RESULT UPDATE 25 th May 2017
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, 2017 2 Pricey valuation limits further upside CMP INR 1114 Target INR 1177 Potential Upside 6% Market Cap (INR Mn) 252494.9 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 130 80 MARKET DATA Shares outs (Mn) 232.79 Equity Cap (INR Mn) 465.6 Mkt Cap (INR Mn) 252494.9 52 Wk H/L (INR) 1175/687 Volume Avg (3m K) 820.4 Face Value (INR) 2 Bloomberg Code SHARE PRICE PERFORMANCE Sensex MARKET INFO BHFC IN SENSEX 30302 NIFTY 9361 KEY FINANCIALS Particulars (INR Mn) FY15 FY16 FY17 FY18E FY19E Net Sales 76222 76465 67174 75235 85016 EBITDA 14407 14213 13703.4 15423 18278 PAT 7345 6531 6976 8125 9437 EPS 31.6 28.1 29.96 34.95 40.6 OPM (%) 18.90% 18.59% 20.40% 20.50% 21.50% NPM (%) 9.60% 8.50% 10.38% 10.80% 11.10% PE (x) 34.62 38.93 37.18 31.88 27.45 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 40.6. 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 40.6. 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 45.75 45.75 46.74 FIIs 15.18 11.7 7.78 DIIs 19.77 23.28 25.83 Others 19.3 19.27 19.65 Total 100 100 100 12.5% 16.3% PAT CAGR between FY 17 and Revenue CAGR between FY 17 and FY 19E FY 19E
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 11832 9900 10599 19.51% 11.63% Sales & Other Operating Income 11832 9900 10599 19.51% 11.63% Total Expenditure 8633 7294 7544 18.35% 14.43% (Increase) / Decrease In Stocks 74-343 312-121.68% -76.15% Cost of Raw Materials 3879 3419 3227 13.45% 20.22% Employee Cost 1035 905 898.4 14.38% 15.18% Excise duty paid on sales 575 463 481 24.21% 19.68% Other Expenses 3069 2850 2626 7.67% 16.86% PBIDT (Excl OI) 3199 2606 3055 22.77% 4.71% EBITDA Margins (%) 27.0% 26.3% 28.8% 72bps -179bps Depreciation 744 739 745.1 0.68% -0.16% EBIT & Exceptional Item 2455 1867 2310 31.51% 6.28% Exceptional Items 380.2 0 0 - - Other Income 222 208 291.4 6.94% -23.85% EBIT 3057 2075 2602 47.38% 17.52% Interest 185 183 201.6 1.37% -8.09% EBT 2872 1892 2400 51.83% 19.67% Tax 797 606 716 31.66% 11.37% Net Profit from ordinary activity after tax 2075 1286 1684 61.32% 23.19% Other Comprehensive Income 1414-28 (53.90) - - PAT 3489 1259 1630 177.20% 113.99% PAT Margin (%) 17.5% 13.0% 15.9% 454bps 165bps EPS 8.91 5.52 7.11 61.41% 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 Exhibit 2: Income Statement Total Sales 67158.5 76222.0 76465.3 63961.5 Total Raw Materials 24609.0 28825.7 26017.4 24357.8 COGS 28995.6 33554.8 30233.5 24357.8 EBITDA 9904.3 14367.4 14132.9 12510.6 Depreciation 3571.5 3623.3 4187.2 4520.5 Interest & Finance charges 1691.5 1355.8 1402.6 999.6 Other Income 2283.9 1794.1 1335.5 1192.8 Extraordinary items 0.0 0.0 0.0 1284.3 EBT (as reported) 6925.2 11182.4 9878.6 9467.6 Tax 2100.1 3586.9 3408.4 2491.7 PAT 4825.1 7595.5 6470.2 6975.9 Min. Int. -160.4-29.8-29.6 61.0 Share in gain/loss of assoc. 0.0 0.0 0.0 1167.7 RPAT 4985.5 7625.3 6499.8 8082.6 Extraordinaries adj. 485.9 316.7-63.6 0.0 APAT 4499.6 7308.6 6563.4 8082.6 RPAT after pref. div. 4985.5 7625.3 6499.8 8082.6 APAT after pref. div. 4499.6 7308.6 6563.4 8082.6 Exhibit 3: Balance Sheet Equity Share Capital 465.7 465.7 465.7 465.7 Reserves 26366.7 33976.0 35291.9 40698.0 Net worth 26832.4 34441.7 35757.6 41163.7 Minority Interest 170.2 0.0 0.0 100.4 Total loans 25613.1 25464.2 29594.9 23212.5 Deferred tax liability (Net) 1644.6 1637.6 1830.9 2606.2 Capital Employed 55598.3 63335.9 