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Q4FY17 RESULT UPDATE

RETAIL EQUITY RESEARCH


Bharat Forge Ltd Buy
Automobile Auto Ancillaries Rating as per Large cap 12months investment period
BSE CODE:500493 NSE CODE: BHARATFORG
CMP Rs1132 TARGET Rs1252 RETURN 11%
Bloomberg CODE: BHFC :IN SENSEX: 31,028

29th May, 2017

Company Data
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

Profit & Loss Account

(Rs cr) Q4FY17 Q4FY16 YoY Growth % Q3FY17 QoQ Growth %


Sales 1,126 1,011 11.3 944 19.3
EBITDA 320 305 12.9 261 22.8
EBITDA margins 28.4 30.2 -180bps 27.6 80bps
Depreciation 74 75 0 74 0
EBIT 246 231 6.5 188 31.5
Interest 19 24 -23.9 18 1.4
Other Income 22 29 -23.9 21 6.9
Exceptional Items 38 0 - - -
PBT 287 235 22.1 189 51.8
Tax* 80 70 14.4 61 31.6
Share of profit from Associate 0 0 - 0 -
Reported PAT 208 166 25.3 129 61.3
Adjustments -38 3 - - -
Adj PAT 169 166 2.4 129 31.8
No. of shares (cr) 23.4 23.4 - 23.4 -
EPS (Rs) 7.3 7.1 2.4 5.5 31.8

Change in estimates

Old estimates New estimates Change %


Year / Rs cr FY18E FY19E FY18E FY19E FY18E FY19E
Revenue 7,280 8,182 7,375 8,515 1.0 4.1
EBITDA 1,427 1,638 1,534 1,839 7.4 12.3
Margins (%) 19.6 20.0 20.8 21.7 +120bps +170bps
PAT 832 1,005 818 1,041 0 3.6
EPS 35.7 43.2 35.1 44.7 0 3.6

Standalone Segment Revenue

(Rs cr) Q4FY17 Q4FY16 YoY Growth % Q3FY17 QoQ Growth %


Segments
Domestic 562 506 11.1 481 16.8
Export 597 533 12.0 485 23.1
Total Segmental Revenue (Gross) 1,159 1,039 11.5 966 19.9
Consolidated Financials

