IGI Logo

Valuation and View

Bharat Forge (BHFC) 1QFY23 results were better as revenue/EBITDA/Adj. PAT beat our estimates by ~3%/12%/10% respectively. Despite cost headwinds in overseas business, EBITDA grew ~7% QoQ to Rs4.6b with margins beating our estimates at 26.1% (+40bp QoQ/?240bp YoY, est 24%) is key positive. The company has reported ~1% QoQ/8% YoY growth in tonnage at ~57.9k amidst tough times in Europe and other geographies. The management has hinted towards sustenance of healthy demand momentum across segments going forward led by aerospace, mining and renewable energy (industrial) and PV (auto). This we believe, should help BHFC navigate inflationary pressure (RM, logistics or energy cost) and drive gradual margins expansion over FY23?24E.

BHFC’s diversification strategy is yielding results with incremental focus on creating capacities for EV specific products on one hand coupled with intensified focus on industrial segments (like Defense, Aerospace, Renewables) creating new revenue pools to de?risk its overall business.  Hence, we believe BHFC is better placed than its previous cycles to benefit from i) steady orders and ramp up in domestic/exports PVs and CVs and ii) healthy outlook for industrials (with strong wins in segments like Aerospace, defense, mining, agriculture). We raise FY23/24 EPS to factor in for better ASPs. We reiterate BUY rating on the stock with TP of Rs865 (earlier Rs848) based on ~26x FY24 consol EPS (unchanged). We reiterate BHFC as one of our preferred picks among ancillaries.

Result Highlights – Healthy beat driven by better gross margins

* SA Revenues came in line at Rs17.6b (+5% QoQ/+28% YoY, cons Rs16.6b) led by ~0.6% QoQ/8% YoY growth in shipment tonnage at 57.9k (est at 59.3k) coupled with growth of ~4% QoQ/ 18.5% YoY in realizations at ~Rs304k/ton (est at Rs303k/ton).

* Domestic revenue de?grew ~4% QoQ while exports grew 12% QoQ.

* Gross margins expanded ~200bp QoQ at 58.7% (est at 56.4%). This resulted in ~7% QoQ/18% YoY growth in EBITDA at Rs4.6b (est at Rs4.1b, cons at Rs4.2b).

* Consequently margins expanded ~40bp QoQ/(?240bp YoY) at 26.1% (est at 24%).  

* Adj. PAT came in higher at Rs2.5b (?7% QoQ/+15% YoY, est at Rs2.2b/cons at Rs2.5b) as better op profit was further benefitted by lower interest cost at Rs263m (est at Rs410m).

To Read Complete Report & Disclaimer Click Here

Please refer disclaimer at https://yesinvest.in/privacy_policy_disclaimers
SEBI Registration number is INZ000185632

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