IGI Logo

BHFC’s Q4FY23 results were in line with estimates (revenue/adjusted PAT up 19%/21% YoY). Margin was slightly above our estimates at 26.2% (+90bps QoQ), driven chiefly by gross margin expansion of ~90bps. We note the demand momentum for the CV portfolio (41% of standalone sales) is moderating with potential downside risks (new Class-8 truck orders on a declining trend), even though production levels/order backlogs are sustaining currently. Considering the lukewarm CV outlook and general emerging macro challenges in key markets, we retain our HOLD rating with a Mar-24 TP of Rs850 (at ~16.5x its FY25E EV/EBITDA; TP: Rs900 earlier).

In-line results in 4QFY23: BHFC’s Q4 revenue grew by 19% YoY to Rs20bn, in line with our estimates. Revenue growth was mainly driven by tonnage growth of 12% and realization growth of 6%. EBITDA margin expanded by 40bps YoY/90bps QoQ to 26.2%, above our estimate of 25.8% due to better-than-expected gross margins and operating leverage. Accordingly, adjusted PAT grew by 21% YoY to Rs3.2bn (our estimate: Rs3bn). Reported PAT includes exceptional loss of Rs406mn. Overseas subsidiaries reported EBITDA loss of Rs489mn vs. loss of Rs626mn in 3QFY23 and positive EBITDA of Rs746mn in 4QFY22, amid lower utilization in overseas aluminum forging capacities. BHFC declared the final dividend of Rs5.5/share, taking the total dividend for FY23 to Rs7/share. What we liked: Stable-to-positive growth outlook across segments. What we did not like: Ongoing losses in overseas subsidiaries.

Earnings Call KTAs: 1) Management expects single-digit domestic CV production growth in FY24E; 2) North America/Europe truck production is holding up and demand is stable (while evolution needs monitoring), with BHFC expected to outperform on market share gains; 3) Outlook for domestic industrials is improving, driven by renewables, infra development, and China Plus One tailwinds; BHFC expects continued double-digit growth in industrials (forgings and castings together); 4) Defence and aerospace businesses are now at an inflection point; management expects ~USD100mn defence revenue this year and aerospace to reach Rs5-6bn run rate in the coming years; the current defence order book stands at Rs20bn (entirely exports), with the domestic order for 307 ATAGS guns expected to materialize this year; 5) Capacity utilization in overseas subsidiaries is now at ~50%; the company has started receiving energy-related pass-through and is confident of Europe/North America returning to profitability in Q1FY24E/Q3FY24E, with overall margins moving towards mid-teen range by H2FY25E; 6) JS Auto has orders worth ~Rs4bn in hand; completion of bolt-on acquisition would see multifold rise in capacity/revenue in the coming years.

To Read Complete Report & Disclaimer Click Here

For More  Emkay Global Financial Services Ltd Disclaimer http://www.emkayglobal.com/Uploads/disclaimer.pdf & SEBI Registration number is INH000000354

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