Profit & Loss Account Balance Sheet


Y.E March (Rs cr) FY15A FY16A FY17A FY18E FY19E Y.E March (Rs cr) FY15A FY16A FY17A FY18E FY19E
Sales 7,625 6,809 6,396 7,375 8,515 Cash 682 897 1,376 1,130 1,613
% change 13.5 -10.7 -6.1 15.3 15.5 Accounts Receivable 853 1,402 1,341 1,515 1,750
EBITDA 1,441 1,408 1,251 1,534 1,839 Inventories 1,034 997 1,075 1,146 1,330
% change 39.9 -2.3 -11.2 22.6 19.9 Other Cur. Assets 880 472 841 1,010 1,120
Depreciation 362 453 452 433 472 Investments 1,297 289 972 1,108 1,316
EBIT 1,078 955 799 1,101 1,367 Gross Fixed Assets 5,561 6,919 7,269 7,669 8,069
Interest 136 140 100 93 91 Net Fixed Assets 2,560 3,468 3,366 3,333 3,261
Other Income 137 78 119 144 170 CWIP 859 566 40 460 323
PBT 1,122 887 947 1,152 1,446 Intangible Assets 15 29 34 32 37
% change 53.3 -20.9 6.7 21.7 25.6 Def. Tax (Net) -164 -184 -184 -184 -184
Tax 359 305 249 334 405 Other Assets 0 0 0 0 0
Tax Rate (%) 3 3 3 3 3 Total Assets 8,016 7,936 8,861 9,551 10,565
Reported PAT 767 585 698 818 1,041 Current Liabilities 1,911 1,388 1,797 1,909 2,216
Adj* 43 -5 128 0 0 Provisions 299 166 185 212 245
Adj PAT 724 590 569 818 1,041 Debt Funds 2,365 2,518 2,408 2,248 1,988
% change 83.3 -18.5 -3.6 43.7 27.3 Other Liabilities -2 -4 -4 -4 -4
No. of shares (mn) 23.3 23.3 23.3 23.3 23.3 Equity Capital 47 47 47 47 47
Adj EPS (Rs) 31.1 25.3 24.4 35.1 44.7 Reserves & Surplus 3,398 3,822 4,427 5,139 6,073
% change 83.3 -18.5 -3.6 43.7 27.3 Shareholders Fund 3,444 3,869 4,474 5,185 6,120
DPS (Rs) 9.0 6.9 4.0 4.6 4.6 Total Liabilities 8,016 7,936 8,861 9,551 10,565
BVPS (Rs) 147 165 191 221 261
Cash flow
Ratios
Y.E March (Rs cr) FY15A FY16A FY17A FY18E FY19E Y.E March FY15A FY16A FY17A FY18E FY19E
Net inc. + Depn. 1,485 1,340 1,399 1,585 1,918 Profitab. & Return
Non-cash adj. -347 -178 -149 -241 -314 EBITDA margin (%) 18.9 20.7 19.6 20.8 21.6
Changes in W.C -627 2 40 -282 -196 EBIT margin (%) 14.1 14.0 12.5 14.9 16.1
C.F.O 511 1,164 1,290 1,062 1,409 Net profit mgn.(%) 9.5 8.7 8.9 11.1 12.2
Capital exp. -539 -1,372 -355 -398 -406 ROE (%) 23.6 16.1 13.6 16.9 18.4
Change in inv. 342 538 -154 -550 -63 ROCE (%) 9.2 6.9 6.6 8.5 10.5
Other invest.CF 48 0 0 0 0 W.C & Liquidity
C.F - investing -149 -833 -509 -948 -468 Receivables (days) 41.2 60.4 78.3 70.7 70.0
Issue of equity - - - - - Inventory (days) 49.6 54.4 59.1 55.0 53.1
Issue/repay debt 339 185 -110 -160 -260 Payables (days) 102.1 88.4 90.9 91.7 88.4
Dividends paid -210 -160 -93 -107 -107 Current ratio (x) 1.9 2.5 2.4 2.3 2.4
Other finance.CF -155 -140 -100 -93 -91 Quick ratio (x) 0.7 1.7 1.5 1.4 1.5
C.F - Financing -25 -116 -303 -360 -457 Turnover &Levg.
Chg. in cash 347 215 478 -246 483 Gross asset T.O (x) 1.4 1.1 0.9 1.0 1.1
Closing cash 587 897 1,376 1,130 1,613 Total asset T.O (x) 1.0 0.9 0.8 0.8 0.8
Int. covge. ratio (x) 8.0 6.8 8.0 11.8 15.0
Adj. debt/equity (x) 1.0 0.9 0.7 0.4 0.3
Valuation ratios
EV/Sales (x) 3.4 3.8 4.1 3.5 3.0
EV/EBITDA (x) 18.1 18.6 20.9 16.9 14.0
P/E (x) 32.7 40.1 41.6 29.0 22.8
P/BV (x) 6.9 6.1 5.3 4.6 3.9
Recommendation Summary (last 3 years) Dates Rating Target
6-Apr -15 Accumulate 1480
2000 22-Jan-16 Buy 974
26-May-16 Accumulate 830
1500 9-August-16 Buy 960
11 November 16 Hold 936
1000 9th February 17 Hold 1080
29th May 17 Buy 1252
500

0
May-14 Nov-14 May-15 Nov-15 May-16 Nov-16 May-17

Source: Bloomberg, Geojit Research

Investment Rating Criteria


Large Cap Stocks; Mid Cap and Small Cap;
Buy - Upside is 10% or more. Buy - Upside is 15% or more.
Hold - Upside or downside is less than 10%. Accumulate* - Upside between 10% - 15%.
Reduce - Downside is 10% or more. Hold - Absolute returns between 0% - 10%.
Reduce/Sell - Absolute returns less than 0%.
To satisfy regulatory requirements, we attribute Accumulate as Buy and
Reduce as Sell.
The recommendations are based on 12 month horizon, unless otherwise specified. The investment ratings are on absolute positive/negative return basis. It is
possible that due to volatile price fluctuation in the near to medium term, there could be a temporary mismatch to rating.
* For reasons of valuations/return/lack of clarity/event we may revisit rating at appropriate time. Please note that the stock always carries the risk of being
upgraded to BUY or downgraded to a HOLD, REDUCE or SELL.

