Bharat Forge skids on non-auto exports

Management is, however, confident of growth coming back in the second half

A sharp fall in non-automobile exports, down about 30 per cent over a year, led to muted growth in revenue for Bharat Forge in the September quarter. Standalone revenue was down by about two per cent to Rs 1,116 crore. Operating profit was down 6.3 per cent to Rs 336 crore on a sequential basis and was one per cent up, year on year. The Bloomberg consensus estimate was for revenue at Rs 1,223 crore, operating profit at Rs 355 crore and net profit at Rs 203 crore. With the company reporting a net profit of Rs 175 crore, it fell short of expectations on all three.

The performance was also in sharp contrast to the June quarter numbers, wherein revenues and operating profit were up 14 per cent and 23 per cent over year before. Realisations for the September quarter were also down sequentially, given falling commodity prices and a poorer product mix. While the margins were down 188 basis points sequentially to 28.8 per cent (up 30 bps over a year), the company has maintained that these will be maintained within 29-31 per cent.

While overall exports form about 57 per cent of standalone revenue, the non-automobile or industrial exports segment, earlier half of export, has due to the global commodity slowdown come down to 37 per cent. The industrial export segment is down 30 per cent. The key segment within this which has been under-performing is oil and gas, down 50 per cent over a year. The outlook for non-auto export continues to be muted over the next couple of quarters.

Within auto exports, the company is looking at growing the passenger vehicle business. From three per cent of exports a year before, these have grown to nine per cent. The company hopes to make this 20 per cent by FY18.

In the home market, all segments within the non-auto space such as railways, mining and general engineering have delivered, with the company reporting 20 per cent growth. How the company executes, coupled with progress in areas such as defence, will be keenly watched. Within the domestic auto space, while the growth in commercial vehicles has been good, there has been a slowing in tractors and utility vehicles.

The management, however, sounds confident of riding out the fall in export demand, with new products, clients and programmes in both auto and non-auto segments. It believes things will start improving in the second half of this financial year, with the December quarter reflecting some growth. Despite the September quarter performance and muted outlook on some sectors, the management has stuck to its FY18 revenue forecast of Rs 7,000 crore. Given the revenue of Rs 4,500 crore in FY15, it will have to maintain 20-25 per cent annual revenue growth over the next two years for this.

Analysts say given the management commentary and various avenues for the company to ride out the industrial segment slowdown, revenue growth should come back over the next couple of quarters, As a result, they believe the stock correction is overdone. The stock fell about about 30 per cent over the past couple of months and shed another six per cent on Thursday. Analysts say it is now an attractive bet for the long term.