Accumulate Bharat Forge; target of Rs 237: PLilladher

Prabhudas Lilladher is bullish on Bharat Forge and has recommended accumulate rating on the stock with a target of Rs 237 in its February 08, 2013 research report.
 
“Bharat Forge, Top-line declined by 28.5% YoY to Rs6.7bn (PLe: Rs8.2bn) on account of 22.1% decline in domestic business. Revenues declined by 22.5% QoQ, mainly on account of 33.5% decline in export revenues and sluggish demand in the domestic CV business. Tonnage shipment for the quarter declined by 19.1% YoY to 37,483MT (55,412MT in Q2FY13). On account of substantial drop in volumes, EBITDA declined by 480bps YoY to 20.6% (23.9% in Q3FY13). As a result, EBITDA de-grew by 33.1% YoY to Rs1.4bn (PLe: Rs1.9bn). EBITDA/kg declined by 14.2% YoY to Rs37.0/kg (Rs43.1/kg in Q2FY13). Adj. for a forex loss Rs36m, PAT declined by 56.8% YoY to Rs511m.”
 
“Performance of subsidiaries suffered on the back of continued severe downturn in the Heavy Truck market in China and decline in demand in Europe. In both the geographies, the capacity utilisation is at 40-45%. The CV segment in North America was strong in H1CY12 but was very weak in H2CY12. China, which accounts for ~25% of the subs. turnover, reported a negative 5.6% EBITDA margin, thereby, leading to 2.5% EBITDA margin at the subsidiaries level. As a result, the overseas subsidiaries reported a 53.1% YoY decline in EBITDA at Rs168m (Q3FY12 @ Rs358m). Demand drop, coupled with inventory destocking at OEM level, led to capacity utilization dropping from 70% in Q2FY13 to around 55% in Q3FY13 in the domestic business. All global OEMs are adjusting their production level to correct inventory levels, leading to destocking of inventory across the pipeline. The company has initiated series of measures aimed at tight cost control and productivity improvements, full benefit of which are likely to flow in the coming quarters. The outlook for the next 1-2 quarters is subdued and it expects some pressure due to low levels of demand across auto & non-auto globally, coupled with a sluggish domestic market.”
 
“In the near-term, outlook is not encouraging, with slowdown likely to continue in the M&HCV space. With a high fixed cost structure of the business, any improvement in CV segment over the next year would be the biggest driver of its profitability. The stock has declined by 28.9% in the last year discounting the slowdown in the CV segment. Hence, we see limited downside from the current levels. Strong cash flow generation, coupled with no major capex, would be supportive to the stock price. Hence, we maintain our .Accumulate. rating on the stock. We value the company on SOTP basis, with standalone business valued at Rs220/share (earlier Rs258/share) and subsidiaries/JVs valued at Rs16/share. Further, slowdown in Europe and North America (42% of its business) remains a key risk to our call,” says Prabhudas Lilladher research report.

Non-Institutions holding more than 90% in Indian cos 

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