Accumulate Bharat Forge; target of Rs 358: PLilladher

“Bharat Forge (BFL) reported 18.9% YoY growth in its top-line at Rs9.8bn (PLe: Rs9.8bn) on account of an improvement of 27.7% YoY in export revenues at Rs4.6bn (Rs4.6bn in Q3FY12). Tonnage production for the quarter grew by 11.7% YoY to 57,242MT (55,412MT in Q3FY12). EBITDA grew by 26.2% YoY to Rs2.5bn (PLe- Rs2.47bn), whereas EBITDA margin improved 150bps YoY to 25.7% (Q3FY1225.4%). EBITDA/kg grew by 13.0% YoY to Rs43.8/kg (Rs43.1/kg in Q3FY12), thereby, reflecting robustness of earnings. Reported PAT de-grew by 45.1% YoY to Rs551m, impacted by an exceptional item pertaining to provision for impairment of investment to the tune of Rs704m at Bharat Forge America. Adj. PAT grew by 25.1% YoY to Rs1.25bn (PLe: Rs1.2bn).”

“Driven by 25.1% YoY growth in standalone revenues to Rs36.9bn and 33.7% improvement in subsidiaries revenues to Rs28.9bn, the consolidated top-line for FY12 grew by 23.4% YoY to Rs62.8bn. The overseas subsidiaries reported a 33.7% YoY increase in top-line, mainly led by improvement in the utilisation level. At the same time, subsidiaries did break-even for the year as against Rs87m loss in FY11. European CV industry is likely to witness a compression, whereas Indian M&HCV segment is likely to witness flat growth. BFL is likely to focus on LCV segment in the Indian operations. Slower growth in automotive business is likely to be compensated by 20%+ growth in non-auto business, mainly driven by newer verticals such as Locomotives, Oil & Gas and Marine Application in India as well as Europe and Russia. BHFL is expanding its forging capacity by 15% and machining capacity by 30% over the next 1-2 years. Capex for the next two years is pegged at Rs2bn. Consolidated net debt: equity stands at 0.7x which is likely to come down as cash flow from operations in FY13E are likely to be utilised for repayment of debt.”

“We value the company on SOTP basis, with standalone business valued at Rs336/share and subsidiaries/JVs valued at Rs22/share. With improving ROE and strong cash flows, we reiterate our ‘Accumulate’ rating on the stock,” says Prabhudas Lilladher research report.     

Public holding more than 90% in Indian cos

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