COMPANY UPDATE

9 DEC 2015

Bharat Forge
BUY
INDUSTRY

AUTOS

CMP (as on 8 Dec 2015)

Rs 827

Target Price

1,056

Nifty

7,702

Sensex

25,310

KEY STOCK DATA

Bloomberg

BHFC IN

No. of Shares (mn)

233

MCap (Rs bn) / ($ mn)

193/2,885

6m avg traded value (Rs mn)

1,068

STOCK PERFORMANCE (%)

52 Week high / low

Rs 1,363/810

3M

6M

12M

Absolute (%)

(19.0)

(28.3)

(15.1)

Relative (%)

(19.0)

(23.7)

(5.1)

SHAREHOLDING PATTERN (%)

Promoters

46.74

FIs & Local MFs

13.87

FIIs

18.04

Public & Others

21.35

Source : BSE

Navin Matta
navin.matta@hdfcsec.com
+91-22-6171-7322
Sneha Prashant
sneha.prashant@hdfcsec.com
+91-22-6171-7336

Cyclical headwinds persist but structural story intact

At Bharat Forges (BFL) analyst meet, the
management highlighted the large opportunities in
segments such as defence, railways, aerospace and
PV. While acknowledging the near-term cyclical
headwinds (expect flat topline growth in FY16),
especially in the US CV market, along with weakness
in O&G and construction and mining segments, BFL
remains hopeful of doubling its FY14 standalone
revenues to Rs 70bn by FY18.

Key takeaways

Thrust on PV segment: Having bagged orders from

The company believes that the Make in India

initiative will provide huge import substitution
opportunities. BFL believes it has put in place the
building blocks for required capabilities and fungible
capacities to participate in opportunities from large
verticals such as defence, railways and aerospace.

PV OEMs such as GM, Audi, Daimler and Chrysler,

BFL appears confident of raising its PV revenue
mix to 15% by FY18. Given the tepid outlook for
the US/EU truck market, with 4-6% YoY decline
over 2016/2017, BFL hopes to partially mitigate
this impact through orders from recently added
customers Paccar and DAF. The company is
exploring
opportunities
in
transmission
component forgings, which is potentially 10x of
BFLs current target market.
New orders to drive industrial segment growth:
BFL expects to bag a major order from one of its
four aerospace customers. In the defence
segment, it is participating in four artillery
programmes of which it hopes 1-2 will be finalised
in the next year. In the locomotive sector, besides
orders from GE and Alstom for new locomotives,
large service-related requirement exists.
Financial Summary (Consolidated)

Despite near-term demand headwinds in certain

segments, we remain excited about the companys
medium- to long-term growth prospects. We believe
BFLs stock price correction of 20%+ over the past
three months provides an attractive entry point, as
valuations at 19x FY17E stand below the past fiveyear average. We maintain BUY, with a TP of
Rs 1,056 based on 22x Sept-17E EPS.

Source: Company, HDFC sec Inst Research

While reaffirming its target of increasing its revenue

mix from PVs to 15% by FY18 (3x of FY14), BFL
alluded to new business opportunities in
transmission component forgings in the segment.
With requisite accreditations in the aerospace, BFL
hopes to bag a major contract in the near future.

Y/E March (Rsmn)

Net Sales
EBITDA
APAT
Diluted EPS (Rs)
P/E (x)
EV / EBITDA (x)
RoE (%)

FY14 FY15 FY16E FY17E FY18E

67,158 76,247 74,810 85,146 96,886
10,302 14,408 15,458 17,998 21,205
4,185 7,208 8,076 9,952 12,332
18.1
31.1
34.8
42.9
53.1
45.7
26.6
23.8
19.3
15.6
20.0
14.3
13.2
11.0
8.9
17.1
23.6
21.7
22.7
23.5

HDFC securities Institutional Research is also available on Bloomberg HSLB <GO> & Thomson Reuters

BHARAT FORGE : COMPANY UPDATE

Cyclical Headwinds Weighting On Volume Growth

% YoY - RHS

India

5.0
0.0

2QFY16

1QFY16

4QFY15

3QFY15

2QFY15

1QFY15

4QFY14

40.0

100%
20

16

36

38

29

24

21

33

35

36

13

13

16

15

23

29

29

26

26

29

25

27

2QFY16

13

15

1QFY16

31

4QFY15

31

3QFY15

30

2QFY15

30

17

20

20%

41

40

39

37

45

44

39

39

40

41

43

19

19

31

43

26

40%
20%
0%

Others,
8%

Exports Indl

1QFY15

29

Exports Auto

4QFY14

40%

27

38

BFL Standalone FY15 Revenue Mix By Segment

3QFY14

60%

Dom Indl

33

Source: Company, HDFC sec Inst Research

Auto Segment Mix On The Rise

Dom Auto (incl misc)

