Pabhudas Lilladher
Target: ₹439
CMP: ₹496.75
Bharat Forge’s Q2FY21 performance was weak, led by tonnage decline of nearly 24 per cent y-o-y to 40.8k (against expectation of 44.6k). The sharp decline in volumes was led by nearly 33 per cent/44 per cent y-o-y exports decline in industrial/auto segments (about 52 per cent of standalone revenues).
Pick-up in the domestic CV segment is visible, while the PV segment is anticipated to grow in the coming period. Outlook exports: Expect H2 to remain uncertain led by recovery in the auto segment; oil and gas will continue to remain weak. Class 8 truck demand remains stable; the US market is expected to stabilise as the Presidential election is over. We see growth potential in the wind energy business (₹50 crore revenues) with target to grow by 3-4x in the near term.
The company has won new businesses in the domestic PV segment with new players — most of them are expected to ramp up in FY23/24. The company has also gained some market share in the CV segment. Consol Capex guidance for FY21 at ₹450 crore. Expect no major capex in standalone in H2-FY21.
We believe that Bharat Forge is much better-placed than previous cycles with new products/customer additions both in auto andnon-auto segments. However, the same is well-captured in recent valuations expansions at 25x/20x FY22/23 consol EPS.
Hence, we continue to maintain Hold with a revised target price of ₹439 (earlier ₹446).