Bharat Forge Ltd RESULT UPDATE

Transcription

1 RESULT UPDATE 25 th May 2017

2 May-16 Jul-16 Sep-16 Nov-16 Jan-17 Mar-17 May-17 India Equity Institutional Research II Result Update - Q4FY17 II 25th May, Pricey valuation limits further upside CMP INR 1114 Target INR 1177 Potential Upside 6% Market Cap (INR Mn) Recommendation ACCUMULATE Sector AUTO Result highlights Net Sales for the quarter stood at INR 11,832 Mn which was up by 11.6% Y-o-Y and improved by 19.5% Q-o-Q, growth for the quarter was led by strong growth in exports (which grew by 23%), domestic (grew by 17%) led by strong recovery in Industrial segment (28% Q-o-Q) and Automobile segment (15% Q-o-Q). EBIDTA stood at INR 3,199 Mn which grew by 4.7% Y-o-Y and 22.7% Q-o-Q. However margins declined by 179bps from 28.8% to 27% and has slightly improved by 72bps Q-o-Q. COGS as percentage of sales increased by 297bps Y-o-Y but improved 112bps Q-o-Q. Personnel cost increased 27bps Q-o- Q but improved 39bps Q-o-Q. Other expenses increased remained elevated (16.8% Y-o-Y) but improved substantially by 285bps Q-o-Q. Adj.PAT stood for the quarter at INR 3489 Mn which increased by 114% Y-o-Y and increased 117% Q-o-Q. PAT Margin stood at 17.5% against 15.9% of previous year s corresponding quarter. Sequentially margins improved 454bps, mainly led by lower tax provision and resulting out of gain from its associates. PAT for the year stood at INR 5,851Mn against INR 6,976Mn MARKET DATA Shares outs (Mn) Equity Cap (INR Mn) Mkt Cap (INR Mn) Wk H/L (INR) 1175/687 Volume Avg (3m K) Face Value (INR) 2 Bloomberg Code SHARE PRICE PERFORMANCE Sensex MARKET INFO BHFC IN SENSEX NIFTY 9361 KEY FINANCIALS Particulars (INR Mn) FY15 FY16 FY17 FY18E FY19E Net Sales EBITDA PAT EPS OPM (%) 18.90% 18.59% 20.40% 20.50% 21.50% NPM (%) 9.60% 8.50% 10.38% 10.80% 11.10% PE (x) Improved sentiment in US, revival in global economy and domestic recovery to aid top-line growth: Bharat Forge in the last one year has struggled in order traction leading from weak sentiments on back of down-turn in commodities dragging the global economy and Bharat Forge s revenue down. Down-fall in oil prices has also affected the company s US operation leading to lower fleet in US in past 1 year affecting lower orders from its US clients. However, the recent uptick in commodity prices, new elected President in US has resulted into improvement in sentiments globally. We believe coupled with revival in domestic economy should result-in overall improvement in growth from Industrial segment. Company s automobile sales are also likely to grow albeit at moderate rate. However, company s foray in Electric Vehicle (EV)/ Hybrid cars and Aluminum forging should help company in posting better revenue growth going forward. Margins unlikely to improve in immediate term: Rising input cost has dented the hopes of achieving record high margins for BFL. We expect BFL to post flattish EBITDA margin (~28%) over couple of quarters. Cost pressure like rise in import duty in USA could further increase overall cost. However, changing product mix, addition of high value products and improving realization should help BFL sustain its margin in near-term. However, in the longer run increasing capacity utilization should result in higher operational efficiency. Valuations & Views: We remain cautiously optimistic on BFL on back of renewed domestic demand for its industrial products. However, any change in sentiments on global front, coupled with geo-political risk remains a overhang on the stock. We expect margins to remain flat for couple of quarters as change in product mix will yield result gradually. We have assigned a P/E of 28x for FY19 EPS of INR At the current market price of INR 1114, the stock is trading at 36.5x FY17 EPS of INR. 30, 24.6x on FY 18 EPS of 34.9 and 21x FY19E EPS of INR We recommend a Accumulate rating on the stock and value the stock at 29x FY19E EPS of INR 40.6 with a target price of INR 1,177 respectively. SHARE HOLDING PATTERN (%) Particulars Mar 17 Dec 16 Sep 16 Promoters FIIs DIIs Others Total % 16.3% PAT CAGR between FY 17 and Revenue CAGR between FY 17 and FY 19E FY 19E

