Bharat Forge Ltd. share price target

29 June 2020 Bharat Forges (BHFC) 4QFY20 results were hit across segments, which led to sharp erosion in EBITDA margins. While the worst is expected in 1HFY21, leading indicators point toward possible sharp recovery in FY22E. We believe BHFC will emerge stronger from this down-cycle, strengthen its position in the global supply chain and possibly benefit from the potential diversification from China. We have cut EPS for FY21/FY22E by 79%/16% to factor in the weakness in all the key industries that BHFC serves. Maintain S/A revenue/EBITDA/PAT declined ~47%/69%/99% to ~INR8.8b/INR1.5b/INR17m YoY. While tonnage declined 36% YoY, realizations dropped 18% YoY (-4% QoQ) to INR219.3k/t (v/s est. Auto segment revenues declined ~43% YoY, impacted by the decline across CVs/PVs 57%/19% in domestic and ~39%/18% in exports. Non-auto segment revenue declined ~56% YoY, impacted by exports plunging ~68% and domestic revenue plummeting ~38% decline. EBITDA margins declined 1,220bp YoY (-540bp QoQ) to 16.

We interacted with several automobile industry participants such as key management, experts and channel partners. While we estimate Nil dispatches in Apr-20 led by ongoing lockdown, we expect steady production recovery only in second half of May (~20-25% utilization) and gradual recovery from June onwards. However, order back log will get converted into sales quickly once the lockdown gets lifted led by higher bookings during key festive such as Gudi Padwa (key for Western states), Chaitri Navratri (key for Central, Northern and Western states) and Puthadu (Tamil new year)....

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. Q3FY20 revenue de-grew by -25%YoY due to sharp decline witnessed in both the Auto and Industrial business across geographies.. EBITDA margin contracted by 660bps due to increase in input cost , and lower utilization resulted in higher fixed cost. BFL's new value-added order received on aluminum forging is on track...

CV dependence on the wane; outlook still soft BFL recognised its CV dependence early and over the years worked proactively towards de-risking the business by effective diversification away from the space in terms of segments and geographies. To illustrate, share of industrials in standalone revenues rose from 32% in FY09 to 44% in FY19 vs. equivalent 12% mix reduction for CVs. Demand scenario for CVs remains challenging at present in India (BS-VI transition, system overcapacity, slowing economic activity, high installed base) as well as in North America...

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. Q2FY20 revenue de-grew by 17%YoY due to the slowdown in export (down by 18%YoY) & domestic segment by 36%YoY. The negativity in growth is largely contributed by both CV and industrial segment. EBITDA margin declined by 440bps with 320bps increase in input cost , and lower utilization resulted in higher fixed cost....

Business Recovery to Take Time: During Q2FY20, BFL s sales declined by 25 percent YoY to Rs 12.6bn.

2QFY20 standalone (S/A) revenues declined 25% YoY to INR12.6b (v/s est. Expect 2HFY20 to be weaker than 1HFY20 due weakness in India, US and EU; (b) US Class 8 trucks should decline 20-25% in CY20; EU trucks are expected to decline 8-10%; (c) Focus is on cutting costs, improving productivity and new product development. However, the cycle has turned negative for its core businesses of CVs and Oil & Gas. While the near-term outlook is challenging, we believe that BHFC is much better placed now than in the previous cycles and would emerge stronger with more diversified revenue streams. After last two years of strong performance in all its core businesses and the ramp-up in the nascent businesses, the cycle has turned negative for its core business of CVs and Oil & Gas. While near term outlook is challenging, we believe BHFC is much better placed than previous cycles and would emerge stronger with more diversified revenue streams.

We attended BHFC's analyst meet. The management acknowledged short- Change in Estimates | Target | Reco term challenges in domestic CV industry as recovery in CV volumes expected only by 2HFY21 as well as weak auto exports as US and Europe heavy truck...

11 October 2019 Automobiles Bharat Forge Over the last few years, BHFC has invested resources to build capabilities in areas such as e-mobility, defence and light weighting technologies with an objective of addressing the megatrends in automotive and the Make in India theme. In the e-mobility segment, it has acquired stakes in Tevva Motors (CV electrification), Tork Motors (e-2Ws) and Refu Drives (EV subcomponents), which has helped it gain frugal access (investment of ~INR2b in these three companies) to emerging technologies with faster speed to market. It has invested ~INR2b in acquiring stakes in three e-mobility companies (Tevva, Tork and Refu) with an objective of establishing vertically integrated companies and improving its speed to market. Its current focus areas in e-mobility segments are electronic components, transmission and light weighting, apart from e-2Ws through Tork Motors. It would also offer light weighting solutions for chassis and other components through aluminum/alloy casting and allied technologies.

Recently we met the Management of Bharat Forge (BFL). Management expects overall business momentum to remain soft in FY20 in its domestic and international business while business recovery to take place in FY21-22.