Bharat Forge rating – Reduce: Numbers were below expectations BHFC reported Q4FY22 Ebitda of Rs 4.3 bn, 3% below our estimates due to RM headwinds. We expect strong growth for the company led by (i) recovery in the domestic CV segment, (ii) strong order wins including the defence segment and (iii) market share gains in the PV segment. However, we expect margin pressures to persist. Given >50% of the revenues are derived from cyclical segments, we await a better entry point on this name. Upgrade to Reduce given recent price correction. Standalone Ebitda 3% below our estimates: Q4FY22 standalone Ebitda of Rs 4.3 bn (including forex gains) was 3% below our estimates due to RM pressures. Standalone revenues increased by 5% q-o-q led by (i) 1% q-o-q decline in domestic revenues and (ii) 9% q-o-q increase in export revenues. Standalone revenues were 2% above our estimates largely due to marginally better performance of export and domestic businesses. Tonnage volumes increased by 8% q-o-q whereas average realisations were down by 3% q-o-q. Strong order wins across segments to drive growth; however, margins to remain under pressure: We expect strong revenue growth over FY2023-24e led by (i) strong order wins across automotive and industrial applications (Rs 10 bn worth of new order wins), (ii) recovery in the domestic CV segment, (iii) market share gains in the domestic PV segment led by new product launches and (iv) expected order win for artillery guns in the defence segment. However, we believe margin pressures will remain given persistent inflationary pressure as well as elevated freight and energy costs. Cut our FY2023-24e consolidated EPS estimates by 1-11%: We have cut our FY2023-24e consolidated EPS estimates by 1-11% on lower Ebitda margin assumptions. Upgrade to Reduce (from SELL) as the stock price has corrected by 10% over the past one month. Fair Value remains unchanged at Rs 660 based on 20X June 2024e standalone EPS and 12X June 2024E subsidiaries EPS.
However, he believes that the impact on the Indian market is going to be temporary since there could be some short-term impact on flows into Indian equity markets. But since the Indian economy is on a strong wicket and will continue to remain resilient.
“Improved fiscal situation, controlled current deficit, stable interest scenario combined with good corporate earnings should lead to limited impact on the Indian bond market and equity market too,” he added.
The midcap and smallcap indices took a bigger knock with the BSE MidCap fell 2.51%, while BSE SmallCap index dived 4.18%. According to Amnish Aggarwal, head, research, Prabhudas Lilladher, the valuations were already high and some correction was expected. “If the situation sustains as it is then further correction can’t be ruled out,” Aggarwal said.
Telecommunication and industrials indices were the top laggards with BSE Telecommunication declining 3.82%, followed by BSE Industrials falling 3.26%. JSW Steel (-2.99%), Tata Steel (-2.52%) and Tata Consultancy Services (-2.44%) were the top losers of Sensex.
Surprisingly, both foreign portfolio investors and domestic institutional investors were net buyers today. While, FPIs net bought shares worth Rs 252.25 crore, DIIs have purchased shares worth Rs 1,111.84 crore, as per provisional data from exchanges.
Calling this a “normal phenomena” Pankaj Pandey, head, research, ICICI Direct said, “I will not really give too much weight to a single day buying figure. Amid concerns of elevated interest rate and geopolitical tensions, in a typical market cycle, 8-10% correction is possible at any point in time.”
The brunt of geopolitical conflict, elevated interest rates and rising crude oil prices was also felt by other Asian- Pacific markets. Jakarta Composite Index lost 1.57% followed by Shanghai Composite Index and PSEi, which fell 1.47% and 0.89%, respectively. Nikkei and KOSPI declined 0.83% and 0.76%.