Bharat Forge: Still in a trough

The severe depression in the truck markets, both overseas and at home, is hurting the auto parts maker’s business.

Bharat Forge’s European subsidiaries could turn in operating losses next year, reckons brokerage Citigroup. That together with the fact that nearly half the company’s exports from India are made to recession-hit economies overseas, could see consolidated profits fall by as much as 30 per cent in the current year followed by a fall of over 25 per cent in 2009-10.

Last year approximately 65 per cent of the firm’s revenues came from the European and American markets and the severe downturn in the truck industry in Europe, where sales are expected to fall by about 40 per cent in 2009, will continue to hurt the Rs 4,652 crore firm for some time to come.

Moreover, since a good 40-45 per cent of the parent company’s sales come from the truck segment, the slowdown in the Indian heavy vehicles market will also hurt the auto parts maker. While the momentum in the home market is expected to pick up sometime towards the end of 2009, the markets overseas could take a little longer to recover.

A weaker rupee though will help boost export earnings. The company’s operations in China, however, are understood to be operating at levels of around 25-30 per cent.

While revenues from non-auto components, which account for about a fifth of the Bharat Forge’s revenues, should grow at a reasonably good pace, scaling up the business quickly will be difficult at a time when expenditure in the oil and gas space is falling and spends in the engineering and marine sectors too could be under pressure.

While the stock has underperformed the market over the past year losing 62 per cent to the Sensex’s 40 per cent, at Rs 93, it still commands a fairly high price to earnings multiple of around 14 times estimated 2009-10 earnings, which is somewhat surprising.