3 Q4FY17 Result Snapshot Exhibit 1 Consolidated Result Update (INR Mn) 3 Particulars Key Con-call Highlights: The Management expects its global Industrial segment to outperform as company is expecting revival across the segment, mainly led by Oil & Gas segment. However, Management has guided geo-political space to remain as a big risk. Q4 FY17 Q3 FY17 Q4 FY16 Q-o-Q change % Y-o-Y change % Gross Sales % 11.63% Sales & Other Operating Income % 11.63% Total Expenditure % 14.43% (Increase) / Decrease In Stocks % % Cost of Raw Materials % 20.22% Employee Cost % 15.18% Excise duty paid on sales % 19.68% Other Expenses % 16.86% PBIDT (Excl OI) % 4.71% EBITDA Margins (%) 27.0% 26.3% 28.8% 72bps -179bps Depreciation % -0.16% EBIT & Exceptional Item % 6.28% Exceptional Items Other Income % % EBIT % 17.52% Interest % -8.09% EBT % 19.67% Tax % 11.37% Net Profit from ordinary activity after tax % 23.19% Other Comprehensive Income (53.90) - - PAT % % PAT Margin (%) 17.5% 13.0% 15.9% 454bps 165bps EPS % 25.32% On the domestic Automobile front company expects to benefit out of transition from Bharat Stage Norms (BS4) to BS6 and expects domestic demand to revive leading out of it. Company has also commenced Aluminum forging for the Indian OEM s and is seeing good traction. The Management has further guided on improvement in orders for company s products like engine components and other Automobile products. On the domestic Industrial segment, the Management has appreciated Government s effort for its Make in India program. Company has identified few sectors namely Mining, Power, Railways and Defense to tap this opportunity. The Company secured USD 120Mn worth of new business wins spread across geographies and business verticals. Going forward, company expects significant contribution coming in from its new products, which company has developed over the last two years.

4 4 Exhibit 2: Income Statement Total Sales Total Raw Materials COGS EBITDA Depreciation Interest & Finance charges Other Income Extraordinary items EBT (as reported) Tax PAT Min. Int Share in gain/loss of assoc RPAT Extraordinaries adj APAT RPAT after pref. div APAT after pref. div Exhibit 3: Balance Sheet Equity Share Capital Reserves Net worth Minority Interest Total loans Deferred tax liability (Net) Capital Employed Gross Block Depreciation Net block CWIP Goodwill Intangible Investments Inventories Sundry debtors Cash and bank Loans and advances Other Current Assets Total Current assets Total Current liabilities Net Current assets Capital Deployed

5 5 Exhibit 4 : Cash flow statement PAT Depriciation & Amortization Incr/(Decr) in Deferred Tax Liability (Incr)/Decr in Working Capital Cash Flow from Operating (Incr)/ Decr in Gross PP&E (Incr)/Decr In Work in Progress (Incr)/Decr In Investments (Incr)/Decr in Other Non-Current Assets Cash Flow from Investing (Decr)/Incr in Debt (Decr)/Incr in Minority Int (Decr)/Inc in Other reserves Dividend Cash Flow from Financing Incr/(Decr) in Balance Sheet Cash Cash at the Start of the Year Cash at the End of the Year Exhibit 5 : Ratio Analysis Growth (%) Total Sales EBITDA APAT Profitability (%) EBITDA Margin Adj. Net Profit Margin ROIC ROE Per Share Data (Rs.) AEPS Reported CEPS BVPS Valuations (x) PER (x) PEG (x) P/BV (x) EV/EBITDA (x) EV/Net Sales (x) Dividend Yield (%) Turnover days Debtor Days Payable Days Gearing Ratio D/E

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