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Bharat Forge Ltd (updated - 26 Aug 2009)
Bharat Forge plans to raise up to $150 million (approximately Rs 730 crore) through equity or equity-linked securities to meet long-term capital requirements. Since the stock has done well to rally from its lows — it had fallen to nearly Rs 80 — to Rs 225 levels at present, it’s a good time to issue shares, even if it results in dilution of the equity base by 10-12 per cent.

While the home market for automobiles is showing signs of recovery, the weakness in the overseas markets could continue to impact the auto-parts maker probably for another year. The Rs 4,774-crore company’s revenues came off sharply in the June 2009 quarter to Rs 360 crore, a drop of 44 per cent year-onyear, with exports particularly badly hit (by over 50 per cent). That wasn’t really unexpected given the poor demand in the overseas markets.

In fact, consolidated revenues plunged 54 per cent year-onyear to Rs 600 crore. The weak top line, together with high outflows on interest and other expenses, resulted in the company posting a loss. If the Pune-based company’s revenues rose sequentially - with both domestic business and exports reporting a reasonably good growth - and if the operating profit margins showed a sequential improvement to 20.9 per cent from 14.6 per cent in the March 2009 quarter, it was largely due to some improvement in the core business, favourable currency movements and a higher contribution from the non-automotive parts division. Nevertheless, the domestic commercial vehicles market appears to have bottomed out and the demand for medium and light vehicles has been improving over the past few months.

However, it could be a while before the European and the US truck markets recover; industry watchers believe this could happen sometime in 2010-11 with the European market lagging the US market.

The company has managed to sustain margins at its overseas subsidiaries by restructuring operations but the benefits of these initiatives should come through only next year. So, it’s surprising that the stock has had such a sharp runup; at Rs 225, the stock trades at over 20 times estimated 2010-11 and is expensive.
source - BS

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Bharat Forge Ltd (updated - Mar 2009)
Bharat Forge’s European subsidiaries could turn in operating losses next year, reckons brokerage Citigroup. That together with the fact that nearly half the company’s exports from India are made to recession-hit economies overseas, could see consolidated profits fall by as much as 30 per cent in the current year followed by a fall of over 25 per cent in 2009-10. Last year approximately 65 per cent of the firm’s revenues came from the European and American markets and the severe downturn in the truck industry in Europe, where sales are expected to fall by about 40 per cent in 2009, will continue to hurt the Rs 4,652 crore firm for some time to come. Moreover, since a good 4045 per cent of the parent company’s sales come from the truck segment, the slowdown in the Indian heavy vehicles market will also hurt the auto parts maker.

While the momentum in the home market is expected to pick up sometime towards the end of 2009, the markets overseas could take a little longer to recover. A weaker rupee though will help boost export earnings. The company’s operations in China, however, are understood to be operating at levels of around 25-30 per cent. While revenues from nonauto components, which account for about a fifth of the Bharat Forge’s revenues, should grow at a reasonably good pace, scaling up the business quickly will be difficult at a time when expenditure in the oil and gas space is falling and spends in the engineering and marine sectors too could be under pressure. While the stock has underperformed the market over the past year losing 62 per cent to the Sensex’s 40 per cent, at Rs 93, it still commands a fairly high price to earnings multiple of around 14 times estimated 2009-10 earnings, which is somewhat surprising.
source - BS

Bharat Forge Ltd (updated - 22 May 2009)
As if last year wasn’t difficult enough, Baba Kalyani has said quite clearly that the current year would remain a challenging one for his company. The chairman and managing director of Bharat Forge believes it could be a while before inventories are cleared and sales revive, especially in the commercial vehicle (CV) space. The auto parts maker, a victim of the severe depression in the world automobile markets, saw consolidated sales rise just under 3 per cent last year to Rs 4,774 crore.

That meant profits were badly dented — down 81 per cent to Rs 58 crore. The numbers weren’t really surprising given that the US and European markets bring in about three-fourths of the Pune-headquartered firm’s revenues. Not that the home markets provided much succour — in the March 2009 quarter for instance, domestic commerical vehicle volumes fell 61 per cent leaving the ancillary maker with little business.

Unfortunately, the company could do little about the high fixed costs and as a result, consolidated margins came off by 12 percentage points to 5.34 per cent. The management believes the domestic passenger car market is showing signs of revival. But that can’t help much because the bulk of Bharat Forge’s revenues come from the CV space.

There isn’t much happening in this segment though and that means the firm’s overseas subsidiaries could continue to run below breakeven levels of 50-55 per cent for some more time. The hope lies in the non-auto parts business - the share of which is tipped to go up from 28 per cent of its standalone revenues to 40 per cent by 2012. That’s still some time away. In the meanwhile, at Rs 157, the stock looks way too expensive at 22 times the estimated 2009-10 earnings.
source - BS