Bharat Forge Ltd RESULT UPDATE

Transcription

1 RESULT UPDATE 11 th August 2017

2 Aug-16 Oct-16 Dec-16 Feb-17 Apr-17 Jun-17 Aug-17 Please vote for us in Asiamoney Brokers Poll 2017: pp/asiamoney-brokers-poll-2017-vote-now India Equity Institutional Research II Result Update Q1FY18 II 11th August, Pricey valuation limits further upside CMP INR 1165 Target INR 1267 Potential Upside 9% Market Cap (INR Mn) 265,916 Recommendation ACCUMULATE Sector AUTO Result highlights Company s Net Sales for Q1 FY18 stood at INR 12,578 Mn which was up by 31.4% Y-o-Y and 6.3% Q-o-Q on the back of increase in export revenues due to robust demand in automotive and industrial sectors. Revenues for the quarter were mainly driven by Industrial business that grew by 80% Y-o-Y. EBIDTA stood at INR 3,333 Mn which grew by 36.37% y-o-y and 4.18% q-o-q. EBIDTA margin came in at 26.5% below our estimate of 28.1% but improved by 96bps Y-o-Y but remained low by 54bps Q-o-Q on back of increase in other expenses by 112bps Q-o-Q. Company s PAT stood at INR 1,503 Mn which was up by 61.27% Y-o-Y but decreased by 56.91% Q-o-Q. PAT Margin stood at 13.9% against our estimates of 18.0% on back of loss in other comprehensive income. MARKET DATA Shares outs (Mn) 233 Equity Cap (INR Mn) 466 Mkt Cap (INR Mn) Wk H/L (INR) 1220/766 Volume Avg (3m K) Face Value (INR) 2 Bloomberg Code BHFC IN SHARE PRICE PERFORMANCE Sensex Bharat Forge MARKET INFO SENSEX NIFTY 9820 KEY FINANCIALS Particulars (INR Mn) FY15 FY16 FY17 FY18E FY19E Net Sales EBITDA PAT EPS OPM (%) 18.90% 20.98% 19.75% 20.50% 21.50% NPM (%) 9.96% 9.92% 11.11% 10.80% 11.10% PE (x) Robust exports, revival in US markets and strong demand across all sectors aides the topline growth: Despite disruption caused by GST and other unfavorable conditions, BFL posted good sets of numbers and witnessed strong demand from all sectors in Q1FY18. Company s witnessed revival in Industrial segment which grew by 80% Y-o-Y driven by healthy demand from Oil and Gas segment. Company also witnessed robust growth in exports especially in US markets. USA reported a growth of more than 100% on the back of revival in demand from all sectors like passenger cars, rail, aerospace and majorly from commercial vehicles. Defence, new technologies and newly acquired business to drive company s top-line growth forward: Going forward we believe, company over the last few years has acquired lots of new business which has in gaining new technologies. According to the management, company is likely to ramp-up its operations in the acquired technologies by FY2019E. Furthermore, company s defense foray is also likely to materialize, with maiden order of INR 2,000 Mn by FY19E should result in significant uptick in revenues. Company other division, Aerospace segment, continues to receive new orders and with the new manufacturing plant being setup the company aims to be a fully machining company from current only forging company in this segment. We believe company s effort in the long run to be a diversified player in forging is likely to materialize over coming years, hence we expect company s topline revenue growth of 12.5% CAGR between FY17 to FY19E. Valuations & Views: We remain optimistic on BFL on back of company s revival in demand from US, however while demand in un-likley to be robust in near term, improving sentiments globally and revival in commodity should result in healthy order inflow for company. 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 30x for FY19 EPS of INR At the current market price of INR 1165, the stock is trading at 39x FY17 EPS of INR. 30, 24.6x on FY 18 EPS of 34.9 and 27x FY19E EPS of INR We recommend a Accumulate rating on the stock and value the stock at 30x FY19E EPS of INR 42.2 with a target price of INR 1,267 respectively. SHARE HOLDING PATTERN (%) Particulars Mar 17 Dec 16 Sep 16 Promoters FIIs DIIs Others Total % 18.6% PAT CAGR between FY 17 and Revenue CAGR between FY 17 and FY 19E FY 19E

3 Q1FY18 Result Snapshot Exhibit 1 Standalone Result Update (INR Mn) 3 Particulars Q1 FY18 Q4 FY17 Q1 FY17 Q-o-Q change % Y-o-Y change % Gross Sales % 33.61% Sales & Other Operating Income % 31.42% Total Expenditure % 29.73% (Increase) / Decrease In Stocks % % Cost of Raw Materials % 26.61% Employee Cost % 16.20% Excise duty paid on sales % 8.31% Other Expenses % 32.07% PBIDT (Excl OI) % 36.37% EBITDA Margins (%) 26.5% 27.0% 25.5% -54bps 96bps Depreciation % 4.65% EBIT & Exceptional Item % 50.14% Other Income % 1.13% EBIT % 43.73% Interest % 8.93% EBT % 47.04% Tax % 54.74% Net Profit from ordinary activity after tax % 43.44% Other Comprehensive Income % % PAT % 61.27% PAT Margin (%) 13.9% 17.5% 12.8% -362bps 117bps EPS % 43.51% Key Con-call Highlights: BFL is in partnership with Kalyani Strategic has won its maiden contract of INR 2,000 Mn, which is expected to be completed by FY19E. Management expects to fetch a double digit margin in the said order. In Passenger vehicle segment Bharat forge has won new customers and the management expects to grow by 30% in current year and expects to grow at similar pace in CVs too. Aerospace segment has received new orders, and with the new plant coming up the company aims to be fully machining from only forging in this sector. For aerospace the company has an aim of achieving USD 100 Mn by FY20. Exports of Oil and Gas stood at INR 1,600 Mn, largely from US and for CV stood at INR 2,850 Mn, of which INR 1,500 came from US. Company also witnessed strong growth of about 15% to 18% in Industrial segment arising from new products and new markets. Company s FY18 capex is likely to be in range of INR 3,000 Mn to INR 3,500 Mn to develop new products

4 4 Key Financials 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 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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