Bharat Forge Ltd. share price target

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.

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. Q1FY20 revenue de-grew by 4%YoY due to the slowdown in Industrial export (down by 37%YoY) & weakness in domestic CV by 31%YoY. EBITDA margin declined by 240bps due to inflationary pressure on steel price and lower product mix. BFL's new value-added order received on aluminum forging is on track...

During Q1FY20, BFLs sales declined by 9 percent YoY to Rs13.5bn (below our estimates of Rs14.9bn).

BHFC's Q1FY20 operating performance were weak with OPM at 26% (PLe: Change in Estimates | Target | Reco 30%), on the back of lower realizations (flat YoY/ -17% QoQ impacted by inferior product mix. While the management plans to neutralise the impact of...

Standalone revenue was down 9% YoY at INR13.5b (our estimate: INR17.1b) in 1QFY20 due to lower tonnage (-9% YoY/-3% QoQ to 60.9k ton). Realization declined 17% QoQ (flat YoY) to INR221.2k/ton (our estimate: ~INR267.5k) due to 2% price pass-through and de-growth in Oil & Gas/Defence. EBITDA declined 18% YoY to INR3.5b (our estimate: ~INR4.9b), with the margin contracting 290bp YoY/QoQ to 26.1% (our estimate: 28.8%). Adj. PAT declined 26% YoY to INR1.7b (our estimate: INR2.7b). Key highlights from earnings call: (a) Oil & Gas de-stocking impact is behind...

BHFC is the flagship company of Kalyani Group. It is one of the largest commercial forging companies in the world in terms of capacity and revenue.

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. Q4FY19 revenue grew by 14%YoY due to superior product mix. Despite weak auto outlook across India & Globally, International trucks & cars grew by strong 14% & 35% respectively due to order backlog. Both Export & Domestic revenue grew by 18%/6%YoY, largely led by 31%YoY contribution from industrial business, in which Defence, Agri...

Steady Business Outlook Maintain BUY: During FY19, Bharat Forge Ltd (BFL) reported 22.6% sales growth to Rs65.2bn and 27.5% PAT growth to Rs10.7bn. The company reported 9.9% volume growth during FY19.

Increasing kit value, newer products & verticals to support! BFL is an important player in the CV ancillary space, providing forging components to both domestic and global OEMs. The CV segment accounted for ~41% of BFL's total FY19 revenues. Acknowledging its reliance on the CV space, BFL has consciously attempted to (i) infuse a greater degree of diversification in its offerings and (ii) to augment kit value i.e. content per vehicle. The industrial segment (defence & aerospace, agri, infra, railway and oil & gas) constituted ~40% of FY19 revenues. It continues to perform well...