Bharat Forge: Revenues beat expectations;bottom line stays in line.:: Kotak Sec,

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Bharat Forge (BHFC)
Automobiles
Revenues beat expectations but bottom line stays in line. Bharat Forge reported
in-line consolidated PAT of Rs606 mn despite 7% revenue upside. The higher-thanexpected
revenues were driven by strong 30% sequential growth in non-auto revenues
and pass-through of higher raw material prices. Margins at European subsidiaries
declined sequentially. Standalone EBITDA per kg was flat from 1QFY11. We are raising
our target to Rs385 to reflect higher valuation for the Alstom JV. Maintaining ADD.


Bharat Forge reported in-line consolidated PAT of Rs606 mn; non-auto revenue growth strong
Bharat Forge reported 2QFY11 PAT of Rs606 mn compared to our estimate of Rs594 mn.
Revenues for the quarter totaled Rs11.1 bn and came in better than our estimate of Rs10.3 bn
driven by stronger standalone revenues of Rs7.2 bn. Standalone revenues were up a strong14%
sequentially on good CV volumes and further traction in non-auto revenues. Non-auto revenues
grew 30% from 1Q FY11 levels and now stand at 38% of standalone revenues, up 500 bps qoq
and 900 bps yoy. On a consolidated basis, we estimate non-auto revenues are now closer to 23%
of revenues versus 20% reported for FY2010.
Margins decline sequentially at overseas subsidiaries on seasonally weaker utilizations
Consolidated EBITDA for the quarter came in at 17.5%, down 70 bps from 1QFY11 and up 540
bps on a yoy basis. Standalone margins for the quarter came in at 24.2% and declined 100 bps
from 1QY11 levels. The margin decline was driven by the impact of increases raw material pass
through in revenues. EBITDA per kg actually improved slightly to Rs38 versus Rs37 in 1QFY11.
Margins at the overseas subsidiaries declined to 3% for the quarter from 4.2% reported in
1QFY11. Management attributed the sequential decline to lower utilization levels on account of a
seasonal decline in European production during the summer months.
Raising target to Rs385 on higher JV valuation
We are raising our target from Rs360 to Rs385 as we increased our valuation of the company’s
stake in their JV with Alstom to Rs42 from Rs20 prior. We now value the stake at 1.6X book value
compared to 1.3X prior. The increase was driven by the increased prospects and visibility with JV
being determined at the lowest bidder for the NTPC contract. Exhibit 1 details the DCF for the JV.