Dolat Capital recommended accumulate rating on Bharat Forge with a target price of Rs 477 in its research report dated August 12, 2020.
Dolat Capital's research report on Bharat Forge
Bharat Forge’s (BFL) reported 1Q numbers above estimates. Consolidated revenues declined 50% YoY to Rs11.5b and EBITDA loss stood at Rs.141mn. (vs est. loss Rs 914mn). The management highlighted that recovery is encouraging across segments, and guided domestic revenues to be flat YoY in 2Q. However, export numbers expected to be slightly lower due to weakness persist in Oil & Gas segment. The company has accelerated the cost reduction measures (saving manpower & energy costs, consolidation of production facilities and digitization) which benefit was visible in Q1FY21; this will continue in next three quarters for FY21. Notwithstanding the adverse impact of the covid-19 disruption in the near term, we remain positive on BFL’s growth prospects on the back of improving outlook for class 8 trucks, recovery in demand of construction & mining equipment, focus on diversification (improving long term revenue prospects for PVs, Defence and Railways segments) and the cost optimization initiatives. BFL’s focus on balance sheet and re-structuring of cost across plants will help tide over the COVID-led disruption.
As capacity utilization, which is now below 60%, impacted by the slowdown across verticals and geographies, the company has enough bandwidth to expand margins once utilization ramps up. We increase our EPS estimates by 25/34/30% for FY21/22/23E factoring in improving demand recovery across segment and cost control measures. AT CMP, the stock is trading at 28/20x our FY22E/FY23E EPS, versus the historical mean of 29x. We recommend Accumulate the stock, with a TP of Rs 477 (22x FY23E EPS).
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