3
17

2QFY16

45.0

80%

BFL expects its standalone

revenue mix from PV
segment to rise to 15% over
next 1.5 years

60%

20

4
16

10.0

Source: Company, HDFC sec Inst Research

Domestic sales recovering

with strong CV sales and
improving demand in select
industrial segments

25

3
18

1QFY16

15.0

80%

2
18

4QFY15

20.0

50.0

3QFY14

Sale in Americas adversely

impacted by slowdown in
class 8 truck sales and
weakness in O&G and
construction and mining
segments

25.0

3QFY15

55.0

100%

Asia Pac

2QFY15

30.0

Europe

1QFY15

35.0

60.0

Americas

4QFY14

Tonnage sales ('000 MT)

3QFY14

Volume growth impacted by

slowdown in export markets

India Share Rising in Standalone Regional Mix

CV, 42%

Industrial,
43%

0%

Source: Company, HDFC sec Inst Research

PV, 7%
Source: Company, HDFC sec Inst Research

Page | 2

BHARAT FORGE : COMPANY UPDATE

0%

5,000

-5%

Source: Bloomberg, HDFC sec Inst Research

Steady Growth In Domestic MHCV Volumes

MHCV sales (in '000)

% YoY (RHS)

10,000
5,000

Source: Bloomberg, HDFC sec Inst Research

Oct-15

Jul-15

Apr-15

Jan-15

Oct-14

Jul-14

Apr-14

Jan-14

Oct-13

20.0

0%

15.0
10.0

-25%

5.0
-

-50%

Oct-15

15,000

25%

25.0

Jul-15

20,000

30.0

Apr-15

25,000

50%

Jan-15

30,000

% 3MMA (RHS)

35.0

Oct-14

35,000

Jul-14

150%
130%
110%
90%
70%
50%
30%
10%
-10%
-30%
-50%

Apr-14

40,000

Jan-14

EU HCV

94

Source: Bloomberg, HDFC sec Inst Research

EU Heavy Duty Truck Sales Also Moderating

BFL hopes to mitigate weak
market demand by
improving wallet share and
adding new customers in
the CV segment

95

Oct-13

Oct-15

Jul-15

Apr-15

Jan-15

Oct-14

Jul-14

-10%

Apr-14

96

Oct-15

5%

10,000

97

Jul-15

10%

15,000

98

Apr-15

15%

20,000

99

Oct-14

25,000

20%

Jul-14

25%

Apr-14

30,000

100

Jan-14

30%

Truck utilisation % (RHS)

50,000
45,000
40,000
35,000
30,000
25,000
20,000
15,000
10,000
5,000
-

Oct-13

BFL expects the US CV sales

to decline by 6%/3% in
2016/2017

Net order intake (units)

% YoY (RHS)

35,000

Oct-13

Net order intake for class 8

trucks indicate further
slowdown in 2016

US Class 8 sales

Jan-14

CV sales in the US slowing

down as companies are
looking to correct inventory
levels. As per BFL, the
current inventory levels are
at 3.5 month

US Class 8 Net Order Intake Falling Sharply

Jan-15

Growth Deceleration In US Class 8 Truck

Source: Bloomberg, HDFC sec Inst Research

Page | 3

BHARAT FORGE : COMPANY UPDATE

BFL: One Year Forward P/E Chart

P/E

Avg P/E

BFL: One Year Forward EV/EBITDA Chart

+1 SD

-1 SD

40.0

Ev/Ebitda

Avg EV/EBITDA

+1 SD

-1 SD

25.0

35.0
30.0

20.0

25.0

15.0

20.0
15.0

10.0

10.0

5.0

5.0

Nov-15

Jul-15

Nov-14

Mar-15

Jul-14

Mar-14

Jul-13

Nov-13

Nov-12

Mar-13

Jul-12

Mar-12

Jul-11

Nov-11

Nov-10

Jul-15

Nov-15

Nov-14

Mar-15

Jul-14

Mar-14

Jul-13

Nov-13

Nov-12

Mar-13

Jul-12

Mar-12

Nov-11

Jul-11

Nov-10

Mar-11

Source: Bloomberg, Company HDFC sec Inst Research

Mar-11

Source: Bloomberg, Company HDFC sec Inst Research

Assumptions: BFLs Revenue Split

Rs bn
Domestic CV
% YoY
Exports CV
% YoY
Domestic PV
% YoY
Exports PV
% YoY
Domestic Industrial
% YoY
Exports Industrial
% YoY
Subsidiaries/JVs
% YoY

