Bharat Forge Ltd. share price target

BFL's segmental revenue mix at standalone level for FY20 was at ~39% CV, ~37% industrial, ~16% PV, ~8% others. The CV space domestically (~11% of sales) as well as in overseas geographies (~29% of sales) remains a laggard. In India, present run rate of retail sales for M&HCVs; trails wider industry by a large margin when compared to pre-Covid levels on account of continued demand side (muted economic activity) and supply side (system overcapacity, revised axle load norms) issues. We expect the domestic CV recovery to be quite gradual in nature. In the US Class 8 truck...

Near term pain, Margin and growth levers intact Bharat Forge's (BFL) 4QFY20 consolidated EBITDA was Rs 1.48bn (-75% YoY, vs est 1.88bn), below our expectations. Weak product mix, lockdown in the 2nd half of March and negative operating leverage...

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...