69598.5 68967.6 Gross Block 53944.6 56983.6 70719.8 72095.6 Depreciation 28604.3 30696.8 35366.2 39886.7 Net block 25340.3 26286.8 35353.6 32208.9 CWIP 5826.7 8696.4 5827.7 3997.3 Goodwill 0.0 0.0 0.0 424.2 Intangible 0.0 0.0 0.0 669.3 Investments 8012.0 4955.4 8037.1 3683.8 Inventories 10385.8 10339.0 11825.7 10752.0 Sundry debtors 8659.7 8534.7 11464.2 13410.7 Cash and bank 4227.4 6819.9 4755.1 3360.9 Loans and advances 10270.2 14071.5 9092.9 392.0 Other Current Assets 0.0 0.0 0.0 6053.3 Total Current assets 33543.1 39765.1 37137.9 42203.5 Total Current liabilities 19746.9 19023.2 19918.0 19439.8 Net Current assets 13796.2 20741.9 17219.9 22763.7 Capital Deployed 55598.3 63335.9 69598.5 68967.6
5 Exhibit 4 : Cash flow statement PAT 7595.5 6470.2 6975.9 0.0 Depriciation & Amortization 1230.8 2092.5 4669.4 4520.5 Incr/(Decr) in Deferred Tax Liability 299.2-7.0 193.3 775.3 (Incr)/Decr in Working Capital -2463.3-4353.2 1457.2-6938.0 Cash Flow from Operating 3731.4 5298.0 12760.5 5394.7 (Incr)/ Decr in Gross PP&E 2527.4-3039.0-13736.2-1375.8 (Incr)/Decr In Work in Progress 497.4-2869.7 2868.7 1830.4 (Incr)/Decr In Investments -3852.4 3056.6-3081.7 4353.3 (Incr)/Decr in Other Non-Current Assets -15.4-32.3-504.8-3153.7 Cash Flow from Investing -843.0-2884.4-14454.0 1654.2 (Decr)/Incr in Debt -2346.0 305.5 4753.4-6912.7 (Decr)/Incr in Minority Int. -1311.9-140.4 29.6 39.4 (Decr)/Inc in Other reserves -4825.1-7595.5-6470.2-6975.9 Dividend 0.0 0.0 0.0 0.0 Cash Flow from Financing -4214.5 178.9-371.3-8443.1 Incr/(Decr) in Balance Sheet Cash -1326.1 2592.5-2064.8-1394.2 Cash at the Start of the Year 5553.5 4227.4 6819.9 4755.1 Cash at the End of the Year 4227.4 6819.9 4755.1 3360.9 Exhibit 5 : Ratio Analysis Growth (%) Total Sales 30.0 13.5 0.3-16.4 EBITDA 42.9 45.1-1.6-11.5 APAT 54.5 62.4-10.2 23.1 Profitability (%) EBITDA Margin 14.7 18.8 18.5 19.6 Adj. Net Profit Margin 6.7 9.6 8.6 12.6 ROIC 8.2 12.6 10.1 8.8 ROE 18.2 23.9 18.7 21.0 Per Share Data (Rs.) AEPS 19.3 31.4 28.2 34.7 Reported CEPS 37.5 48.1 46.7 49.4 BVPS 115.2 147.9 153.6 176.8 Valuations (x) PER (x) 57.1 35.2 39.2 31.8 PEG (x) 1.0 0.6-3.8 1.4 P/BV (x) 9.6 7.5 7.2 6.2 EV/EBITDA (x) 28.6 19.7 20.3 22.4 EV/Net Sales (x) 4.2 3.7 3.7 4.4 Dividend Yield (%) 0.0 0.0 0.0 0.0 Turnover days Debtor Days 45.2 41.2 47.7 71.0 Payable Days 257.1 210.9 235.1 294.9 Gearing Ratio D/E 1.0 0.7 0.8 0.6
6 Rating Legend Date CMP (INR) TP (INR) Recommendation Our Rating Upside 25-May-17 1114 1177 Accumulate Buy More than 15% 09-Feb-17 967 1126 BUY Accumulate 5% 15% 09-Nov-16 850 924 Accumulate Hold 0 5% 08-Aug-16 814 924 Accumulate Reduce -5% 0 Sell Less than 5% CERTIFICATION: I, Ankit Merchant (M Com, BMS), research analyst, & Shweta Koltharkar (BCom, DFM), research associate, author and the name subscribed to this report, hereby certify that all of the views expressed in this research report accurately reflect my views about the subject issuer(s) or securities. I also certify that no part of our compensation was, is, or will be directly or indirectly related to the specific recommendation(s) or view(s) in this report. Terms & Conditions and other disclosures: KRChoksey Shares and Securities Pvt. Ltd (hereinafter referred to as KRCSSPL) is a registered member of National Stock Exchange of India Limited, Bombay Stock Exchange Limited and MCX Stock Exchange Limited. 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