the new order wins are from the new sectors. (5) Major PV orders will fully ramp-up by FY21. Management expects to grow PV segment exports by ~20% and domestic volumes by ~50% by FY21 on the back of these orders. (6) Railway revenue currently is ~Rs800mn, while aerospace + defense revenue together has doubled over the past year to reach ~Rs4.4bn. (7) The management expects North America Class 8 trucks to record ~335K units over the current year. (8) There is slight slowdown in the Oil & gas segment on account of inventory correction and is expected to improve H2FY20 onwards. Oil & gas segment contributes <40% of total exports currently.
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