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Bharat Forge Ltd>
  • CMP : 818.0 Chg : 9.55 (1.18%)
  • Target : 1,050.0 (27.27%)
  • Target Period : 12-18 Month

22 Feb 2023

Unchanged robust fundamentals, positivity retained…

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

BFL reported healthy performance in Q3FY23 on standalone basis

  • Standalone sales were up 5.9% QoQ to ₹1,952 crore, tonnage up 2.6% QoQ
  • EBITDA was at ₹535 crore, with margins up 310 bps QoQ to 27.4%.
  • PAT was up 7.8% QoQ to ₹289.1 crore
  • Domestic operations secured new business amounting to ~₹ 265 Crores across automotive & industrial application. The defence vertical of the company also secured an export order worth ~₹600 crores with total orderbook in this domain pegged at ~₹1,950 crores (primarily exports).
What should Investors do?

BFL’s share price has grown at ~4% CAGR over the past 5 years (~₹ 742 levels in Feb 2018), broadly in-line with Nifty Auto index.

  • We retain BUY rating amidst robust order wins in domestic and foreign businesses, healthy export orderbook in defence, turnaround visibility in foreign operations & potential healthy wins in domestic defence space.
Target Price and Valuation

Revising our estimates, we value BFL at unchanged target price of ₹ 1,050 i.e., 35x P/E on average FY24-25E EPS of ₹30/share

Key Triggers for future price performance
  • Multiple growth levers in domestic, export market amidst cyclical upswing in CV space, robust demand in PV category amid easing chip issues & focus on EV space. We expect sales to grow at 17.5% CAGR over FY22-25E.
  • Strong double digit growth in non-Auto business (i.e. industrial, defence, aerospace) amidst robust order booking to aid margins and reach ~18% by FY25E, consequently RoCE/RoE is seen reaching ~15%/18% by FY25E
  • Ambitious Vision 2030 with financial contours as: (i) 12-15% revenue CAGR, (ii) EBITDA margin >20% at consolidated level, (iii) RoCE at 25% at consolidated level, (iv) capital allocation for organic/inorganic growth
Alternate Stock Ideas

Besides BFL, in our auto coverage we like M&M

  • Focused on prudent capital allocation, UV differentiation & EV proactiveness
  • BUY with target price of ₹1,665

Key Financial Summary

Key Financials FY20 FY21 FY22 5 year CAGR (FY17-22) FY23E FY24E FY25E 3 year CAGR (FY22-25E)
Net Sales 8,055.8 6,336.3 10,461.1 10.3 12,895.2 14,749.8 16,975.3 17.5
EBITDA 1,114.8 861.7 2,016.0 10.0 1,859.5 2,461.7 3,036.9 14.6
EBITDA Margins (%) 13.8 13.6 19.3 0.0 14.4 16.7 17.9 0.0
Net Profit 349.2 -127.0 1,077.2 9.1 593.0 1,173.9 1,603.9 14.2
EPS (₹) 7.5 -2.7 23.1 - 12.7 25.2 34.4 -
P/E 110.0 -302.3 35.7 - 64.8 32.7 23.9 -
RoNW (%) 7.8 -125.9 15.2 - 8.5 15.0 18.0 -
RoCE (%) 5.6 2.2 9.6 - 8.0 11.7 14.8 -
Source: Company, ICICI Direct Research

Key takeaways of the recent quarter & Concall highlights

Q3FY23 Results:

  • Standalone revenues came in at ₹1,952 crore (up 4.7% QoQ), amid 2.6% tonnage growth to 62,755 MT. The growth was led by international operations wherein revenues grew 9.4% QoQ to ₹1,166 crore (CV up 5.1%, PV up 10.2%, Industrial up 14.2%). Domestic revenues were down 1.7 % QoQ at ₹759 crore (CV up 3.8%, PV down 6.4%, industrials flat QoQ)
    • Standalone EBITDA in Q3FY23 stood at ₹535 crore, with consequent margins placed at 27.4% (up 310 bps QoQ). Gross margin expanded by 37 bps QoQ (vs our expectations of ~180 bps QoQ) however savings were realised in other expense (down ~250 bps QoQ) primarily tracking exchange gains.
    • Reported standalone PAT stood at ₹ 289.1 crore, up 7.8% QoQ, primarily tracking higher absolute EBITDA, however was offset by higher interest expense (includes one time MTM notional loss).

Q3FY23 Earnings Conference Call highlights

  • Management informed about higher interest costs was due to one-time MTM loss of ~|35 crores due to forex excluding which interest expense stood at ~|55 crores and will remain at this level going forward.
  • For Q3FY23 management informed about the domestic operations securing new business worth ~ ₹ 265 Crores across automotive & industrial application vs ~|850 crores order won during Q2FY23. Also, KSSL, the defence vertical of the company (wholly owned subsidiary) also secured an export order worth ~|600 crores with orderbook at ~|1,950 crores (all export) to be executed over 2 years.
  • JS auto also received order worth |153 crores during Q3FY23.
  • For Q4FY23 management informed about stable performance across both domestic and export markets & expects new business to be accretive from FY24E onwards.
  • Company incurred ~|62 crores of EBITDA loss in foreign operations due to low utilization in Germany and North America. Company has ~7.5 million units’ capacity in foreign operations & has utilization of ~50%. Further management informed about some plants in US working at ~25% utilization
  • On its recent acquisition, JS Auto management remained bullish about overall growth with target of increasing revenue by double digit CAGR over next 3 years, with total orderbook post acquisition coming in at |250 crores. Further company has acquired one plant post which capacity to increase to ~75,000 tons with desired margins to be in excess of 15%.
  • USD/INR realization for quarter stood at |81.5.

    QoQ decline in domestic operations was due to lower production in PV space & inventory correction in tractor space

    Management do not foresee disruption in production schedule due to RDE norms.

    Out of defence orderbook ~50% is related to capital good and 50% for consumables.



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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