Buy Bharat Forge; target of Rs 351: Angel Broking

Angel Broking is bullish on Bharat Forge and has recommended buy rating on the stock with a target of Rs 351, in its August 14, 2012 research report.

“Bharat Forge (BHFC) reported subdued results for 1QFY2013 due to weak demand in the domestic automotive market (domestic revenues down 5.6% yoy led by weakness in the domestic medium and heavy commercial vehicle [MHCV] sales) and sharp increase in interest expense. The top-line posted an in-line growth of 9.2% yoy (down 4.2% qoq) to `936cr driven by a 30.7% yoy (8.9% qoq) increase in exports revenue on the back of rupee depreciation and 16.4% yoy increase in non-automotive segment revenue (~37% of standalone revenues)."

“The EBITDA margin improved 84bp yoy (down 57bp qoq) to 25.1% driven by a favorable product mix led by an increasing proportion of machining component (~52%) in the product-mix. The net profit registered a lower-than-expected growth of 8% yoy (down 16.2% qoq) to `105cr. While the interest cost was up 75.6% yoy (59% qoq) due to forex loss of `14.5cr; other income jumped 72.7% yoy (93% qoq) benefitting from forex gain of `4.7cr. BHFC registered lower-than-expected net profit growth of 8% yoy (down 16.2% qoq) to `105cr due to a sharp increase in interest expense. The interest expense surged 75.6% yoy (59% qoq) to `55cr primarily on account of forex loss of `14.5cr. Conversely, the other income grew 72.7% yoy (93% qoq) led by a forex gain of `4.7cr which partially negated the impact of higher finance cost.” 

“We revise our revenue estimates downwards to factor in the weak demand for forging components led by weakness in the domestic MHCV segment. Further, we have also revised our margin estimates marginally downwards to account for weak performance of overseas subsidiaries. As a result, our earnings estimates are revised downwards by 5.1%/4.6% to `20.3/`25.1 for FY2013E/14E, says Angel broking research report.

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