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Bharat Forge Ltd Research Report - 21st Jan 2016

Auto Ancillary | Published on Nov 02nd 2015


For 2QFY2016, Bharat Forge Ltd (BFL)s results have come in below our estimates. The top-line declined marginally, led by a steep decline in industrial exports which is owing to weakness in the oil and gas segment. A subdued top-line and adverse mix (industrial exports have high machining component) negated most of the benefits of lower steel prices. Given the subdued top-line, the net profit too declined marginally on a yoy basis. Top-line declines marginally: After seven consecutive quarters of double-digit growth, BFL’s revenues declined by 2% yoy to `1,117cr during the quarter. The decline was led by the export segment which dipped by 9%. Industrial segment exports declined sharply by 32% yoy due to weakness in the oil and gas sector. The domestic market, in contrast, grew a healthy 9% yoy led by the non-auto segment, which reported a growth of 20% yoy. Subdued topline and adverse mix impacts profitability: BFL’s revenues were under pressure during the quarter, which led to operating deleverage. Further, the product mix worsened given the decline in the industrial export segment which levied pressure on profitability. The net profit, at Rs175cr, declined by 2% yoy. Outlook and valuation: The outlook in the near term remains subdued given the pressures in the industrial export segment (particularly in the oil and gas space). However, BFL expects the topline to return to double digit growth rate from FY2017 given the gradual recovery in the automotive export markets. Further, the ramp up in the passenger vehicle exports due to new order wins and addition of new customers and markets in the export industrial segments would enable BFL to outpace industry growth. Given the focus on technological innovation and the ability to move up the value chain, we have positive view on the stock. We assign Buy rating to the stock with a price target of Rs 1,025 (based on 24x FY2017 earnings).

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CMP 862
Target Price 1,025
Investment Period12 Months

Stock Info

MCAP BSE (Rs in Cr)20,669.15
MCAP NSE (Rs in Cr)20,643.54
P/E (x)32.77
EPS (Rs.)27.09
BV (Rs.)156.38
Div Yield (%)0.84
FV (Rs.)2.00
P/BV (x)5.68
EV/Sales (x)3.06
EV/EBITDA (x)18.46

Shareholding Pattern (%)

Public & Others24.0
Grand Total100.0

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