Bharat Forge Ltd seems to have hit a sweet spot as far as its domestic operations are concerned.

Baba Kalyani, chairman & MD, Bharat Forge. Photo: Bloomberg

On a sequential basis, growth continued to be driven by the non-auto segment, which grew by 16% to 329 crore. The segment now accounts for 37.4% of net revenue, compared with 34.2% in the June quarter.

The company management pointed out in a call with analysts that the proportion of non-auto revenue is rising because its non-auto customers are now in a ramp-up mode. This growth augurs well for Bharat Forge, since it not only derisks the business, but also leads to higher realizations.

Margins, however, declined by 50 basis points quarter-on-quarter, indicating that cost pressures continue. One basis point is one-hundredth of a percentage point.

Bharat Forge operates at a capacity utilization of around 75% in its domestic capacities. Its Ebit margins in the first six months of the current fiscal are at 18%, about 75 basis points higher than the year-ago levels.

Revenue of the foreign subsidiaries amounted to over 70% of the revenue of the domestic operations, so they are far from insignificant. While things are much better compared with preceding years, it’s imperative that capacity utilization levels improve considerably from the current levels of 50-52%.

Bharat Forge’s shares have dropped by 27% in the past year, much higher than the 13% drop in the auto index of BSE. Investors are clearly looking for further improvement in the company’s performance.

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