COMPANY 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 Rs.662 TARGETRs. 753 RETURN 14%
Bloomberg CODE: BHFC:IN SENSEX: 35,165

29th May, 2018

Company Data
Better revenue visibility for long term Market Cap (cr) Rs. 30,829
Bharat Forge Ltd (BFL) is a leading player in the forgings industry. The company
is serving several sectors including automobile, power, oil and gas, rail & Enterprise Value (cr) Rs. 33,077
marine, aerospace, construction, mining etc. Outstanding Shares (cr) 46.6
 Q4FY18 standalone revenue grew by 30.3%YoY due to 24%YoY growth in the Free Float 54%
tonnage volume. Dividend Yield 0.7%
 Export revenue grew by 36.5%YoY and domestic business grew by 22.8%YoY 52 week high Rs. 800
due to both US truck & strong domestic auto sales. 52 week low Rs. 526
 EBITDA margin improved by 10bpsYoY on the back of improved product
6m average volume (cr) 0.1
mix but lower than our expectation. Adj. PAT grew by 38%YoY.
 We expect BFL to register 15% revenue CAGR over FY18-20E on account Beta 0.89
healthy demand from US-CV & domestic auto sales, Expansion of capacities Face value Rs2
and 15% from new product development. Shareholding % Q1FY18 Q2FY18 Q4FY18
 We remain upbeat on the stock considering strong traction in all the Promoters 45.8 45.8 45.8
segments. At CMP we value BFL at 26x on FY20E EPS with a revised target FII’s 20.6 20.8 21.4
price of Rs.753 and upgrade our rating from Hold to Buy rating. MFs/Insti 12.5 13.3 12.7
Public 21.1 20.1 20.1
Healthy demand for export and domestic CV
Total 100.0 100.0 100.0
Q4FY18 revenue grew by robust 31%YoY, largely due to better traction from the US
class 8 heavy truck segments and non-auto export business (Oil & gas).Export Price Performance 3mth 6mth 1 Year
revenue grew by 36.5%YoY and domestic sales grew by 23%YoY. The overall Absolute Return -14.3% -8.1% 18.5%
volume rose by 24%YoY to 68,701 tonnes during the quarter. BFL’s average Absolute Sensex 0.6% 2.8% 12.7%
realisation per tonne rose by 8%YoY, due to superior product mix and geographical Relative Return -15.0% -10.9% 5.8%
mix. Reported PAT came in at 100 cr vs. our expectation of Rs232cr. However, post *over or under performance to benchmark index
adjustment of one-time loss of 133cr, adjusted PAT was at Rs.234cr. 900 BFL Sensex Rebased
Favourable product mix to continue 700
We expect the meaning full recovery in the energy sector and traction from the US 500
HCV sales to continue. We believe domestic CV business to remain robust on the 300
back of higher road infrastructure spending and stricter implementation of
100
overloading. Long term growth outlook remains robust on the backdrop of May-17 Aug-17 Nov-17 Feb-18 May-18
improved revenue visibility from the Indian defence space. Managements expects
the incremental revenue from new business/products to grow from current 5%
Consolidated (Rs.cr) FY18A FY19E FY20E
of sales to 15% in next 2-3 years.We expect 16% revenue CAGR over FY18-20E. Sales 8,358 9,831 11,084
Green Field Expansion – Preparing for future Growth (%) 30.7 17.6 12.7
BFL is setting up Centre for light weighting technology (LWT), a fully automated
EBITDA 1,723 2,133 2,439
manufacturing facility in Andra Pradesh focussed on Aluminium and Magnesium
and components products. The facility will design and manufacture for Automotive Margin (%) 20.6 21.7 22.0
and industrial application and commence commercial production by end of FY PAT Adj 754 1,127 1,348
2019. The facility will enable BFL to address the need for light weighting solutions Growth (%) 32.5 49.5 19.6
driven by the shift from BS-IV to BSVI in India and also the evolving Electric Vehicle Adj.EPS 16.2 24.2 29.0
segment. BFL is the global leader in the Aluminium forging will be the preferred Growth (%) 32.5 49.5 19.6
choice of OEM for any technological change. 40.9 27.4 22.9
P/E
Valuations P/B 6.4 5.3 4.3
We marginally upgrade our revenue estimate for FY19 & FY20 by 7% to factor in
EV/EBITDA 19.2 15.4 13.4
16% volume growth and 4% increase in raw materil price. We expect the earning to
ROE (%) 16.5 21.0 20.8
grow by 34% CAGR over FY18-20E. We remain upbeat on the stock considering
strong traction in all the segments. At CMP we value BFL at 26x on FY20E EPS with D/E 0.5 0.3 0.2
a revised target price of Rs.753 and upgrade our rating from Hold to Buy rating.
Saji john
Analyst

