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Management states FY12 focus is to bring non linear growth from new businesses and new
customers. Even though international ventures have shown sharp turnaround, the CY10 losses in
US and Sweden subsidiary concern us. With good demand outlook for US and Europe heavy
trucks, we maintain Buy.
Strong improvement in parent realisations and efficiency
Chairman defines FY12 goal as "non linear growth from new businesses and new customers"
highlighting the ambition to increase the revenue from non auto businesses which contributed
25% to the total consolidated sales in FY11.
From the annual report, we derive that per kg realisations have increased by sharp 14% yoy
as compared to 16.4% rise in metal cost. Management highlights improved non-auto and
commercial vehicle components led the improvement.
Machined forgings increased its share in total sales mix to 44.8% from 43.1%, primarily at the
cost of raw forgings (down to 45.6%) even though the sales mix in the tonnage remained
almost unchanged. This bodes well for the overall profitability of the company as machined
forged products have higher margins.
Revenue from new facilities increasing their contribution to consolidated sales to 8.3% in
FY11 from 5.6% in FY10.
It also highlighted that while in the US its primary addressable segment (the class 8 category-
M&HCV) recorded ~31% yoy growth in CY10, it is still 27% below the output seen in CY07. It
also highlighted that the main addressable segment in Europe (HCV) grew by 8% yoy in
CY10.
Capacity addition: In automotive business, the company is setting up a press line and expects
it to be operational by April 2012. It also plans to increase machining capacity by 36% to 1.2m
crankshafts per annum in 2 years. The total investment will be Rs3.0bn to be spent over the
next two years.
Its non-auto customer base has increased from less than 15 in FY06 to over 30 in FY11. In
this way, BFL has significantly increased its potential market size. Going forward, Chairman
says he sees many more related business opportunities - in thermal, nuclear and renewable
energy; railways; in building aerospace components, to name a few.
Freight forwarding expenses for the year were at 2.4% of net sales, around the historical peak
of 2.5%.
The internal process efficiency seems to have improved sharply as its electricity and furnace
oil consumption drop sharply by 12% and 3% yoy respectively for per tonne of forging
produced.
International ventures record impressive turnaround except Sweden, US entity
Global subsidiaries: Global business of the company posted PBT of Rs34m in CY10 vs a loss
of Rs2.5bn in CY09.
The FAW BF Chinese JV reported a PAT of Rs168m in CY10 vs a loss in CY09 as the
utilisation improved to 60% and new customers have been added. However, recent month
weakness in China heavy truck sales volume is a cause of concern for this JV performance.
China JV emerges as the largest PAT making entity amongst Bharat Forge's international
forays. However, US subsidiary net loss remains high at Rs210.5m, whereas Sweden entity
net loss shrinks sharply to Rs214m.
The company was able to reduce its consolidated net core working capital to 20days in FY11
from 22days in FY12. The reduction was primarily driven by leaner inventory.
Power equipment JV on gradual build-up phase
The JV with Alstom has been qualified as the lowest bidder to supply 5 of 11 super critical
turbine generators of 660MW each for NTPC, the largest ever power contract in India. The
value of the company's work is estimated at Rs44bn by the management.
Significant investment in Power JV's in FY11 : Rs474m into Alstom Bharat Forge JV leading
to total investment of Rs733m. Management guides for its total equity requirement of Rs3bn
in JVs to be invested by FY14F.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Management states FY12 focus is to bring non linear growth from new businesses and new
customers. Even though international ventures have shown sharp turnaround, the CY10 losses in
US and Sweden subsidiary concern us. With good demand outlook for US and Europe heavy
trucks, we maintain Buy.
Strong improvement in parent realisations and efficiency
Chairman defines FY12 goal as "non linear growth from new businesses and new customers"
highlighting the ambition to increase the revenue from non auto businesses which contributed
25% to the total consolidated sales in FY11.
From the annual report, we derive that per kg realisations have increased by sharp 14% yoy
as compared to 16.4% rise in metal cost. Management highlights improved non-auto and
commercial vehicle components led the improvement.
Machined forgings increased its share in total sales mix to 44.8% from 43.1%, primarily at the
cost of raw forgings (down to 45.6%) even though the sales mix in the tonnage remained
almost unchanged. This bodes well for the overall profitability of the company as machined
forged products have higher margins.
Revenue from new facilities increasing their contribution to consolidated sales to 8.3% in
FY11 from 5.6% in FY10.
It also highlighted that while in the US its primary addressable segment (the class 8 category-
M&HCV) recorded ~31% yoy growth in CY10, it is still 27% below the output seen in CY07. It
also highlighted that the main addressable segment in Europe (HCV) grew by 8% yoy in
CY10.
Capacity addition: In automotive business, the company is setting up a press line and expects
it to be operational by April 2012. It also plans to increase machining capacity by 36% to 1.2m
crankshafts per annum in 2 years. The total investment will be Rs3.0bn to be spent over the
next two years.
Its non-auto customer base has increased from less than 15 in FY06 to over 30 in FY11. In
this way, BFL has significantly increased its potential market size. Going forward, Chairman
says he sees many more related business opportunities - in thermal, nuclear and renewable
energy; railways; in building aerospace components, to name a few.
Freight forwarding expenses for the year were at 2.4% of net sales, around the historical peak
of 2.5%.
The internal process efficiency seems to have improved sharply as its electricity and furnace
oil consumption drop sharply by 12% and 3% yoy respectively for per tonne of forging
produced.
International ventures record impressive turnaround except Sweden, US entity
Global subsidiaries: Global business of the company posted PBT of Rs34m in CY10 vs a loss
of Rs2.5bn in CY09.
The FAW BF Chinese JV reported a PAT of Rs168m in CY10 vs a loss in CY09 as the
utilisation improved to 60% and new customers have been added. However, recent month
weakness in China heavy truck sales volume is a cause of concern for this JV performance.
China JV emerges as the largest PAT making entity amongst Bharat Forge's international
forays. However, US subsidiary net loss remains high at Rs210.5m, whereas Sweden entity
net loss shrinks sharply to Rs214m.
The company was able to reduce its consolidated net core working capital to 20days in FY11
from 22days in FY12. The reduction was primarily driven by leaner inventory.
Power equipment JV on gradual build-up phase
The JV with Alstom has been qualified as the lowest bidder to supply 5 of 11 super critical
turbine generators of 660MW each for NTPC, the largest ever power contract in India. The
value of the company's work is estimated at Rs44bn by the management.
Significant investment in Power JV's in FY11 : Rs474m into Alstom Bharat Forge JV leading
to total investment of Rs733m. Management guides for its total equity requirement of Rs3bn
in JVs to be invested by FY14F.
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