Auto components major Bharat Forge reported a consolidated net loss of Rs 1.32 crore in the second quarter ended September 2020 hit by the coronavirus pandemic induced disruptions. The company had posted a consolidated net profit of Rs 205.49 crore in the same quarter last fiscal.
Consolidated revenue from operations during the period under review stood at Rs 1,376.09 crore as against Rs 2,155.20 crore in the year-ago period, it added.
Bharat Forge’s Q2FY21 results came in below analysts’ expectations. While the India revenue decline was limited to 14 percent YoY, exports declined 40 percent YoY driven by a higher-than-expected drop in global truck revenue.
CLSA believes this was due to a timing issue between orders and production but the brokerage expects the company to witness stronger growth in H2.
The company expects demand improvement to continue in India and in exports but the trajectory could remain volatile due to potential lockdowns in the US and EU.
Revenue (ex-Oil & Gas) is gradually recovering; however, there is continued uncertainty surrounding a potential second wave of COVID-19. The Oil and Gas business outlook remains subdued as the rig count is down to less than 150 rigs (versus the peak of 900 rigs). The Oil & gas revenue has already declined to a quarterly run-rate of $3 million-$4 million and form less than 20 percent of non-auto exports (versus 50 percent earlier).
CLSA believes that the company’s management was trying to offset this by winning new orders in the wind and marine segments. The current annualised revenue run-rate is $7 million-$8 million and the company expects to triple this in one year, CLSA said.
CLSA maintained a Buy rating on the stock with a target price of Rs 580 per share.
Meanwhile, US Class-8 truck production has recovered faster than expected. Demand is improving on the back of increased freight volumes, higher freight rates, and some pent-up replacement cycle demand.
Jyoti Roy DVP- Equity Strategist, Angel Broking said, “Though we expect the company’s performance to improve sequentially in Q3 driven by pick up in Domestic CV business and US class 8 truck orders, the oil & gas business would continue to remain a drag for the company for the foreseeable future given subdued crude prices and drilling activities in the US.”
Brokerage Motilal Oswal said that Bharat Forge’s Q2FY21 performance was driven by reasonable recovery in the India business. It maintained Buy call with a target price of Rs 565 per share.
“With enhanced capabilities, improved efficiency, low gearing, and a strengthened position in the global supply chain, Bharat Forge would come out stronger from this downcycle,” Motilal Oswal said.
At 11:55 am, the shares of Bharat Forge were trading 0.60 percent lower at Rs 496.80 apiece on the BSE as against a 0.68 percent loss in the benchmark Sensex.
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