GEPL Capital is bullish on Bharat Forge and has recommended accumulate rating on the stock with a target of Rs 238 in its February 11, 2013 research report.
“Bharat Forge reported 29% drop in revenues in Q3FY13 to Rs6,726 mn vs Rs9,411 mn in Q3FY12. This drop was due to decelerating exports (34% Y-o-Y) in addition to decline in domestic revenue (24% Y-o-Y). The demand drop coupled with inventory destocking at OEM level led to decrease in capacity utilization in Q3 FY13. It undertook manufacturing cuts to reduce inventories and match our production levels with the new demand environment. Even volumes for Q3FY13 were lower by 19% Y-o-Y to 37,483 tons vs 55,412 tons, however surprisingly realization improved by 6% Y-o- Y to Rs176,211 per ton. This was attributable to currency impact and better realizations on export front. Even non-auto segment continued to remain sluggish. The non- automotive business, which has been a key growth driver over the past 2 -3 years was also impacted by reduction in demand globally for infrastructure related products & solutions.”
“Even though revenues declined, BFL has been able to maintain its EBITDA margins at around 20% due to cost rationalization, which will remain management’s key focus during this financial year. With interest cost declining by 23% Y-o-Y to Rs363 mn the reported net profit stood at Rs475 mn, down by 54% Y-o-Y. Foreign subsidiaries continue to disappoint due to continued severe downturn in the Heavy Truck market in China and decline in demand in Europe. Revenue for Q3FY13 increased by 2% Y-o-Y to Rs6,732 mn with meager EBITDA margin of 2.5% vs 5.4% in Q3FY12 followed by net loss of Rs171 mn as compared to net loss of Rs2 mn in Q3FY12 driven by poor performance in Chinese markets.”
“This overhang is expected to remain in near future due to weakness in the domestic market and Subdued market conditions in China and Europe. We have lowered our revenue estimates and growth for FY13 and FY14, further we have also lowered the utilization rate from 67% to 60% in FY13 and from 72% to 65% in FY14. We maintain our ACCUMULATE rating on the stock with a revised target price of Rs238 per share,” says GEPL Capital research report.
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