FY15
6.3
25%
12.9
19%
2.1
5%
1.0
161%
6.2
11%
13.2
83%
30.8
-7.2%

FY16E
7.5
18%
14.3
11%
2.3
7%
1.9
82%
6.7
8%
10.7
-19%
27.5
-11%

FY17E
8.6
15%
15.3
7%
2.5
12%
3.6
88%
7.7
14%
12.0
12%
31.5
14%

FY18E
9.6
12%
16.1
6%
2.8
12%
6.1
71%
9.1
18%
13.9
16%
34.7
10%

Source: HDFC sec Inst Research

Page | 4

BHARAT FORGE : COMPANY UPDATE

Peer Valuations
CMP
(Rs/sh)
Balkrishna Industries
649
Bharat Forge
827
Exide Industries
140
Ramkrishna Forgings
529

Mcap
(Rs bn)
63
193
119
15

TP

Rating

766
1,056
159
684

BUY
BUY
NEU
BUY

Adj EPS (Rs/sh)

FY15 FY16E FY17E
51.5
57.2
52.1
31.1
34.8
42.9
6.4
7.1
8.3
24.5
25.3
36.0

FY15
12.6
26.6
21.8
21.6

P/E (x)
FY16E
11.3
23.8
19.6
20.9

FY17E
12.5
19.3
16.8
14.7

EV/EBITDA (x)
FY15 FY16E FY17E
7.8
6.8
6.3
14.3
13.2
11.0
12.9
11.3
9.6
17.6
11.4
8.6

FY15
23.8
23.6
14.0
20.4

RoE (%)
FY16E
21.7
21.7
14.3
16.4

FY17E
16.5
22.7
15.1
19.8

Source: Company, HDFC sec Inst Research

Page | 5

BHARAT FORGE : COMPANY UPDATE

Income Statement (Consolidated)

(Rs mn)
Net Sales
Growth (%)
Material Expenses
Employee Expenses
Other Operating Expenses
EBIDTA
EBIDTA (%)
EBIDTA Growth (%)
Other Income
Depreciation
EBIT
Interest
PBT
Tax
Adj PAT
APAT Growth (%)
EO items (net of tax)
Reported PAT
Minority Interest
APAT (post MI)
Reported PAT (post MI)
Adj EPS
Adj EPS Growth (%)

FY14
67,158
30.0
32,238
7,888
16,731
10,302
15.3
30.1
1,247
3,571
7,977
1,692
6,285
2,100
4,185
58.5
(772)
4,957
28
4,214
4,985
18.1
57.2

Source: Company, HDFC sec Inst Research

Balance Sheet (Consolidated)

FY15
76,247
13.5
33,811
9,051
18,977
14,408
18.9
39.9
1,368
3,624
12,151
1,356
10,795
3,587
7,208
72.2
(387)
7,595
30
7,238
7,625
31.1
71.8

FY16E
74,810
(1.9)
31,982
8,522
18,848
15,458
20.7
7.3
1,499
3,952
13,005
1,246
11,759
3,683
8,076
12.0
8,076
30
8,106
8,106
34.8
12.0

FY17E
85,146
13.8
36,682
9,556
20,910
17,998
21.1
16.4
1,802
4,178
15,622
1,122
14,500
4,548
9,952
23.2
9,952
30
9,981
9,981
42.9
23.1

FY18E
96,886
13.8
41,735
10,498
23,448
21,205
21.9
17.8
2,016
4,336
18,885
921
17,964
5,632
12,332
23.9
12,332
30
12,362
12,362
53.1
23.8

(Rs mn)
SOURCES OF FUNDS
Share Capital
Reserves
Total Shareholders Funds
Minority Interest
Long-term Debt
Short-term Debt
Total Debt
Deferred Taxes
Long-term Provisions & Others
TOTAL SOURCES OF FUNDS
APPLICATION OF FUNDS
Net Block
CWIP
Investments, LT Loans & Adv
Inventories
Debtors
Cash & Equivalents
ST Loans & Advances, Others
Total Current Assets
Creditors
Other Current Liabilities &
Provisions
Total Current Liabilities
Net Current Assets
Misc Expenses & Others
TOTAL APPLICATION OF
FUNDS

