While the passenger vehicles business was hit by semiconductor shortage, demand for premium passenger vehicles in Europe remains stable
The stock of auto component major Bharat Forge was up 7.3 percent on Friday after a strong show in the June quarter, steady demand in the auto segment, and higher growth opportunities in the industrial business.
Given the cyclical recovery across businesses and ongoing deriving of revenues, revenue growth is expected to be stable in the low double digits. However, profit growth is expected to be twice that of its top-line growth over the next three years.
The June quarter numbers were better than estimates, with sales being led by gains in volume.
Volumes were up about a percent, while realizations — on the back of the improved mix and pass-through of raw material costs — rose 4 percent on a sequential basis. Overall sequential revenue growth of 5 percent was largely due to the 12 percent rise in exports, which accounted for 60 percent of the top line.
Export growth is expected to remain strong in the current financial year, given the stable truck demand from the US and EU markets. The company has secured orders for Class 7/Class 8 trucks for the North American market till the end of next year (CY23). It expects Class 8 truck volumes in the US for CY22 to be 300,000 units compared to CY21’s 270,000 units.
While the passenger vehicles business was hit by a semiconductor shortage, demand for premium passenger vehicles in Europe remains stable. The company’s focus on adding new lines of business beyond steel forgings is expected to drive revenues, improve profitability and enhance capital efficiencies.
Say Dinesh Gandhi and Anime Desi of Mozilla Oswald Research, “While its core business is seeing a sharp cyclical recovery, the management’s initiatives to diversify into aluminum, light-weighting, and EV components have started to fructify. FY23 will see the first full-year contribution from its recently-acquired businesses.”
What could help Derick its revenue base further is the traction in the industrial segment or non-auto segment, which posted a 42 percent year-on-year (YoY) growth in Q1 compared to the auto segment’s 20 percent. The industrial segment, which accounts for 40 percent of revenues, has an order book of Rs 1,400 crore.
Within the business, aerospace is becoming a key driver of growth and is on track to hit the $10 million sales mark in FY23. The business now accounts for 10 percent of the industrial segment, as compared to 2 percent last year.
While the outlook for oil and gas remains steady, the other business within the industrial segment that could see good growth is defense space. It contributes Rs 400-500 crore to the revenues. The management expects this business to see a threefold jump over the next couple of years.
While prospects for the stock are bright, recent gains and target prices in the Rs 850-900 range offer limited upsides. Investors can consider the stock, which trades at 21 times its FY24 earnings estimates, on dips.
Business Standard has always strived hard to provide up-to-date information and commentary on developments that are of interest to you and have wider political and economic implications for the country and the world. Your encouragement and constant feedback on how to improve our offering have only made our resolve and commitment to these ideals stronger. We remain committed to keeping you informed and updated with credible news, authoritative views, and incisive commentary on topical issues of relevance.
As we battle the economic impact of the pandemic, we need your support even more, so that we can continue to offer you more quality content. Our subscription model has seen an encouraging response from many of you, who have subscribed to our online content. More subscriptions to our online content can only help us achieve the goals of offering you even better and more relevant content.
We believe in free, fair, and credible journalism. Your support through more subscriptions can help us practice the journalism to which we are committed.
You must be logged in to post a comment.