Anal
Quarterly Financials
Profit & Loss Account

(Rscr) Q4FY18 Q4FY17 YoY Growth % Q3FY18 QoQ Growth %

Sales 1,467 1,126 30.3 1,391 5.5
EBITDA 418 320 30.6 416 0.3
EBITDA margins 28.5 28.4 10bps 29.9 -140bps
Depreciation 71 74 -4.0 81 -12.3
EBIT 347 246 41.0 336 3.3
Interest 30 19 57.8 14 114.2
Other Income 34 22 54.5 22 54.5
Exceptional Items 0 0 - 0 -
PBT 218 287 -24.0 343 -36.4
Tax 118 79 49.3 150 -21.3
Share of profit from Associate 0 0 - 0 -
Reported PAT 100 208 -51.6 228 -56.0
Adjustments -133 0 - 0 -
Adj PAT 234 169 38.0 228 2.6
No. of shares (cr) 46.6 46.6 - 46.6 -
EPS (Rs) 5.02 3.64 38.0 4.9 2.6

Change in estimates

Old estimates New estimates Change %

Year / Rscr FY19E FY20E FY19E FY20E FY19E FY20E
Revenue 9,160 10,320 9,831 11,084 7.3 7.4
EBITDA 2,052 2,374 2,133 2,439 3.7 2.7
Margins (%) 22.4 23.0 21.7 22.0 -70bps +100bps
PAT 1,126 1,362 1.127 1,348 - 1.0
EPS 24.2 29.2 24.2 29.0 - 1.0

Standalone Segment Revenue

(Rscr) Q4FY18 Q4FY17 YoY Growth % Q3FY18 QoQ Growth %

Segments
Domestic 619 504 22.8 577 7.27
Export 815 597 36.5 781 4.4
Total Segmental Revenue (Gross) 1,434 1,101 30.2 838 71.1
Consolidated Financials
Profit & Loss Account Balance Sheet

Y.E March (Rs.cr) FY16A FY17A FY18A FY19E FY20E Y.E March (Rs.cr) FY16A FY17A FY18E FY19E FY20E
Sales 6,809 6,396 8,358 9,831 11,084 Cash 647 1,101 529 1,014 1,607
% change -10.7 -6.1 30.7 17.6 12.7 Accounts Receivable 1,402 1,341 1717 2,043 2,318
EBITDA 1,408 1,251 1,723 2,133 2,439 Inventories 997 1,075 1,348 1,573 1,785
% change -2.3 -11.2 37.7 23.8 14.3 Other Cur. Assets 472 841 1,145 1,307 1,484
Depreciation 453 452 467 496 521 Investments 289 972 1,115 1,325 1,554
EBIT 955 799 1,256 1,638 1,918 Gross Fixed Assets 6,919 7,269 7,669 8,069 8,469
Interest 140 100 107 97 85 Net Fixed Assets 3,468 3,366 3,299 3,203 3,083
Other Income 78 119 142 167 211 CWIP 566 40 460 323 339
PBT 887 947 1,196 1,707 2,043 Intangible Assets 29 34 32 37 39
% change -20.9 6.7 26.3 42.7 19.6 Def. Tax (Net) -52 -73 -63 -46 -46
Tax 424 249 442 581 695 Other Assets 0 0 0 0 0
Tax Rate (%) 5 3 4 3 3 Total Assets 7,818 8,697 9,583 10,780 12,162
Reported PAT 467 698 754 1,127 1,348 Current Liabilities 1,388 1,797 2,247 2,621 2,975
Adj* -5 128 0 0 0 Provisions 166 185 240 286 325
Adj PAT 472 569 754 1,127 1,348 Debt Funds 25,18 2,408 2,248 1,988 1,728
% change -34.8 20.6 32.5 49.5 19.6 Other Liabilities -4 -4 -4 -4 -4
No. of shares (mn) 23.3 46.6 46.6 46.6 46.6 Equity Capital 47 93 93 93 93
Adj EPS (Rs) 20.3 12.2 16.2 24.2 29.0 Reserves & Surplus 3,704 4,217 4,757 5,795 7,045
% change -34.8 -39.7 32.5 49.5 19.6 Shareholder’s Fund 3.751 4,310 4,851 5,888 7,138
DPS (Rs) 6.9 4.0 4.6 2.3 2.3 Total Liabilities 7,818 8,697 9,583 10,780 12,162
BVPS (Rs) 160 92 103 126 152