FY14

FY15

FY16E

FY17E

FY18E

466
26,367
26,832
170
21,727
3,886
25,613
1,645
54,260

466
33,976
34,442
(20)
22,147
3,317
25,464
1,638
61,523

466
39,846
40,312
(50)
21,621
817
22,439
2,397
65,098

466
47,313
47,779
(79)
17,861
817
18,679
3,316
69,694

466
56,881
57,347
(109)
14,692
817
15,509
4,439
77,186

25,340
5,827
8,012
10,386
8,660
4,227
12,893
36,166
18,199

26,287
8,586
4,955
10,339
8,535
6,820
16,817
42,511
17,829

26,334
8,816
6,055
12,298
9,633
4,705
17,367
44,003
17,074

27,463
7,509
7,155
13,997
10,964
7,091
17,917
49,969
19,316

27,127
7,509
8,255
15,926
12,476
12,333
18,467
59,202
21,771

2,886

2,987

3,037

3,087

3,137

21,085
15,081
-

20,816
21,695
-

20,110
23,892
-

22,403
27,566
-

24,908
34,294
-

54,260

61,523

65,098

69,694

77,186

Source: Company, HDFC sec Inst Research

Page | 6

BHARAT FORGE : COMPANY UPDATE

Cash Flow (Consolidated)

(Rs mn)
Reported PAT
Non-operating & EO items
PAT from Operations
Interest expenses
Depreciation
Working Capital Change
Other Operating Items
OPERATING CASH FLOW ( a )
Capex
Free cash flow (FCF)
Investments
INVESTING CASH FLOW ( b )
Debt Issuance
Interest expenses
FCFE
Share capital Issuance
Dividend
FINANCING CASH FLOW ( c )
NET CASH FLOW (a+b+c)
Non-operating and EO items
Closing Cash & Equivalents

Key Ratios (Consolidated)

FY14
4,985
(772)
4,214
1,692
3,571
(2,593)
(664)
6,219
684
6,904
(3,852)
(3,168)
(2,232)
(1,692)
4,672
(1,226)
(5,149)
(2,098)
772
4,227

Source: Company, HDFC sec Inst Research

FY15
7,625
(387)
7,238
1,356
3,624
(4,021)
1,886
10,083
(7,330)
2,753
3,057
(4,273)
(149)
(1,356)
2,604
(2,099)
(3,604)
2,206
387
6,820

FY16E
8,106
8,106
1,246
3,952
(4,312)
730
9,722
(4,230)
5,492
(1,100)
(5,330)
(3,025)
(1,246)
2,466
(2,235)
(6,507)
(2,115)
4,705

FY17E
9,981
9,981
1,122
4,178
(1,287)
889
14,883
(4,000)
10,883
(1,100)
(5,100)
(3,760)
(1,122)
7,123
(2,515)
(7,397)
2,386
7,091

FY18E
12,362
12,362
921
4,336
(1,487)
1,093
17,225
(4,000)
13,225
(1,100)
(5,100)
(3,169)
(921)
10,056
(2,794)
(6,884)
5,241
12,333

PROFITABILITY (%)
GPM
EBITDA Margin
APAT Margin
RoE
RoIC
RoCE
EFFICIENCY
Tax Rate (%)
Asset Turnover (x)
Inventory (days)
Debtors (days)
Payables (days)
Cash Conversion Cycle (days)
Debt/EBITDA (x)
Net D/E
Interest Coverage
PER SHARE DATA
EPS (Rs/sh)
CEPS (Rs/sh)
DPS (Rs/sh)
BV (Rs/sh)
VALUATION
P/E
P/BV
EV/EBITDA
OCF/EV (%)
FCF/EV (%)
FCFE/mkt cap (%)
Dividend Yield (%)

