The outsourcing story continues to drive the shares of the Bharat Forge.
In fact, hopes that foreign buyers will increasinglyly choose from Indian auto ancillary companies in future set off buying in Bharat Forge (BFL) today, as the scrip rose 2.9% to Rs 303.10 on BSE in early post-noon trades. The scrip gained as much as 4.8% to Rs 308.50 earlier. The stock clocked decent volumes of 53,500 shares on BSE in the first two hours of trading.
The current rally in the stock follows a recent correction - the scrip slipped 5.7% in five trading sessions to Rs 294.35 on 19 May 2003 from a 52-week peak of Rs 312.35 on 12 May 2003. The stock has been a star performer on the bourses of late. From Rs 50.35 on 8 October 2001, BFL surged a staggering 520% to the recent peak of Rs 312.35 on 12 May 2003.
BFL has been boosted over the last few months on the back of a surge in exports what with overseas OEM auto makers in the US and other countries resorting to low cost auto components from India in a bid to cut costs. Among its key customers in the North American markets feature ArvinMeritor, Dana, Renault, Caterpillar, Daimler Chrysler, Volvo, Toyota, Honda and Cummins. During FY 2002-03, BFL had two big customers in China (FAW and Guanqxi Yuchai), and three in Europe which include Dana Auto (Spain), Renault V I and Perkins Engines.
"In our assessment the export momentum which has been firmly established by BFL in the global markets till date, is expected to be sustained over a long time zone primarily because overseas automotive players are struggling to keep profit margins intact and are increasingly looking at quality component players which have both the scale and the credentials to address large orders where BFL fits the bill perfectly," Avinash Gorakshakar, auto analyst with domestic brokerage Emkay Shares & Stock Brokers says.
For FY 2002-03, BFL reported its best ever financial performance ever, aided largely by a strong export growth coupled with a steady upturn seen in the domestic business from Q3 ended 31 December 2002 onwards. It reported a 280% surge in net profit for the year to Rs 81.09 crore on the back of a 50% jump in sales to Rs 637.58 crore.
The strong FY 2002-03 results were due to a surge in exports which jumped 146% to Rs 271 crore from Rs 110 crore. Domestic sales grew 15% to Rs 417.81 crore compared to Rs 363.64 crore last year.
Operating profits improved significantly by 71%, largely on the back of increased volumes and a renewed focus on value-added machined components. BFL was also largely successful in maintaining a strict control on its manufacturing overheads especially raw materials.
Cost saving has also come from repayment of debts. BFL has reduced its interest costs overheads in FY 2002-03 by 10% largely because of debt prepayments and interest rate restructuring undertaken by the company. As on 31 March 2003, BFL repaid debts worth Rs 60 crore taking the total debt to Rs 322 crore from Rs 382 crore last year. Analysts expect further debt repayment in the coming years.
Going ahead, one concern for the auto ancialliary sector could be the Chinese market due to the spread of SARS there. BFL has identified China as one of the leading markets for exports. SARS has not affected auto production in China so far, but analysts say that could change in future.
