ICICI Direct recommended hold rating on Bharat Forge with a target price of Rs 450 in its research report dated November 11, 2019.
ICICI Direct's research report on Bharat Forge
Bharat Forge (BFL) reported a muted operational performance in Q2FY20. Standalone revenues at Rs 1,260 crore were down 25% YoY (domestic revenues down 35.5%, export revenues down 18.1%), tracking 23% YoY decline in total shipment tonnage to 53,541 MT. CV revenue de-grew 36.6% YoY, while PV revenue rose 21% YoY. Revenue from industrial segment dropped 29.4% YoY. Standalone margins at 25.4% (down 60 bps QoQ) were impacted by adverse product mix. Standalone PAT (Rs 245 crore, up 7.7% YoY) was aided by low tax rate (2.5%) & higher other income. The management indicated H2FY20 would be operationally lower than H1FY20. For BFL, given the medium term growth concerns, we factor in sales & PAT CAGR of -6.9% & -8.0%, respectively, in FY19-21E.
While BFL is structurally on the right path with regard to product profile and cost focus, imminent challenges to growth prospects make us downgrade the stock to HOLD. We value BFL at Rs 450/share, assigning 24x P/E on FY21E EPS of Rs 18.8.
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