Bharat Forge: Triggers in place as commercial vehicles see uptrend

Market share gains in passenger vehicles should aid incremental revenue gains

The Bharat Forge stock shed over 4 per cent intra-day on Tuesday after declaration of its March quarter (Q4) results, which were marginally below expectations. The company took a one-time loss of Rs 1.33 billion that saw its net profit fall 52 per cent year-on-year (y-o-y).  Adjusted for this, the net profit was Rs 2.33 billion. The stock, however, recovered on the back of strong outlook for various businesses and positive management commentary, closing 2.2 per cent down. 

Buoyed by a 25 per cent jump in volumes and growth rate across key segments, the company reported 30 per cent growth in revenues in Q4 over the year-ago period. The company’s exports continue to be robust, exhibiting 36 per cent growth in revenues.

The key contributors to growth have been the North American heavy truck (class 8) business that accounts for about 20 per cent of standalone revenues.  The sectoral order inflows for the class 8 segment continues to be strong given the 48 per cent y-o-y jump in April.  The company expects a growth rate of 28 per cent from this business in the current year. 

What is aiding top line growth is also the strong demand growth in the domestic medium and heavy commercial vehicle (M&HCV) business, led by infrastructure spending and economic recovery. The company, which recorded revenue growth of 29 per cent y-o-y in 2017-18, expects domestic segment growth in the M&HCV business to be 10-12 per cent in the current financial year. Commercial vehicles accounted for 46 per cent of the standalone revenues. 

In the industrial segment, growth was largely driven by the oil and gas business that has been boosted by higher crude oil prices. The business, which is currently pegged at $100 million, is expected to double over the next three years. In addition to the strong base business, incremental growth is expected to come from new business orders worth Rs 15 billion largely from the industrial and passenger vehicle segments. The overall growth rate is expected to be in double digits as other verticals, such as defence, railways, aerospace and agriculture, start to contribute more to the top line.