RESULT UPDATE 11 th August 2017
Aug-16 Oct-16 Dec-16 Feb-17 Apr-17 Jun-17 Aug-17 Please vote for us in Asiamoney Brokers Poll 2017: https://www.euromoney.com/article/b13j49qfcr6j pp/asiamoney-brokers-poll-2017-vote-now India Equity Institutional Research II Result Update Q1FY18 II 11th August, 2017 2 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) 265916 52 Wk H/L (INR) 1220/766 Volume Avg (3m K) 776.8 Face Value (INR) 2 Bloomberg Code BHFC IN SHARE PRICE PERFORMANCE 150 130 110 90 Sensex Bharat Forge MARKET INFO SENSEX 31531 NIFTY 9820 KEY FINANCIALS Particulars (INR Mn) FY15 FY16 FY17 FY18E FY19E Net Sales 76222 68091.5 63961.1 75235 85016 EBITDA 14407 14286.5 12634.5 15423 18278 PAT 7595.5 6753.6 7107.2 8125 9437 EPS 32.7 28.6 25.9 34.95 40.6 OPM (%) 18.90% 20.98% 19.75% 20.50% 21.50% NPM (%) 9.96% 9.92% 11.11% 10.80% 11.10% PE (x) 34.77 39.07 37.52 32.53 28 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 40.6. 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 42.2. 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 45.75 45.75 45.75 FIIs 19.77 15.18 11.7 DIIs 15.69 19.77 23.28 Others 18.81 19.3 19.27 Total 100 100 100 12.5% 18.6% PAT CAGR between FY 17 and Revenue CAGR between FY 17 and FY 19E FY 19E
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 12578 11832 9417 6.30% 33.61% Sales & Other Operating Income 12578 11832 9570 6.30% 31.42% Total Expenditure 9245 8633 7126 7.09% 29.73% (Increase) / Decrease In Stocks 83 74-151 11.02% 154.88% Cost of Raw Materials 4125 3879 3258 6.34% 26.61% Employee Cost 1064 1035 915.8 2.84% 16.20% Excise duty paid on sales 570 575 526-0.94% 8.31% Other Expenses 3403 3069 2577 10.88% 32.07% PBIDT (Excl OI) 3333 3199 2444 4.18% 36.37% EBITDA Margins (%) 26.5% 27.0% 25.5% -54bps 96bps Depreciation 774 744 739.6 4.05% 4.65% EBIT & Exceptional Item 2559 2455 1705 4.22% 50.14% Other Income 259 222 256.4 16.85% 1.13% EBIT 2818 3058 1961-7.82% 43.73% Interest 1855 185 170.2 0.05% 8.93% EBT 2633 2872 1791-8.33% 47.04% Tax 882 797 570 10.66% 54.74% Net Profit from ordinary activity after tax 1751 2075 1221-15.62% 43.44% Other Comprehensive Income -247 1414-288.40 117.50% -14.22% PAT 1503 3489 932-56.91% 61.27% PAT Margin (%) 13.9% 17.5% 12.8% -362bps 117bps EPS 7.52 8.91 5.24-15.60% 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 Key Financials 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
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 5 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 11-Aug-17 1165 1267 ACCUMULATE Buy More than 15% 25-May-17 1114 1177 ACCUMULATE Accumulate 5% 15% 09-Feb-17 967 1126 BUY Hold 0 5% 09-Nov-16 850 924 ACCUMULATE Reduce -5% 0 08-Aug-16 814 924 ACCUMULATE Sell Less than 5% CERTIFICATION: I, Ankit Merchant (M Com, BMS), research analyst), 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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