CRISIL

Sanghvi Forging and Engineering Ltd
Initiating coverage
Enhancing investment decisions
Explanation of CRISIL Fundamental and Valuation (CFV) matrix

The CFV Matrix (CRISIL Fundamental and Valuation Matrix) addresses the two important analysis of an investment making process Analysis of Fundamentals (addressed through Fundamental Grade) and Analysis of Returns (Valuation Grade) The fundamental grade is assigned on a five-point scale from grade 5 (indicating Excellent fundamentals) to grade 1 (Poor fundamentals) The valuation grade is assigned on a five-point scale from grade 5 (indicating strong upside from the current market price (CMP)) to grade 1 (strong downside from the CMP).
CRISIL Fundamental Grade

5/5 4/5 3/5 2/5 1/5
Assessment
Excellent fundamentals Superior fundamentals Good fundamentals Moderate fundamentals Poor fundamentals
CRISIL Valuation Grade

5/5 4/5 3/5 2/5 1/5
Assessment
Strong upside (>25% from CMP) Upside (10-25% from CMP) Align (+-10% from CMP) Downside (negative 10-25% from CMP) Strong downside (<-25% from CMP)
Analyst Disclosure
Each member of the team involved in the preparation of the grading report, hereby affirms that there exists no conflict of interest that can bias the grading recommendation of the company.
Disclaimer:
This Company-commissioned Report (Report) is based on data publicly available or from sources considered reliable by CRISIL (Data). However, CRISIL does not guarantee the accuracy, adequacy or completeness of the Data / Report and is not responsible for any errors or omissions or for the results obtained from the use of Data / Report. The Data / Report are subject to change without any prior notice. Opinions expressed herein are our current opinions as on the date of this Report. Nothing in this Report constitutes investment, legal, accounting or tax advice or any solicitation, whatsoever. The Report is not a recommendation to buy / sell or hold any securities of the Company. CRISIL especially states that it has no financial liability, whatsoever, to the subscribers / users of this Report. This Report is for the personal information only of the authorized recipient in India only. This Report should not be reproduced or redistributed or communicated directly or indirectly in any form to any other person especially outside India or published or copied in whole or in part, for any purpose.
CRISIL Limited. All Rights Reserved.
Polaris Software Limited Sanghvi Forging & intact Engineering Ltd Business momentum remains
Ambitious growth plans
Fundamental Grade Valuation Grade Industry
August 29, 2011

Fair Value Rs 43 CMP Rs 25
4/5 (Strong fundamentals) 2/5 (Moderate fundamentals) 5/5 (CMP has strong upside) Information technology Construction & Engineering
CFV MATRIX
Excellent Fundamentals
Fundamental Grade
Sanghvi Forging and Engineering Ltd (Sanghvi Forging) is a Vadodara-based manufacturer of forging products such as flanges, closed-die and open-die forgings and machined components for the non automotive sector. We assign Sanghvi Forging a fundamental grade of 2/5, indicating that its fundamentals are moderate relative to other listed securities in India. Strong demand for non automotive forging components Huge investment outlay in major end user industries is expected to keep Indias capital goods sector buoyant over the long term. This in turn will benefit the non automotive forging players, such as Sanghvi Forging, which supply components to OEMs. On the other hand, on account of lack of adequate domestic capacity for large industrial forging products, we expect the industry to achieve healthy growth. Capacity expansion Sanghvi Forgings big leap Sanghvi Forging is expanding its existing capacity by 15,000 MTPA (with a single piece open die forging up to 40 MT) at a cost of ~Rs 1.2 bn. It will manufacture large open-die non automotive forging components (which are largely imported at present) for power, oil and gas, marine and other industries. Given our positive stance on the industry and the import substitution opportunity, we believe expansion is a step in the right direction. Successful execution of capacity expansion key to future prospects We are concerned about the companys capability to execute the capacity expansion (four times its existing capacity of 3,600 MTPA). Even though it has added capacity in the past, the size of this expansion project - in the context of current scale of operations - presents significant execution risk going forward. Also, companys corporate governance processes are lower than desired levels. Expect revenues to grow nearly six times by FY15 We expect revenues to grow at CAGR of 55.7% to ~ Rs 2.4 bn over FY11-15 driven by 52.3% growth in volumes and 2.5% growth in realisations. PAT is expected to decline till FY13 due to higher interest and depreciation; EPS expected to decline to Rs 1.6 in FY13 from Rs 4.9 in FY11 due to lower profits and dilution of equity. However, as benefit of planned capex start flowing from FY14, we expect EPS to improve to Rs 10.8 in FY15. Valuations the current price has strong upside We have applied a price to earnings multiple of 6x to FY15 EPS to value Sanghvi Forging. This has been discounted to FY13 to arrive at a fair value of Rs 43 per share. We initiate coverage on Sanghvi Forging with a valuation grade of 5/5.
5 4 3 2 1
Poor Fundamentals
Valuation Grade
Strong Downside Strong Upside
KEY STOCK STATISTICS

