Bharat Forge Ltd. share price target

With the bulk of target customer segments viz. domestic CV, global CV space (improved new order readings of Class 8 trucks with November 2020 print coming in at ~53,000 units (~3x YoY, up ~30% MoM)), bottoming out, we expect a rapid recovery at Bharat Forge, a large part of which is captured by its prevailing valuation multiples (trading at ~32x P/E on FY23E numbers). We will keenly monitor any surprise on the operating margin front consequent to a lot of cost cutting initiatives undertaken by the company, before any meaningful upgrade. We also await outcome on scrappage...

Domestic auto industry volumes have been on a steady mend in the months post lifting of lockdown restrictions. Manufacturing and distribution activities have been getting ramped up gradually since June 2020, in step with the rest of the economy. However, the impact of the pandemic on the supply chain continues to inhibit a complete return to production normalcy. Nevertheless, most automotive industry segments have reported successive improvement in offtake throughout June-November 2020 (Exhibit 1) on the back of (i) initial bounce provided by pent-up aspect,...

Consol capex guidance at Rs4.5bn for FY21. Expect no major capex in 2H. to 40.8k (PLe 44.6k). The sharp decline in volumes was led by ~33%/44% YoY there has been some initial pickup in class 8 trucks (~19% of S/A revenues) along with ramp-up in PVs, the outlook for industrial remain weak with no...

Bharat Forge Ltd (BFL) is a leading player in the forgings industry. The company is serving several sectors including automobile, power, oil and gas, rail & marine, aerospace & defence, construction, mining, etc. Total revenues in Q2FY21 declined by 30%YoY. The sharp decline is on account on continued weakness in the export Industrial business and downturn in the Commercial Vehicle sector. Margin expanded to pre-covid level at 12.1% owing to continuous restructuring and cost control measure. However a significant...

International oil & gas segment remains an area of concern amid soft crude...

Bharat Forge Ltd (BFL) is a leading player in the forgings industry. The company is serving several sectors including automobile, power, oil and gas, rail & marine, aerospace & defence, construction, mining, etc. BFL revenue came with a surprise as the company able to reduce its Break even point (BEP) on the backdrop of 20% utilization and stringent cost controlling measures, during the lockdown period. The Indian government's recent announcement to restrict the import of defence equipment enhances the order procurement visibility in...

Sharp cost focus expected to pay dividends Despite soft revenue performance during the quarter (~20% capacity utilisation), BFL nearly managed EBITDA breakeven in standalone and consolidated operations. Its focus on reducing breakeven levels by downsizing costs, enhancing efficiencies while simultaneously controlling capex spends is seen leading to improvement in margin trajectory. BFL expects to continue to post sequential improvement in coming quarters and return to previous margin levels on these cost initiatives. We build 17.4%...

Led by cost control, able to achieve EBITDA breakeven at ~20% utilization. 17.8k (PLe 14k) partly offset by realization growth of ~8% at Rs239k/ton (PLe came in at Rs17mn (PLe Rs182mn) while adj. loss restricted at Rs563mn (PLe Rs757mn). While the ongoing cycle is negative for core segments such of CVs (~39% of consol revenues) and Oil & gas, ramp-up is visible in PV and...

S/A revenue declined ~68% YoY to ~INR4.3b; however, EBITDA/PAT loss of ~INR74m/INR563m was reported. While tonnage declined 71% YoY, realizations grew 8% YoY (9% QoQ) to The Auto segments revenues declined 78% YoY, impacted by decline across segments, with 85%/86% and ~79%/53% declines in CV/PV (domestic and exports, respectively). The Non-Auto segments revenue declined ~51%, impacted by similar declines in both domestic and export revenues. EBITDA loss stood lower due to better fixed cost management. Higher other income and lower depreciation/interest restricted net loss. Revenue is expected to decline in 2Q on a YoY basis, but domestic revenue would be flat, with growth in Industrial, PV, Mining, and Tractor to cover for expected 67% decline in CV. Oil & Gas) would be flat in 2Q on a YoY basis. The Oil & Gas business would be lower; however, Brent sustaining above USD42/barrel could drive recovery in demand.

Bharat Forge Ltd (BFL) is a leading player in the forgings industry. The company is serving several sectors including automobile, power, oil and gas, rail & marine, aerospace, construction, mining, etc. Q4FY20 revenue de-grew by 35%YoY due to sharp decline witnessed in both the Auto and Industrial business across geographies.. Weak product mix lockdown and negative operating leverage dragged the EBITDA margin down to 8.5%(-75%YoY). Though the subdued commentary across OEM especially both the...