Accumulate Bharat Forge; target of Rs 840: KR Choksey

KR Choksey's research report on Bharat Forge

Bharat Forge Limited’s  (BFL) Net Sales in Q2FY18 stood at INR 12,580 Mn which was up by 34.42% y-o-y and remained flat as compared to Q1FY18. Top line growth of the company was driven by 40.9% growth in passenger  vehicle segment and 36.5% growth in commercial vehicle segment.    EBIDTA stood at INR 3,694 Mn which grew by 49.17% y-o-y and 10.84% q-o-q. EBIDTA margin came in at 29.4% which were above our estimate of 25.5%. EBIDTA margins reported robust growth of 290 bps y-o-y and 287 bps q-o-q.  PAT stood at INR 1,592 Mn which de-grew by 11.19% y-o-y but increased by 5.90% q-o-q. PAT was affected mainly on account of increase in Tax provision by 70.52% y-o-y.  PAT Margin stood at 16.2% against our estimates of 13.8%. PAT margins improved by 264bps y-o-y and 227bps q-o-q.

Outlook
We remain optimistic on BFL on back of company’s revival in demand from US, improving sentiments globally and revival in crude and commodity linked economies should result in healthy order inflow for company. We have assigned a P/E of 30x for FY20 EPS of INR 28. At the current market price of INR 738, the stock is trading at 28.5x FY17 EPS of INR. 25.9, 45.8x on FY 18 EPS of 16.1 , 38.6x FY19E EPS of INR 19.1 and 26.4x on FY 20 EPS of 28 . We recommend a “Accumulate” rating on the stock and value the stock at 30x FY20E EPS of INR 28 with a target price of INR 840 showing an upside of 13.8%.

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