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Bharat Forge Limited
Reuters: BFRG.BO Bloomberg: BHFC IN Exchange: BSE Ticker: BFRG
Management meeting
reaffirms our positive stance
Management meeting validates our buoyant outlook; maintaining Buy
At a recent meeting with Bharat Forge (BFL), management reiterated: a) buoyant
demand trends in the legacy automotive business (35% of consolidated
revenues); b) robust scale-up in the non-auto business (22% of consolidated
revenues); c) continued recovery in foreign subsidiaries and d) reiteration of the
ramped up timelines of its power equipment JVs. Management continues to focus
on leveraging its strength in large forgings to diversify its product palette through
higher value-add products. Maintaining Buy.
Non-auto ramping up; US/EU truck demand robust in the medium term
BFL expanded its non-auto customer base from 15 in FY06 to 30 in FY11. Revenue
from the new non-automotive facilities was Rs4.2bn in FY11 (Rs1.9bn in FY10) and
we expect 35% CAGR (FY11-13), driven by product portfolio expansion and
increased value addition. The revival in US/EU truck markets (45%/15% of
revenues) is likely to be sustained in the medium term. Deutsche Bank forecasts
CY11/12 volume growth of 73%/26% in the US and 30%/12% in the EU. This
should drive an EBITDA CAGR (FY11-13) of 23% and FCF of Rs3.2bn (FY11-13).
Ramp up of power equipment JVs key to stock outperformance
The BFL-Alstom JV was awarded L1 status in the NTPC turbine-generator (TG)
tender, which means that the JV would be supplying five TG sets to NTPC. BFL
has stated that its order book is Rs44.5bn for TG sets and Rs18bn for EPC. The JV
should start delivering the first TG set in 1QCY13. We have assumed these
revenues to accrue only in FY15E, implying 65% capacity utilization in the JV. An
order win in the next NTPC bulk tender (nine TG sets of 880MW) could improve
visibility and further strengthen our positive outlook.
Trading at 8.5x FY12E EV/EBITDA, double-dip global recession a key risk
We value Bharat Forge on a sum-of-the-parts basis at Rs400, consisting of
Rs335/share for its existing business (8.5x FY12E EBITDA) and Rs65/share for its
power foray. Risks include a decline in US/EU truck demand and a delay in rampup of power JV.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Bharat Forge Limited
Reuters: BFRG.BO Bloomberg: BHFC IN Exchange: BSE Ticker: BFRG
Management meeting
reaffirms our positive stance
Management meeting validates our buoyant outlook; maintaining Buy
At a recent meeting with Bharat Forge (BFL), management reiterated: a) buoyant
demand trends in the legacy automotive business (35% of consolidated
revenues); b) robust scale-up in the non-auto business (22% of consolidated
revenues); c) continued recovery in foreign subsidiaries and d) reiteration of the
ramped up timelines of its power equipment JVs. Management continues to focus
on leveraging its strength in large forgings to diversify its product palette through
higher value-add products. Maintaining Buy.
Non-auto ramping up; US/EU truck demand robust in the medium term
BFL expanded its non-auto customer base from 15 in FY06 to 30 in FY11. Revenue
from the new non-automotive facilities was Rs4.2bn in FY11 (Rs1.9bn in FY10) and
we expect 35% CAGR (FY11-13), driven by product portfolio expansion and
increased value addition. The revival in US/EU truck markets (45%/15% of
revenues) is likely to be sustained in the medium term. Deutsche Bank forecasts
CY11/12 volume growth of 73%/26% in the US and 30%/12% in the EU. This
should drive an EBITDA CAGR (FY11-13) of 23% and FCF of Rs3.2bn (FY11-13).
Ramp up of power equipment JVs key to stock outperformance
The BFL-Alstom JV was awarded L1 status in the NTPC turbine-generator (TG)
tender, which means that the JV would be supplying five TG sets to NTPC. BFL
has stated that its order book is Rs44.5bn for TG sets and Rs18bn for EPC. The JV
should start delivering the first TG set in 1QCY13. We have assumed these
revenues to accrue only in FY15E, implying 65% capacity utilization in the JV. An
order win in the next NTPC bulk tender (nine TG sets of 880MW) could improve
visibility and further strengthen our positive outlook.
Trading at 8.5x FY12E EV/EBITDA, double-dip global recession a key risk
We value Bharat Forge on a sum-of-the-parts basis at Rs400, consisting of
Rs335/share for its existing business (8.5x FY12E EBITDA) and Rs65/share for its
power foray. Risks include a decline in US/EU truck demand and a delay in rampup of power JV.
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