Hold Bharat Forge; target of Rs 510: ICICI Direct

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ICICI Direct's research report on Bharat Forge

Bharat Forge (BFL) has notified that its German subsidiaries (Bharat Forge Aluminiumtechnik GmbH, Bharat Forge CDP GmbH and Bharat Forge Global Holding GmbH) have reached a settlement with the German competition regulator for potential unfair trade practices in 2004-18. BFL’s German subsidiaries are required to pay in aggregate €32 million (~Rs 300 crore) as settlement charges over the next five years. The said judgement comes as a negative surprise. As per our estimates, this could potentially hit the company’s P&L in a gradual manner over the next five years.

Outlook

Given the total quantum of penalty that is to the tune of €32 million (~Rs 300 crore), we expect the payout quantum to be progressively gradual in nature. We assume an exceptional charge of Rs 30 crore, Rs 60 crore, Rs 70 crore for FY21E, FY22E, FY23E, respectively. It will lead to a downward revision in our earnings estimates by ~10% in FY22E & ~7% in FY23E. Keeping the same valuation multiples i.e. 30x P/E on FY23E revised EPS of Rs 17, we assign a revised target price of Rs 510 on Bharat Forge (from Rs 550 earlier) and maintain our HOLD rating on the stock.

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