Thursday, February 9, 2012

>BHARAT FORGE: Strong outlook to drive valuations higher

 PAT ahead of estimates on account of robust Top‐line: Bharat Forge (BFL) reported 21.1% YoY growth in its top-line at Rs9.4bn (PLe-Rs8.9bn) on account of an improvement of 29.2% YoY in export revenues at Rs4.6bn (Rs4.3bn in Q2FY12). Tonnage production for the quarter grew by 15.2% YoY to 55,412MT (53,740MT in Q2FY12). EBITDA grew by 26.2% YoY to Rs2.4bn (PLe- Rs2.1bn), whereas EBITDA margin improved 100bps YoY to 25.4% (Q2FY12–24.0%). EBITDA/kg grew by 9.6% YoY to Rs43.7/kg (Rs40.1/kg in Q2FY12), thereby, reflecting robustness of earnings. Due to lower interest expenses, PAT (adjusted for forex loss of Rs162m) grew by 46.8% to Rs1.18bn (PLe: Rs1.0bn).

 Non‐Auto revenues increased by 12.7%: Driven by higher contribution of the new non-auto facilities at Baramati, which grew by 55.5% YoY in revenues at Rs1.9bn (Rs1.8bn in Q2FY12), the overall non-auto business grew by 12.7% YoY to Rs 3.2bn (Rs3.3bn in Q2FY12). Non-auto contribution in standalone revenues now stands at ~34%.

 Overseas subsidiaries margins expand 170bps YoY: Top-line, on a consolidated basis, grew by 14.4% YoY, with EBITDA performance improving by 43.1%. Overseas subsidiaries reported a top-line growth of 5.6% YoY to Rs6.6bn (Q2FY12 –Rs6.5bn), with an EBITDA margin of 5.5% for the quarter (Q2FY12- 5.9%). Adj. PAT, on a consolidated basis grew by 41.6% YoY at Rs1.2bn

 Outlook and Valuation: Operating leverage, coupled with higher utilization at the new non-auto facility in FY13E, will lead to EBITDA margins of ~25.5% on a standalone basis by FY13E. We value the company on SOTP basis, with standalone business valued at Rs317/share and subsidiaries/JVs valued at Rs26/share. With improving ROE and strong cash flows, we reiterate our ‘Accumulate’ rating on the stock.