Sluggish demand in its key export markets, as well as slowdown in the domestic business led Bharat Forge to turn in below-par September quarter numbers. A 14 per cent fall in volumes year-on-year due to poor demand and expenses remaining flat led to a 3.4 per cent fall in net profit at Rs 103 crore. While domestic revenues fell for the second quarter in a row, an analyst with a foreign brokerage said the disappointment was largely due to the poor performance on the export front. “Exports for the last few quarters used to grow at an average 25 per cent annually but this has now slipped to eight per cent. Thus far, it was exports which were offsetting the fall in domestic growth but even that is now an issue.”
With exports contributing a significant chunk of profit and customers pruning their demand outlook, analysts have cut their earnings estimates in the 8-26 per cent range for FY13. At the current price, the stock is trading at 16.5 times its FY13 earnings estimates. Due to the series of analyst downgrades recently, the stock has lost 10 per cent over the last week, six per cent of which came in the past two days. Analysts expect the stock to be under pressure in the near term.
More pain ahead
The company’s chairman and managing director, B N Kalyani, indicated that global original equipment manufacturers (OEMs) are adjusting their production levels to correct inventory levels, leading to destocking of inventory across the pipeline. The company expects downward pressure due to decline in demand across auto & non-auto globally coupled with a sluggish domestic market in the coming two-three quarters. Bank of America Merrill-Lynch analyst Sanjaya Satapathy says the company is likely to be impacted till mid-CY2013 on account of production cuts by customers, such as Caterpillar, Schlumberger and PACCAR. These companies have announced cuts in the range of 10-20 per cent, due to lower demand for trucks and other machinery. Deutsche Bank analysts too, have raised concerns on the deteriorating outlook for the EU (demand concerns) and North American truck markets (weak order flow, inventory build-up), which put together contribute 45 per cent of the company’s consolidated revenues.
| MUTED GROWTH | ||
| In Rs crore | Q2FY13* | FY13E** |
| Net Sales | 867 | 6,282 |
| % ch y-o-y | -4.7 | 2.2 |
| Ebidta | 207 | 1,035 |
| % ch y-o-y | -5.1 | 3.8 |
| Ebidta (%) | 23.9 | 16.5 |
| Net profit | 103 | 437 |
| % ch y-o-y | -3.4 | 5.8 |
| * Standalone ** Consolidated E: Estimates, Source: Company, analyst reports | ||
Weak numbers
A 14.3 per cent fall in domestic revenue and a tepid eight per cent growth in export markets led to a five per cent fall in standalone revenues at Rs 867 crore. Its non-auto business, which accounts for 38 per cent of standalone revenues, grew 2.3 per cent to Rs 338 crore, driven by export orders, especially from the oil and gas sectors. The export growth market however, was set off by a steep fall in domestic orders due to the sluggish investment climate in the capital-intensive sector. While standalone revenues were lower, its wholly-owned international subsidiaries slipped into a loss while in its China business, losses widened on a sequential basis. While revenues were lower, a drop in expenses and higher realisations due to rupee depreciation helped the company maintain margins at 24 per cent.
