Bharat Forge | Assetmultiplier

Growth opportunities ahead across all segments – Bharat Forge

Update on Indian Equity Market:

On Wednesday, markets ended lower with Nifty closing 105 points to close at 15,635. PowerGrid (3.9%), SBILIFE (1.8%), and NTPC (1.6%) were the top gainers on the index while TATA MOTORS (-2.6%), ADANIPORTS (-2.4%), SHREECEM (-2.0%) were the top losers for the day. Among the sectoral indices, MEDIA (-2.1%), REALTY (-1.7%), and AUTO (-1.3%) were the top losers, and there were no Sectoral gainers.

Excerpts of an interview with Mr. Baba Kalyani, CMD of Bharat Forge on CNBCTV18 dated 7th June 2021 :

Greenshoots have been seen in recovery over Q4FY21 despite lockdown, the industry is coming back to pre-covid levels but the management expects another quarter for things to fully recover.
Oxygen shortage affected steel supply due to the 2nd COVID wave in Q4, but significant recovery has been seen. The semiconductor supply shortage is still an issue but there’s no reduction in demand for chassis and powertrains.
Exports have seen tremendous growth across all segments over FY19 levels, and the company is benefiting from shifting from traditional supply chains in East Asia to India and the rest of the world.
There is a huge Commodity Upcycle, especially in metals. However, the company is poised to directly pass on the hikes to its customers.
The Company is expanding its capacities in the renewables sector, in order to reduce its reliance on Oil and Gas and focus on sustainable growth ahead.

Asset Multiplier Comments:

Bharat Forge like most Industrial manufacturing has already seen the worst of its days due to the pandemic, and recovery seems to be well on track.
Increased Government Expenditure, Focus on Atmanirbhar Bharat will help the company’s topline across all verticals in years ahead.

Consensus Estimates (Source: market screener website):

The closing price of Bharat Forge was ₹757/- as of 09-June-2021. It traded at 42x/ 30x the consensus EPS estimate of ₹ 18/ 25/- for FY22E/23E respectively.
The consensus price target is ₹ 800/- which trades at 32x the EPS estimate for FY23E of ₹ 25/-.

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

‘At the bottom of the barrel, see uptick going forward’- Amit Kalyani, Deputy MD, Bharat Forge

Update on the Indian Equity Market:

On Wednesday, NIFTY closed positive (+0.8%) at 12,201. NIFTY50 was led by HINDUNILVR (+5.1%), KOTAKBANK (+2.2%), and EICHERMOT (+1.9%). YESBANK (-1.5%), SBIN (-1.2%) were the top NIFTY50 losers. FMCG (+1.9%), PVT BANK (+0.7%) and FIN SERVICE (+0.7%) were the top gaining sectors. PSU BANK (-1.9%), REALTY (-0.8%) and PHARMA (-0.7%) were among the losing sectors.

‘At the bottom of the barrel, see uptick going forward’- Amit Kalyani, Deputy MD, Bharat Forge

Excerpts from an interview with Mr Amit Kalyani, Deputy MD, Bharat Forge aired on CNBCTV18 on 10^th February 2020:

In the domestic auto industry, the Commercial Vehicle (CV) and Passenger Vehicle (PV) volume decline has reached the bottom. However, any growth is not visible at this point.
On the global auto market, seeing good growth in PVs. 3QFY20 was an aberration for Bharat Forge due to a strike at GM, one of their big customers. Mr Kalyani expects business to be sequentially higher in 4QFY20.
Overall, the Indian auto industry sentiment is not very positive. There are a lot of unknowns in the transition phase leading up to shift to BS6. Bharat Forge’s domestic customers are not willing to give any forecasts for more than 1 – 1.5 months.
Revenue from North America declined over 30% in 3QFY20. Mr Kalyani commented that he doesn’t expect any further decline in CVs in the North American market. He expects the PV exports to go up in 4QFY20E as well as FY21E as Bharat Forge has won a lot of new product orders.
The Europe CV business is also expected to go up in FY21 due to new product wins. This growth will be in the form of additional value per vehicle so even if volumes decline, Bharat Forge will see growth.
Bharat Forge is engaged in a lot of cost reduction, both on fixed and variable costs. By the end of FY21E, the company will have a substantial cost reduction exercise completed which will help margins. In 9MFY20, even though operating at 50% capacity, Bharat Forge’s margins are at about 24%.
In 3QFY20, profitability has bottomed out. Mr Kalyani expects some improvement in 4QFY20E, but it won’t be substantial.
Bharat Forge’s business is a derived demand business. The company can only focus on maximizing revenue depending on customer demand and cost-efficiency.
Bharat Forge is in a position to take advantage of any opportunities that come up. The company has created a lot of capacity. They are able to fulfil all demand operating at 50% capacity. The company is strong financially and technologically.

Consensus Estimate: (Source: market screener website)

The closing price of Bharat Forge was ₹ 483/- as on 12-February-20. It traded at 34x/ 25x/ 19x the consensus EPS estimate of ₹ 14.1/19.5/25.5 for FY20E/ FY21E/ FY22E respectively.
Consensus target price is ₹ 469/- which implies a PE multiple of 18x on FY22E EPS of ₹ 25.5/-

By Mrunmayee Jogalekar Bharat Forge 0 Comments Read more...