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  • CMP : 1,438.8 Chg : 31.30 (2.22%)
  • Target : 900.0 (20.0%)
  • Target Period : 12-18 Month
Result Update

12 Aug 2022

Steady show, well poised for double digit growth…

About The Stock

Bharat Forge (BFL) is India’s leading auto component exporter with strong engineering, technological competencies in forging and metallurgy. With total capacity of 6.83 lakh MT per annum, its products find application in domestic, exports markets across PV, CV, oil & gas, construction & mining, power, defence, etc.

  • FY22 standalone segment mix – ~30% CV, ~47% Industrial, ~12% PV
  • FY22 standalone export mix - ~68% America, ~29% Europe, ~3% other
Q1FY23

BFL reported steady performance in Q1FY23

  • Standalone sales were up 5.1% QoQ to ₹1,759 crore, tonnage up 1% QoQ
  • EBITDA was at ₹435 crore, with margins down 100 bps QoQ to 24.7%.
  • PAT was down 7% QoQ to ₹243.7 crore, aided by low other income
  • For FY23, management commentary remained upbeat on demand prospects, revenue from new verticals (including EV, defense) & exports.  
What should Investors do?

BFL’s share price has grown at ~5% CAGR over the past 5 years (from ~₹ 584 levels in August 2017), outperforming Nifty Auto index.

  • We retain BUY rating, tracking multiple levels of growth namely cyclical recovery in domestic CV space, robust PV demand outlook and well charted growth trajectory in new fields namely aerospace, defense among others
Target Price and Valuation

Revising our estimates, we now value BFL at revised target price of ₹ 900 i.e. 32x P/E on FY24E EPS (earlier target price ₹ 840)

Key Triggers for future price performance
  • Expected cyclical upswing in India CV space, strong production guidance of US Class 7/8 trucks, healthy outlook for PV segment, strong aspiration to increase revenue from defence and diversifying the revenue base (EV products) to result in robust 13.5% net sales CAGR over FY22-24E
  • With operating leverage at play, commodity inflation a pass through & pickup in utilization level in foreign operations, EBITDA margins are seen improving to 19.2% by FY24E.
  • Consequent EBITDA/PAT is seen growing at 13%/11% CAGR over FY22-24E
Alternate Stock Ideas

Besides BFL, in our ancillary coverage we like M&M.

  • Focused on prudent capital allocation, UV differentiation & EV proactiveness

 

  • BUY with target price of ₹1,550

Particulars

Particulars (₹ crore) Amount
Market Capitalization 68,787.4
Total Debt (FY22) 5,655.0
Cash & Investment (FY22) 2,511.0
Enterprise Value 37,363.0
52 week H/L (₹) 1,460.2/919.1
Equity Capital 95.6
Face Value (₹) 2.0

Price Chart

Recent Events & Key Highlights

  • Stable performance in Q1FY23
  • Key Risk: (i) Lower than anticipated sales growth in the international market over FY22-24E (ii) Slower than anticipated recovery in margin profile at overseas operations

Research Analyst

Shashank Kanodia
shashank.kanodia@icicisecurities.com

Result Update
ICICI Securities – Retail Equity Research

Key Financial Summary

Key Financials FY19 FY20 FY21 FY22 5 year CAGR (FY17-22) FY23E FY24E 2 year CAGR (FY22-24E)
Net Sales 10,145.7 8,055.8 6,336.3 10,461.1 10.3 12,288.2 13,470.3 13.5
EBITDA 2,055.6 1,114.8 861.7 2,016.0 10.0 2,071.8 2,582.3 13.2
EBITDA Margins (%) 20.3 13.8 13.6 19.3 - 16.9 19.2 -
Net Profit 1,032.6 349.2 -127.0 1,077.2 9.1 921.3 1,316.3 10.5
EPS (₹) 22.2 7.5 -2.7 23.1 - 19.8 28.3 -
P/E 33.8 100.0 -274.8 32.4 - 37.9 26.5 -
RoNW (%) 19.1 7.8 -125.9 15.2 - 12.7 16.1 -
RoCE (%) 15.5 5.6 2.2 9.6 - 9.2 12.2 -
- - - - - - - - -
Source: Company, ICICI Direct Research

