IGI Logo

Sharp recovery seen in all businesses; upgrade EPS

Greenfield capex with focus on the Defense and e-Mobility space

* Strong performance by BHFC in 4QFY21 was driven by a strong recovery in the Auto export business and resultant benefits of operating leverage. While all core businesses are expected to witness a sharp cyclical recovery, BHFC’s huge plans in Defense and e-Mobility is starting to fructify with the setting up of a greenfield plant focusing on these areas.

* We raise our consolidated EPS by 17%/18% for FY22E/FY23E, driven by revenue upgrades due to a strong cyclical recovery. We maintain our Buy rating with a TP of INR850/share (28x Mar’23E EPS).

Strong performance led by Auto and non-Auto verticals

* Standalone revenue/EBITDA/adjusted PAT grew 48%/125%/LTP YoY to INR13b/INR3.3b/INR2.1b. The same in FY21 declined 20%/29%/42% YoY to INR36.5b/INR7.3b/INRINR3.2b.

* Volumes grew 39% YoY to 55.8k tonne (est. 55.7k tonne). Realizations grew 7% YoY (15% QoQ) to INR234.1k/t (est. ~INR214.6k/t) due to better mix and steel price pass through. Adjusting for the steel price pass through benefit, realization stood at INR227k/t.

* CV exports/India CV/PV exports grew 66%/126%/48% YoY (up 25%/34%/55% QoQ). Domestic PVs grew 27% YoY (-11% QoQ). Non-Auto exports grew 22% YoY (+91% QoQ) due to good performance in both domestic and export markets.

* Gross margin declined ~340bp YoY to 59.7% (est. 61.8%). However, operating leverage supported EBITDA margin improvement by 870bp YoY (+300bp QoQ) to 25.5% (est. 24.2%).

* Forex gains boosted adjusted PAT by ~INR2.1b (est. ~INR1.6b).

Highlights from the management interaction

* CV outlook: The outlook for US Class 8 Trucks stands at 300k for CY21 (v/s 210k in CY20). The management views the USD6t US infrastructure push as a big opportunity. The Indian CV industry is expected to pick up from 2HFY22.

* Greenfield expansion: It is in the process of acquiring 70 hectares of land, with an investment of up to INR2.4b over three years. This facility will provide it flexibility to house all new initiatives, including Defense and e-Mobility.

* Overseas subsidiaries: Major cost optimization initiatives at overseas subsidiaries have improved EBITDA margin to 10% in 2HCY20 from 5% in FY18/FY19. It expects to drive margin to 12% over the next few quarters in its EU operations.

* Sanghvi Forgings: It will help grow the domestic Industrial business in Wind and Hydro Energy. BHFC has a robust plan for turnaround of this debt-strapped company.

* Capex for FY22/FY23 will be ~INR3b/~INR2.5b.

Valuation and view

* All businesses are witnessing a sharp cyclical recovery. This, coupled with its focus on creating new revenue pools in defense and e-Mobility, can further lead to de-risking of the business. We estimate consolidated revenue/EBITDA/PAT to grow at a 31%/68%/302% CAGR (FY21-23E). The stock trades at 40.4x/24.6x FY22E/FY23E consolidated EPS. We maintain our Buy rating with a TP of INR850/share.

To Read Complete Report & Disclaimer Click Here

For More Motilal Oswal Securities Ltd Disclaimer http://www.motilaloswal.com/MOSLdisclaimer/disclaimer.html SEBI Registration number is INH000000412

Above views are of the author and not of the website kindly read disclaimer