FY14

FY15

FY16E

FY17E

FY18E

52.0
15.3
6.2
17.1
10.6
10.1

55.7
18.9
9.5
23.6
15.6
14.1

57.2
20.7
10.8
21.7
15.0
14.1

56.9
21.1
11.7
22.7
17.1
15.9

56.9
21.9
12.7
23.5
20.4
17.7

33.4
1.2
56
47
99
5
2.5
0.5
4.7

33.2
1.2
49
41
85
5
1.8
0.4
9.0

31.3
1.1
60
47
83
24
1.5
0.3
10.4

31.4
1.2
60
47
83
24
1.0
0.1
13.9

31.4
1.3
60
47
82
25
0.7
(0.1)
20.5

18.1
33.4
4.5
115.2

31.1
46.7
7.5
147.9

34.8
51.8
8.0
173.1

42.9
60.8
9.0
205.2

53.1
71.7
10.0
246.3

45.7
7.2
20.0
3.0
3.3
2.4
0.5

26.6
5.6
14.3
4.9
1.3
1.4
0.9

23.8
4.8
13.2
4.7
2.7
1.3
1.0

19.3
4.0
11.0
7.5
5.5
3.7
1.1

15.6
3.4
8.9
9.2
7.0
5.2
1.2

Source: Company, HDFC sec Inst Research

Page | 7

BHARAT FORGE : COMPANY UPDATE

RECOMMENDATION HISTORY
Bharat Forge

Date
21-Jul-15
3-Aug-15
9-Oct-15
29-Oct-15
9-Dec-15

TP

1,500
1,400
1,300
1,200
1,100

CMP
1,112
1,165
931
814
828

Reco
BUY
BUY
BUY
BUY
BUY

Target
1,306
1,310
1,153
1,056
1,056

1,000
900
800

Dec-15

Nov-15

Oct-15

Sep-15

Aug-15

Jul-15

Jun-15

May-15

Apr-15

Mar-15

Feb-15

Jan-15

Dec-14

700

Rating Definitions
BUY
: Where the stock is expected to deliver more than 10% returns over the next 12 month period
NEUTRAL : Where the stock is expected to deliver (-)10% to 10% returns over the next 12 month period
SELL
: Where the stock is expected to deliver less than (-)10% returns over the next 12 month period

Page | 8

BHARAT FORGE : COMPANY UPDATE

Disclosure:
We, Navin Matta, MBA, & Sneha Prashant, MBA, authors and the names subscribed to this report, hereby certify that all of the views expressed in this research report accurately reflect our
views about the subject issuer(s) or securities. We also certify that no part of our compensation was, is, or will be directly or indirectly related to the specific recommendation(s) or view(s) in
this report.
Research Analyst or his/her relative or HDFC Securities Ltd. does not have any financial interest in the subject company. Also Research Analyst or his relative or HDFC Securities Ltd. or its
Associate may have beneficial ownership of 1% or more in the subject company at the end of the month immediately preceding the date of publication of the Research Report. Further
Research Analyst or his relative or HDFC Securities Ltd. or its associate does not have any material conflict of interest.
Any holding in stock No
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HDFC Securities and its affiliated company(ies), their directors and employees may; (a) from time to time, have a long or short position in, and buy or sell the securities of the company(ies)
mentioned herein or (b) be engaged in any other transaction involving such securities and earn brokerage or other compensation or act as a market maker in the financial instruments of the
company(ies) discussed herein or act as an advisor or lender/borrower to such company(ies) or may have any other potential conflict of interests with respect to any recommendation and
other related information and opinions.
HDFC Securities Ltd, its directors, analysts or employees do not take any responsibility, financial or otherwise, of the losses or the damages sustained due to the investments made or any
action taken on basis of this report, including but not restricted to, fluctuation in the prices of shares and bonds, changes in the currency rates, diminution in the NAVs, reduction in the
dividend or income, etc.
HDFC Securities Ltd and other group companies, its directors, associates, employees may have various positions in any of the stocks, securities and financial instruments dealt in the report,
or may make sell or purchase or other deals in these securities from time to time or may deal in other securities of the companies / organizations described in this report.
HDFC Securities or its associates might have managed or co-managed public offering of securities for the subject company or might have been mandated by the subject company for any
other assignment in the past twelve months.
HDFC Securities or its associates might have received any compensation from the companies mentioned in the report during the period preceding twelve months from the date of this report
for services in respect of managing or co-managing public offerings, corporate finance, investment banking or merchant banking, brokerage services or other advisory service in a merger or
specific transaction in the normal course of business.
HDFC Securities or its analysts did not receive any compensation or other benefits from the companies mentioned in the report or third party in connection with preparation of the research
report. Accordingly, neither HDFC Securities nor Research Analysts have any material conflict of interest at the time of publication of this report. Compensation of our Research Analysts is
not based on any specific merchant banking, investment banking or brokerage service transactions. HDFC Securities may have issued other reports that are inconsistent with and reach
different conclusion from the information presented in this report.
Research entity has not been engaged in market making activity for the subject company. Research analyst has not served as an officer, director or employee of the subject company. We
have not received any compensation/benefits from the subject company or third party in connection with the Research Report.

HDFC securities
Institutional Equities
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