A 27.6% jump in exports volume and 7.3% increase in domestic volume translated into a 17.3% improvement in net revenue from the preceding quarter.  (A 27.6% jump in exports volume and 7.3% increase in domestic volume translated into a 17.3% improvement in net revenue from the preceding quarter. )
A 27.6% jump in exports volume and 7.3% increase in domestic volume translated into a 17.3% improvement in net revenue from the preceding quarter.
(A 27.6% jump in exports volume and 7.3% increase in domestic volume translated into a 17.3% improvement in net revenue from the preceding quarter. )

Bharat Forge shares surge on strong

Driven by strong exports, the stand-alone operations beat Bloomberg’s consensus estimates on net profit by about 35%

Kalyani group flagship company Bharat Forge Ltd’s shares surged by 16.62% to 231.2 as its June-quarter performance was a pleasant surprise. Driven by strong exports, the stand-alone operations beat Bloomberg’s consensus estimates on net profit by about 35%. No wonder the Street gave a thumbs up in spite of a 36% drop in net profit from a year back to 73.2 crore, after adjusting for an exceptional foreign exchange gain of 17 crore.

A better outlook for Bharat Forge turned sentiment. One may recall that the stock had been battered on the bourses in the past two quarters. The optimism stems from increased shipments and realizations, which trickled down to a net profit growth in its stand-alone operations compared with the March quarter. A 27.6% jump in exports volume and 7.3% increase in domestic volume translated into a 17.3% improvement in net revenue from the preceding quarter. However, net revenue at 791.5 crore was 15.5% lower than a year ago. Analysts had expected the situation to be worse, with a 22% drop in stand-alone revenue, given the deplorable state of the domestic auto industry.

The clincher for Bharat Forge in the last quarter was that the stand-alone entity clocked quarterly earnings per share of around 3.8, higher than the Bloomberg’s consensus estimates of 2.5. “A significant jump in export revenue, largely from the US and Europe, and the cost reduction initiatives over the last two quarters have helped Bharat Forge post a strong quarter, which is a key positive," says Yaresh Kothari, an analyst at Angel Broking Pvt. Ltd. Analysts are likely to revise earnings upwards for the full fiscal year. Perhaps that is why the stock rose so high.

That said, Bharat Forge’s overseas subsidiaries’ performance was in the spotlight. The wholly owned subsidiaries and China, which comprise about half of Bharat Forge’s revenue, clocked a robust 12% growth from a year back. Operating margin improved by 1.4 percentage point with the operating profit expanding by about 41%. The subsidiaries’ performance doubled to 12.8 crore in the quarter from a year back.

Bharat Forge’s management is confident of demand expansion in the US market in the heavy trucks segment, where it gets better realization. But concerns remain on Europe and the slowdown predicted in China. Further, the firm pointed out that the big non-auto areas like oil and gas, construction and mining are in a state of inertia.

The surge in one trading session is a classic case of how market perceptions can alter earnings prospects, valuation and, consequently, the share price. Explaining the 16.6% jump in Bharat Forge’s stock price, Surjit Arora, an analyst at Prabhudas Lilladher Pvt. Ltd, says the company has reduced inventory and its capacity utilization will rise from the current level of 60%. The point to note is that with current operating margin of 24%, any increase in capacity utilization with a turnaround in the commercial vehicle industry, will raise profitability further from these levels.

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