Bharat Forge Q3 PAT up 109% to Rs 196 crore

Company grows exports by 53%, retires high-cost rupee debt to boost profitability

Bharat Forge continued to forge ahead in the December quarter. The company beat estimates by a long shot, as lower costs and robust sales shored up profitability. Exports rose 53 per cent during the quarter, which was driven by a 100 per cent jump in exports to the US. The company's net sales rose 44 per cent year-on-year to Rs 1,197 crore. The company's shipment tonnage grew 25 per cent year-on-year to 53,306 tonnes. By de-risking its business model, Bharat Forge has managed to drive topline growth, even as many parts of the world are seeing a sharp slowdown. Improved utilisation levels and better financial management has come to aid the bottomline. The company's utilised strong cashflows to retire Rs 358 crore of debt, of which Rs 326 crore was high cost rupee debt. In the fourth quarter, the company expects to retire another Rs 171 crore debt of high cost rupee debt.

The double-digit revenue growth has been driven largely by exports during the December quarter, even as the company is seeing a pick-up in the domestic market in the last couple of months. Domestic revenues have grown at 24 per cent year-on-year to Rs 408 crore, while export revenues are up 53 per cent to Rs 733 crore.

Exports to Americas have grown 113 per cent YoY, while Europe is up 1.3 per cent YoY. Asia Pacific revenues have declined 27 per cent YoY. The recent weakness in the euro is unlikely to impact the company in a negative way, as most of Bharat Forge's revenues are dollar denominated.

Improved utilisation has led to better operating leverage and this is has helped improve margins. The company's operating margins expanded 480 basis points YoY to 30.6 per cent. Robust growth in margins and revenues have driven the company's net profit, which rose 109 per cent YoY to Rs 196 crore.

The company stated in the earnings release that focus on sweating of assets and debt reduction has resulted in fixed costs (depreciation and interest) falling in FY15 by 430 basis points compared to the corresponding quarter in the previous financial year.

On the downside, the company believes there may be some impact from the oil and gas sector, which may see slower investments thanks to the fall in crude prices. However, a diversified business model may come to the rescue as the domestic commercial vehicle market is expected to revert to growth in the near term.