Key takeaways of the recent quarter & Concall highlights

Q1FY23 Results:

  • Standalone revenues came in at ₹ 1,759 crore (up 5.1% QoQ), amid 1% tonnage growth to 57,915 MT. The growth was led by international operations wherein revenues grew 11.5% QoQ to ₹ 1,048 crore (CV up 13.5%, PV up 13.8%, Industrial up 8.3%). Domestic revenues were down 3.7% QoQ at ₹ 690 crore (CV down 7.7%, PV down 2.3%, industrials down 5%)
    • Standalone EBITDA in Q1FY23 stood at ₹ 435 crore, with consequent margins placed at 24.7% (down 100 bps QoQ). Margin performance was positively impacted by gross margin expansion (up ~200 bps QoQ) and was however offset by higher other expense (up ~295 bps QoQ). Other expenses include forex loss of ~₹ 25 crore, adjusted for which EBITDA stood at ₹460 crore
    • Reported standalone PAT stood at ₹ 243.7 crore, down 7% QoQ, primarily tracking lower other income and forex loss. At the consolidated level, the company reported share of loss from subsidiaries/associates at ₹ 2.4 crore vs. loss of ₹ 10.7 crore in Q4FY22.

 

Q1FY23 Earnings Conference Call highlights

  • For Q1FY23 management informed about the Indian operations securing new business worth ~ ₹ 350 Crores across automotive & industrial application. For FY23, management commentary remained upbeat on demand prospects & revenue from new verticals (including EV).
  • Company’s new greenfield facility in North America is currently working at lower utilization levels & consequently incurred loss of ~$1 million/month at EBITDA level. However, management informed about strong uptick in volumes going forward from this facility and be at break-even by FY23. Further this facility has received orders for leading Japanese, Korean, North American EV/Hybrid OEMs for drivetrain related components.
  • European operation continues to get impacted from high gas prices.
  • During Q1FY23 company accounted for highest ever export revenue driven by PV segment. Also CV remained strong with a year backlog in US Class 7 & Class 8 trucks having almost a year booking with minimal cancellation. Management expects US Class 8 truck to reach ~3,00,000 units in CY22 vs ~2,70,000 in CY21. The production is then expected to be flat in CY23E
  • Company’s Aerospace business now accounts for 10% of topline vs ~2% in Q1FY22 and recently added 2 customers for 2 new products with long term orders in hand.
  • Capex for Indian operation would be ~₹250 crores and for EV business would be ~₹127 crores. Capex for US business would be ~$75 million (starting FY24E, spread over 2 years) and Europe business would be ~10-15 mil euros.

  • Management informed about Industrial revenue is expected to grow at double digit CAGR over next 2-3 years

  • With respect to Tork motors company will supply BMS, Traction Motors, Motor Controllers 

  • Company completed acquisition of JS Auto on 1st July,2022 and would be consolidated from Q2FY22 onwards & would be EPS accretive from day 1. This acquisition will open entry into renewable & hydraulics space.

  • In defence space company operates in 2 segments (i) armoured Vehicle (clocking ~₹200 crores of top line annually), (ii) Spares (clocking ~₹300- 350 crores of revenue annually); management expects it to 3x in 3-5 years

Disclaimer

ANALYST CERTIFICATION

I/We, Shashank Kanodia, CFA, MBA (Capital Markets), and Raghvendra Goyal, CA, Research Analysts, authors and the names subscribed to this report, hereby certify that all of the views expressed in this research report accurately reflect our views about the subject issuer(s) or securities. We also certify that no part of our compensation was, is, or will be directly or indirectly related to the specific recommendation(s) or view(s) in this report. It is also confirmed that above mentioned Analysts of this report have not received any compensation from the companies mentioned in the report in the preceding twelve months and do not serve as an officer, director or employee of the companies mentioned in the report.

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