Bharat Forge: Stronger recovery key

Higher commodity prices, infrastructure focus of new US govt could help the company further

Bharat Forge’s December quarter numbers were broadly in line with expectations. While revenues fell 11 per cent over a year ago to Rs 990 crore, they were up 5.8 per cent over the previous quarter. Though domestic and export revenues are identical at Rs 480 crore, growth of exports was higher at 7.5 per cent compared to domestic rate of 3.2 per cent. One trigger in export segment is industrial revenues, up 46 per cent over September quarter. Slowdown in the industrial segment had led to steep fall in export revenues over the last few quarters. 

The management indicated the industrial performance was largely led by North American oil and gas industry. The segment is witnessing a revival with rig count up 136 per cent from its bottom in April 2016. Higher commodity prices and infrastructure focus of new US administration leading to higher mining and construction spends could help. The other segment that will help is the North American Class 8 truck market. 

In India automotive business, the company continues to gain share in the truck market. Sales to medium and heavy commercial vehicle companies grew six per cent as against sector growth of 4.8 per cent. While uncertainty on goods and services tax Bill has led to delay of purchases, pre-buying ahead of April 1 emissions deadline is expected to keep sales healthy. On industrial segment side, the company continues to see healthy traction, growing at 35 per cent year on year.

Operating profit over year ago fell 20 per cent to Rs 272 crore, both due to weaker revenue as well as higher input costs. Raw material costs as a percentage of sales went up a per cent on sequential and year-on-year basis. Despite higher raw material costs, the company posted operating profit margin of 27.5 per cent in quarter as against 27 per cent in the September quarter. This is attributed to better product mix and cost control. Weaker operating performance reflected in net profit, which fell 21.5 per cent over the year-ago period.