ICICI Direct recommended hold rating on Bharat Forge with a target price of Rs 300 in its research report dated June 30, 2020.
ICICI Direct's research report on Bharat Forge
Bharat Forge (BFL) reported dismal Q4FY20 results. Standalone revenues came in at Rs 881 crore, down 47.2% YoY (domestic sales down 43.8%, export sales down 49.1%) tracking a 36% drop in tonnage to 40,173 MT. Standalone EBITDA margins were at a new low of 12.5% - a 937 bps sequential fall courtesy major toll extracted by negative operating leverage (employee costs, other expenses rose 250 bps, 890 bps, respectively QoQ on percentage of sales basis). Reported loss at the PAT level was at Rs 73.3 crore, tracking a fall in revenues and margins and a charge of Rs 89 crore taken for impairment of investments in an associate. BFL said the lockdown impacted sales, profitability to the tune of Rs 200 crore, Rs 90 crore, respectively, during the quarter, while overseas operations would post €5 million cash loss during H1CY20.
Outlook
For BFL, we expect -3.4%, 1.8%, 15.4% CAGR for consolidated sales, EBITDA, PAT, respectively, in FY20P-22E. Further progress on business de-risking from CV and improvement in financials of European subsidiaries are key monitorables going ahead, although margin initiatives are a positive. We maintain HOLD rating on BFL, valuing it at 30x FY22E EPS of Rs 10 for target price of Rs 300.
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