2021-08-12 15:03:35
*Bharat Forge - strong outlook - earnings momentum to continue (Re-iterate BUY)*
1) Exports grew 25% qoq to Rs 9156 mn
Domestic declined 21% qoq to Rs 4418 mn
2) Despite input cost pressures EBITDA margins expanded 300 bps qoq on the back of favourable product mix
3) Looking ahead into Q2 FY22, co expects overall growth momentum to continue supported by recovery in the domestic CVs and sustained demand improvement in in exports.
4) Potential impact due to supply issues pertaining to semiconductors & the increase of input costs are factors to keep track of in the coming months
5) Standalone Tonnage de-grew 4.2% qoq to 53,512
6) D/E stands at 0.62x
7) 1Q Domestic CV production was down 52% QoQ while the PV production declined 24% QoQ owing 2nd wave lockdowns.
8) Despite the Covid related uncertainty and near term challenges, the outlook for FY22 continues to remain strong, albeit on a low base of FY21.
9) In Industrials, all sectors barring Defence were affected in 1Q because of 2nd wave Covid.
Agri biz, which had done well over the past 2 years, was also impacted in Q1.
10) Mgmt. expects industrial segment to grow meaningfully in the medium to long term driven by the revival of the capex cycle in India, potential opportunities arising out of various PLI schemes and Defence manufacturing in India.
In exports, the global trucking Industry continues to is witness demand recovery driven by improving growth prospects and strong trucking fundamentals.
11) North America class 8 truck production in Q2CY21 at 69,488 units was flat qoq but up 13.7% qoq.
12) While the outlook for the industry continues to remain robust in the medium term, supply chain constraints are impeding higher production in the near term.
13) Exports in PV segment continues to witness strong momentum across geographies with 1Q revenues hitting all time high.
14) Co believes this to be an interesting space where it continues to increase its market share in the traditional powertrain and is simultaneously engaging with customers on solutions for BEV and other tech.
15) Industrial exports business has started to recover meaningfully primarily driven by the Oil & Gas space. With crude prices hovering around the US$ 70, the viability of the shale drilling has improved and prospects over the coming few quarters looks positive.
16) During 1Q, co completed the acquisition of Sanghvi Forgings at a cost of Rs 77.06 Crores. This facility, although currently small in scale, will play a very meaningful role in expanding product portfolio to address significant opportunities in the Indian Industrial space over the medium term.
Expect strong growth in 2Q over 1Q across all sectors.
Aluminium Forgings is 22% / Steel Forgings is 78% of overseas sales. Current Order backlog gives revenues visibility of 10 months.
* In fact CY22 production slots have also been booked off as a result of spill over for CY21 production*
17) EV Trucks – have products for chassis, Axle and Drive Train Will more than double revenues from Aluminium forgings – capacities for next 2 years are sold out.
18) Oil & Gas BE production is in the range of US$ 55-65/bbl. Current levels of +US$ 70/bbl are favourable for production and should see sustained demand improvement
19) FY22 revenue from North Carolina will be US$ 8-10 mn. FY23e should see full capacity utilisation
20) Inventory levels at customer end continues to remain lower than normal levels which augurs well for future growth
21) Received new orders in Aerospace. Can grow from US$ 6-7mn to US$ 20 mn in next 2-3 years
Regards,
Prabhat Anantharaman, CFA
B&K Securities
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