The extent to which the current rally is liquidity-driven is evident from the fact that while the Bharat Forge Ltd results for the March quarter have been dismal, the stock has risen around 40% in the past one month. For the stand-alone firm, domestic revenues amounted to Rs177.8 crore, while sales outside India were Rs119.2 crore in the quarter. Net sales were half of what they were in the year-ago period. That’s not all: Revenues have been far lower than in the December quarter, when domestic sales were Rs215 crore and export revenue Rs244 crore. As the management has pointed out, not only did global automobile demand continue to fall during the quarter, but most importantly, the inventory pipeline built up over the last few months has not yet been cleared. That would mean sales will continue to be depressed for some time. Capacity utilization in the second half of FY09 has been only around 30%. Both the auto and the non-auto businesses have been affected.
Though costs too have come down considerably, Bharat Forge posted a marginal loss of Rs2.4 crore after interest but before exceptional items compared with a profit after interest but before exceptionals of Rs95.8 crore in the year-ago period. In the December quarter, the company made a profit of Rs30 crore before exceptional items. Moreover, in terms of the amendment to Accounting Standard 11, the company has opted to carry forward foreign exchange translation losses, which, had they been charged to the P&L, would have reduced the profit even further. Still, the firm has been reducing expenses, pruning staff in its subsidiaries abroad. These efforts have enabled it to break even at such a low level of capacity utilization, which is commendable. The staff reductions abroad are likely to continue.
Conditions in the company’s subsidiaries are also dismal, with analysts pointing out that some subsidiaries in Europe and the UK may need support, perhaps from the stand-alone company. The company’s Chinese subsidiary was very seriously affected during October-March, but sales have started picking up from April.
What of the future? Several suppliers to auto companies abroad have gone bankrupt, which could be a long-term opportunity for Bharat Forge. But getting new business, especially in new lines of production, is going to take time. In the immediate future, the current quarter is expected to be weak, with any improvement coming in only after what promises to be a long hot summer in the US and Europe.
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