Shares of Bharat Forge Ltd continued on the downward path on Tuesday as well, trading about 1% lower on the NSE in early deals. On Monday, when the company’s March quarter results disappointed on the Street on many counts, the shares had fallen by a sharp 10%.
Following the weak earnings, analysts have slashed earnings estimates for this fiscal. Bharat Forge said FY21 has started on a difficult note with the lockdown impacting demand. As such, investors can expect recovery to be slow going ahead.
“We remain concerned about a potential slowdown in cyclical segments such as trucks and oil & gas (accounts for 60% of standalone revenues), slower ramp-up in newer business segments and expensive valuations," wrote analysts from Kotak Institutional Equities in a report on 29 June.
Currently, the stock trades at about 19 times estimated earnings for fiscal year 2022, based on Bloomberg data.
Bharat Forge manufactures and exports automotive components. It also manufactures specialized components for railways, construction equipment, oil & gas, and other industries.
Some expect tougher times ahead. “Contrary to street assumption that worst for Bharat Forge’s key business is behind, we expect the company to go through prolong downturn and the business moderation is likely to last till FY22," point out analysts from Antique Stock Broking Ltd. The broking firm added, “Prolong weakness in operation is also likely to lever the balance sheet from Mar-20 levels meaningfully."
Coming to the March quarter results, standalone revenues declined as much as 47% year-on-year to ₹881 crore during the last quarter. Within this, domestic revenues declined by 44% whereas export revenues fell by 49%. In India, commercial vehicles and industrial revenues saw relatively more pain than passenger vehicles. The overseas business was impacted more by the 67% lower industrial revenues.
Of course, the lockdown in the month of March impacted performance. The company estimates sales loss at ₹200 crore owing to the lockdown. Earnings before interest, tax, depreciation, and amortization (Ebitda) declined by a striking 79% to 110 crore. This was way below many analysts’ estimates. After accounting for depreciation and finance costs, pre-tax and exceptional items earnings declined nearly 97% to ₹15.6 crore.
After the drop in the stock price post-March quarter results, Bharat Forge shares are around 41% lower than its 52-week high seen on 16 January.