Bharat Forge chairman and managing director Baba N. Kalyani. The management said in a statement that all global original equipment manufacturers are adjusting production to the correct inventory level, leading to a reduction in inventory across the pipeline. Photo: Mint (Mint)
Bharat Forge chairman and managing director Baba N. Kalyani. The management said in a statement that all global original equipment manufacturers are adjusting production to the correct inventory level, leading to a reduction in inventory across the pipeline. Photo: Mint
(Mint)

Mark to Market | US market lifts Bharat Forge’s performance

Income from the region soared 62% even as revenue from Europe and the domestic businesses fell sharply

Weakness in both the auto and the industrial segments across the globe was mirrored clearly in Bharat Forge Ltd’s September quarter earnings. The Kalyani group’s flagship and auto component firm posted a net stand-alone revenue of 867.6 crore, down 4.7% from a year ago and nearly 11% below Bloomberg’s consensus estimates.

Domestic revenue fell 14% as the commercial vehicle segment, a key contributor, is seeing a slowdown for the last four quarters. However, export revenue, thanks largely to the rupee depreciation benefit, rose 8% from a year ago, But, clearly, it was the US markets that pulled up Bharat Forge’s performance—income from the region, which comprises 36% of total stand-alone revenue, soared 62%, even as revenue from Europe and the domestic businesses fell sharply.

However, a 163 basis points dip in raw material costs as a percentage to sales helped retain profit margin at the operating level, in spite of increase in other expenses. One basis point is one-hundredth of a percentage point. Operating margin at 23.9% was in line with the previous year period. Operating profit, too, fell 5%, mainly on lower revenue.

Meanwhile, overseas subsidiaries put up a dismal show. Net revenue fell 13% year-on-year (y-o-y) to 562 crore, given the overall demand decline in Europe and the steep fall in heavy commercial vehicle segment in the Chinese markets.

The management said in a statement that all global original equipment manufacturers are adjusting production to the correct inventory level, leading to a reduction in inventory across the pipeline. Poor volume translates into low utilization of plants and weak profitability. Operating margin of subsidiaries consequently fell to 0.7% from 5.9% in the year-ago period.

The travails hold true for the industrial sector, too, especially on home ground, where there’s hardly any investment in the capital-intensive sectors.

The near-term scenario, therefore, is bleak on account of the economic slowdown. No wonder the Bharat Forge stock has been steadily sliding since July and has underperformed the BSE-500 Index. According to Umesh Karne, analyst, Brics Securities Ltd, “Continued weakness in the European and domestic markets leaves little scope for improvement in the next couple of quarters." Europe accounts for nearly 35-37% of consolidated business.

At 227, the stock trades at barely 10 times its fiscal 2014 valuation, but these concerns could keep it low for the medium term.
Vatsala Kamat

Close