Prabhudas Lilladher recommended Hold rating on Bharat Forge with a target price of Rs 401 in its research report dated August 12, 2020.
Prabhudas Lilladher's research report on Bharat Forge
BHFC’s 1QFY21 performance looked better with tonnage decline of ~71% to 17.8k (PLe 14k) partly offset by realization growth of ~8% at Rs239k/ton (PLe Rs200/ton). Aided by cost control and better mix (higher exports), EBITDA came in at Rs17mn (PLe –Rs182mn) while adj. loss restricted at Rs563mn (PLe Rs757mn). While the ongoing cycle is negative for core segments such of CVs (~39% of consol revenues) and Oil & gas, ramp-up is visible in PV and non-auto segment. We believe that BHFC is much better placed than previous cycles with new products/customer additions both in auto/non-auto segments. However, we believe the same is well captured in recent valuation expansions at 21x/18x FY22/23 EPS.
Hence we maintain Hold with a revised target price of Rs401 (earlier Rs347), roll forwarded to 18x Sep’22E (10% discount to 10 year LPA v/s 17x earlier) consol EPS. We cut FY21 EPS by ~7% to factor in lower volumes in M&HCV while raise FY22/23 consolidated EPS by 4.5%/4% to factor in cost benefits.
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