Cash flow Ratios

Y.E March (Rs.cr) FY16A FY17A FY18E FY19E FY20E Y.E March FY16A FY17A FY18E FY19E FY20E
Net inc. + Depn. 1,340 1,399 1,663 2,229 2,577 Profitab. & Return
Non-cash adj. -296 -128 -345 -509 -614 EBITDA margin (%) 20.7 19.6 20.6 21.7 22.0
Changes in W.C 2 40 -461 -303 -281 EBIT margin (%) 14.0 12.5 15.0 16.7 17.4
C.F.O 1,046 1,311 857 1,417 1,683 Net profit mgn.(%) 6.9 8.9 9.0 11.5 12.0
Capital exp. -1372 -355 -398 -406 -401 ROE (%) 13.1 14.1 16.5 21.3 20.8
Change in inv. 538 -154 -550 -63 -236 ROCE (%) 5.9 6.5 7.5 11.1 11.5
Other invest.CF 0 0 0 0 0 W.C & Liquidity
C.F - investing -833 -509 -948 -468 -637 Receivables (days) 60.4 78.3 66.8 69.0 70.5
Issue of equity - - - - - Inventory (days) 54.4 59.1 52.9 53.6 54.3
Issue/repay debt 185 -110 -160 -260 -260 Payables (days) 88.4 90.9 88.3 89.4 90.5
Dividends paid -160 -185 -213 -107 -107 Current ratio (x) 2.3 2.2 1.9 2.1 2.2
Other finance.CF -272 -100 -107 -97 -85 Quick ratio (x) 1.5 1.4 1.0 1.2 0.8
C.F - Financing -248 -349 -480 -464 -452 Turnover &Levg.
Chg. in cash -35 454 -572 484 593 Gross asset T.O (x) 1.1 0.9 1.1 1.3 1.4
Closing cash 647 1,101 529 1,014 1,607 Total asset T.O (x) 0.9 0.8 0.9 1.0 1.0
Int. covge. ratio (x) 6.8 8.0 11.8 17.1 22.9
Adj. debt/equity (x) 0.9 0.8 0.5 0.3 0.2
Valuation ratios
EV/Sales (x) 2.6 5.2 4.0 3.3 2.9
EV/EBITDA (x) 12.7 26.6 19.2 15.2 13.1
P/E (x) 32.7 54.2 40.9 27.0 22.7
P/BV (x) 4.1 7.2 6.4 5.2 4.3
 Recommendation Summary (last 3 years) Dates Rating Target
6-Apr -15 Accumulate 740
900 22-Jan-16 Buy 487
800 26-May-16 Accumulate 415
700 9-August-16 Buy 480
11 November 16 Hold 468
600 9 February 17
th Hold 540
500 29thMay17 Buy 626
400 9th November 17 Buy 792
26th December 17 Buy 810
300 13th March 18 Hold 789
200 29th May 18 Buy 753
100
0
Mar-15 Sep-15 Mar-16 Sep-16 Mar-17 Sep-17 Mar-18

Source: Bloomberg, Geojit Research

Investment Rating Criteria
Large Cap Stocks; Mid Cap and Small Cap;
Buy - Upside is above 10%. Buy - Upside is above 15%
Hold - Upside is between 0% - 10%. Accumulate - Upside is between 10% - 15%.
Reduce - Downside is more than 0%. Hold - Upside is between 0% - 10%.
Neutral - Not Applicable Reduce/Sell - Downside is more than 0%.
Neutral - Not Applicable

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.NEUTRAL-The analyst has
no investment opinion on the stock, under review

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.
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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 Exchange
board of India.
Digitally signed by SAJI JOHN
Date: 2018.06.04 12:12:13 +05'30'

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