Maintain ‘buy’ on Bharat Forge (BHFC) with a revised target price of R1,343 (earlier R1,225) based on 25x (24x earlier) FY17e EPS, given 32% earnings CAGR over FY15-17e and strong RoE at 27%.
We have raised our FY16e and FY17e earnings 1.4% and 5.3% each, building in higher sales, led by stronger volumes and ~50-150-bps margin improvement in standalone, given increased focus on R&D and niche products.
Being a leader in key markets, BHFC is well poised to tap revival in auto segment. While Americas continue to do well, Indian and European markets are likely to pick up with a lag. In non-auto, sharpened focus on key verticals augurs well for BHFC over long term. Also, the government’s Make-in-India initiative is likely to provide further impetus to its non-auto business, including defence and railways. The stock currently trades at 29.9x FY16e and 23.0x FY17e EPS.
BHFC reported strong Q4FY15 numbers. Standalone revenue jumped 32%, led by 18% and 12% surge in volume and realisation, respectively. The rise was primarily driven by exports (60% of revenue) to the American market in both auto and non-auto segments.
Ebitda margin catapulted 460 bps, led by improved realisation, better product mix and increased capacity utilisation levels. Earnings rose 71%, riding robust revenue and operating performance.
However, overseas subsidiaries extended muted performance due to subdued demand for trucks and passenger vehicles in Europe which was also impacted by new emission norms.