General Disclosures and Disclaimers


CERTIFICATION
I, Saji John, author of this Report, hereby certify that all the views expressed in this research report reflect our personal views about any or all of the subject
issuer or securities. This report has been prepared by the Research Team of Geojit Financial Services Limited, hereinafter referred to as Geojit.
COMPANY OVERVIEW
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FUNDAMENTAL DISCLAIMER
We have prepared this report based on information believed to be reliable. The recommendations herein are based on 12 month horizon, unless otherwise
specified. The investment ratings are on absolute positive/negative return basis. It is possible that due to volatile price fluctuation in the near to medium
term, there could be a temporary mismatch to rating. For reasons of valuations/return/lack of clarity/event we may revisit rating at appropriate time. The
stocks always carry the risk of being upgraded to buy or downgraded to a hold, reduce or sell. The opinions expressed are subject to change but we have no
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The projections and forecasts described in this report should be evaluated keeping in mind the fact that these are based on estimates and assumptions and
will vary from actual results over a period of time. The actual performance of the companies represented in the report may vary from those projected. These
are not scientifically proven to guarantee certain intended results and hence, are not published as a warranty and do not carry any evidentiary value
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statements are not predictions and may be subject to change without notice.
JURISDICTION
The securities described herein may not be eligible for sale in all jurisdictions or to all categories of investors. The countries in which the companies
mentioned in this report are organized may have restrictions on investments, voting rights or dealings in securities by nationals of other countries.
Distributing/taking/sending/dispatching/transmitting this document in certain foreign jurisdictions may be restricted by law, and persons into whose
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REGULATORY DISCLOSURES:
Geojits Associates consists of privately held companies such as Geojit Technologies Private Limited (GTPL- Software Solutions provider), Geojit Credits
Private Limited (GCPL- NBFC Services provider), Geojit Investment Services Limited (GISL- Corporate Agent for Insurance products), Geojit Financial
Management Services Private Limited (GFMSL) & Geojit Financial Distribution Private Limited (GFDPL), (Distributors of Insurance and MF Units).In the
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In compliance with the above mentioned SEBI Regulations, the following additional disclosures are also provided which may be considered by the reader
before making an investment decision:
1. Disclosures regarding Ownership*:
Geojit confirms that:
(i) It/its associates have no financial interest or any other material conflict in relation to the subject company (ies) covered herein.
(ii) It/its associates have no actual beneficial ownership greater than 1% in relation to the subject company (ies) covered herein.
Further, the Analyst confirms that:
(i) he, his associates and his relatives have no financial interest in the subject company (ies) covered herein, and they have no other material conflict in the
subject company.
(ii) he, his associates and his relatives have no actual/beneficial ownership greater than 1% in the subject company covered
2. Disclosures regarding Compensation:
During the past 12 months, Geojit or its Associates:
(a) Have not received any compensation from the subject company; (b) Have not managed or co-managed public offering of securities for the subject
company (c) Have not * received any compensation for investment banking or merchant banking or brokerage services from the subject company. (d) Have
not received any compensation for products or services other than investment banking or merchant banking or brokerage services from the subject company
(e) Have not received any compensation or other benefits from the subject company or third party in connection with the research report (f) The subject
company is / was not a client during twelve months preceding the date of distribution of the research report.
3. Disclosure by Geojit regarding the compensation paid to its Research Analyst:
Geojit hereby confirms that no part of the compensation paid to the persons employed by it as Research Analysts is based on any specific brokerage services
or transactions pertaining to trading in securities of companies contained in the Research Reports.
4. Disclosure regarding the Research Analysts connection with the subject company:
It is affirmed that the I Saji John Research Analyst(s) of Geojit have not served as an officer, director or employee of the subject company
5. Disclosure regarding Market Making activity:
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Please ensure that you have read the Risk Disclosure Documents for Capital Market and Derivatives Segments as prescribed by the Securities and
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,
Kochi-682024, Kerala, India. Phone: +91 484-2901000, Fax: +91 484-2979695, Website: geojit.com. For investor queries: customercare@geojit.com, For
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Corporate Identity Number: L67120KL1994PLC008403, SEBI Regn.Nos.: NSE: INB/INF/INE231337230 I BSE:INB011337236 & INF011337237 | MSEI:
INE261337230, INB261337233 & INF261337233, Research Entity SEBI Reg No: INH200000345, Investment Adviser SEBI Reg No: INA200002817, Portfolio
Manager:INP000003203, NSDL: IN-DP-NSDL-24-97, CDSL: IN-DP-CDSL-648-2012, ARN Regn.Nos:0098, IRDA Corporate Agent (Composite) No.: CA0226.
Research Entity SEBI Registration Number: INH200000345

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