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Better revenue visibility for long term Market Cap (cr) Rs26,357
Bharat Forge Ltd (BFL) is a leading player in the forgings industry. The
Enterprise Value (cr) Rs28,875
company is serving several sectors including automobile, power, oil and gas,
rail & marine, aerospace, construction, mining etc. Outstanding Shares (cr) 23.3
Q4FY17 standalone revenue grew by 11%YoY due to recovery in the US oil Free Float 53%
& gas sector and partial recovery in the US class 8 heavy truck segments. Dividend Yield 0.9%
Domestic revenue grew by 11%YoY and Export business grew by 12%YoY 52 week high Rs1,175
due to better products and geographical mix. 52 week low Rs687
EBITDA margin declined by 180bpsYoY but rose by 81bpsQoQ due to
6m average volume (cr) 0.1
control on other expenses and employee cost
Beta 1.03
The orders from Boeing and new defence JV with AM General will provide
higher revenue visibility in non auto sector during FY18. Face value Rs2
We expect BFL to register 15% revenue CAGR over FY17-19E on account Shareholding % Q2FY17 Q3FY17 Q4FY17
healthy demand for US - CV and revival in the energy sector. Promoters 46.7 45.8 45.8
We expect BFL to trade at a premium valuation given its strong earnings FIIs 7.9 11.7 15.2
outlook thus, we upgrade our rating from Hold to Buy with a revised target MFs/Insti 13.9 14.9 13.9
price of Rs1252 (28x FY19 EPS).
Public 31.5 27.6 25.1
Healthy Exports growth with recovery in Oil &gas sector Total 100.0 100.0 100.0
Q4FY17 revenue grew by 11%YoY, largely due to the recovery in the US shell gas Price Performance 3mth 6mth 1 Year
production and partial recovery in the US class 8 heavy truck segments. Domestic Absolute Return -1.3% 16.3% 40.6%
revenue grew by 11%YoY and export sales grew by 12%YoY. BFLs average Absolute Sensex 6.1% 16.0% 15.9%
realisation per tonne rose by 5.7%YoY, due to better product mix, higher non auto -7.0% 0.3% 21.2%
Relative Return
business and better export realisation amid favourable currency. The overall *over or under performance to benchmark index
volume rose by 5.3%YoY to 55,159 tonnes during the quarter. The EBITDA
margins declined by 180bpsYoY but rose by 81bpsQoQ due to control on other 1600 BFL Sensex Rebased
expenses and employee cost. 1100
Favourable product mix to continue 600
We expect the recovery in the energy sector and traction from the US HCV sales to
continue. We believe domestic CV business to face some turbulence over near 100
term due to the left over impact of the demonetisation. BFLs order from Boeing May-16 Aug-16 Nov-16 Feb-17 May-17
for developing and manufacturing 777x titanium forgings will start reflecting in
its revenue from FY19E. Further, NTPC JV in power sector will be another focus
Consolidated (Rs.cr) FY17A FY18E FY19E
area in FY18. The long term growth outlook remains robust on the backdrop of
Sales 6,396 7,375 8,515
improved revenue visibility. We expect 15% revenue CAGR over FY17-19E led by
pick in domestic CV market by H2FY18 and de-risking the utilization in Non auto Growth (%) (6.1) 15.3 15.5
sector.The management expects the incremental revenue from new EBITDA 1,251 1,534 1,839
business/products to grow from current 5% of sales to 15% in next 2-3 years. Margin (%) 19.6 20.8 21.6
Margin to remain resilient PAT Adj 569 818 1,041
We believe BFL has shown resilient in margin despite decline in high profitable Growth (%) (3.6) 43.7 27.3
non auto business and global CV export is commendable. Continuous cost Adj.EPS 24.4 35.1 44.7
rationalisation and positive automotive demand and ramp up of passenger Growth (%) (3.6) 43.7 27.3
vehicle business will add colours to margin. We expect consolidated EBITDA
P/E 46.3 32.2 25.3
margin to improve by 200bps over FY17-19E.
P/B 5.9 5.1 4.3
Valuations
EV/EBITDA 23.0 18.6 15.4
At CMP, BFL is trading at P/E of 32x/25x on FY18E/FY19E EPS respectively. De-
risking the utilization in non auto segment and ramp up of PV sales will offset ROE (%) 13.6 16.9 18.4
some near term headwinds. Company also expects to be debt free by FY18. D/E 0.9 0.5 0.4
However we marginally upgrade our revenue estimate for FY18/FY19 by
4.1%/3.6 respectively by factoring export revenue growth. We value BFL at 28x
(12% premium to its 3 yrs historical avg.) FY19E EPS and upgrade our rating from Saji John
Hold to Buy with a revised target price of Rs1252. Analyst
Quarterly Financials
Change in estimates
0
May-14 Nov-14 May-15 Nov-15 May-16 Nov-16 May-17
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Digitally signed by SAJI JOHN
Date: 2017.05.29 14:04:44 +05'30'
Geojit Financial Services Ltd. (formerly known as Geojit BNP Paribas Financial Services Ltd.), Registered Office: 34/659-P, Civil Line Road, Padivattom,
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