NIFTY/SENSEX NSE/BSE ticker Face value (Rs per share) Shares outstanding (mn) Market cap (Rs mn)/(US$ mn) Enterprise value (Rs mn)/(US$ mn) 52-week range (Rs) (H/L) Beta Free float (%) Avg daily volumes (30-days) Avg daily value (30-days) (Rs mn) 4748/15849 SANGHVIFOR /SANFORG 10 8.0 200/5 345/8 145/24 NA 43% 14,000 0.4
SHAREHOLDING PATTERN
100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Pre-Listing May-11 FII Jun-11 Others
86.3% 56.8% 56.8% 0.0% 2.8% 13.7% 0.0% 43.2% 40.4%
KEY FORECAST
(Rs mn) Operating income EBITDA Adj PAT Adj EPS-Rs EPS growth (%) PE (x) P/BV (x) EV/EBITDA (x) RoCE (%) RoE (%) FY09 292 51 26 3.8 10.5 2.2 24.9 33.8 FY10 291 61 27 3.8 NM 1.7 25.8 26.2 FY11 401 82 39 4.9 31.0 5.1 1.1 4.2 27.3 26.2 FY12E 426 76 31 2.5 (49.7) 10.1 0.5 14.7 7.5 7.9 FY13E 614 117 21 1.6 (34.6) 15.5 0.5 10.3 5.9 3.3
Promoters
PERFORMANCE VIS--VIS MARKET

Returns 1-m SANGHVI NIFTY -9% -12% Since Listing -78% -12% 6-m NA -10% 12-m NA -12%
ANALYTICAL CONTACT
Chetan Majithia (Head) Nivedita Joshi Suresh Guruprasad Client servicing desk +91 22 3342 3561 clientservicing@crisil.com CRISIL RESEARCH | 1 chetanmajithia@crisil.com njoshi@crisil.com sguruprasad@crisil.com
NM: Not meaningful; CMP: Current Market Price Source: Company, CRISIL Research estimate
Sanghvi Forging & Engineering Ltd

Table 1: Sanghvi Forging: Business environment
Product / Segment Revenue contribution (FY11) Revenue contribution (FY15) Product / service offering Geographic presence Market position Domestic 75% 75% Exports 25% 25%
Manufacturing of forged flanges, closed and open die forgings and machined components which find applications in non automotive industries such as oil and gas, marine, power, fertilisers, petrochemicals and others Manufacturing facility: Vadodara, India Manufacturing facility: None
The company is one of the few non automotive Exports are lower as compared to other players forging companies, with capability for open die forging exporting non automotive forging components from India NA
Industry growth expectations
Demand expected to grow at 10-12% per annum, in line with the capital goods industry. However, as most of the non automotive forging components are imported at present, the domestic industry may grow at a faster rate on account of import substitution
Sales growth (FY08-FY11 3-yr CAGR) Sales forecast (FY11-FY15 24-yr CAGR) Demand drivers Huge investment outlay in the end user industries such as power, oil & gas, marine, aerospace and defence Lack of sufficient capacity to manufacture large components in excess of 10 MT Demand in the oil and gas segment primarily due to increased activities in shale oil explorations in North America. In an environment of very high oil prices, several renewable sources of power generation such as wind and hydro are becoming viable 55.7% 20.4%
Key competitors Key risks
Bharat Forge, Rajkumar Forging, Bay Forge, Hilton Metal Forge Cyclicality of demand in end user industries
Bharat Forge, Rajkumar Forging, Bay Forge, Hilton Metal Forge
Inability to bag orders, especially post capacity expansion Inability to manufacture and maintain product quality adhering to international standards Fluctuations in foreign currency rates impacting raw material procurement costs as well as revenue
Source: Company, CRISIL Research
CRISIL RESEARCH | 2

Grading Rationale
Specialising in non automotive forgings
Vadodara-based Sanghvi Forging is a manufacturer of open and closed die forging products (forged flanges, forgings and machined components) for the non-automotive sectors such as oil and gas, petrochemicals, fertilisers, fabrication of process equipment, instrumentation and others; ~25% of its products are exported mostly to Europe, Middle East and Canada. The company has an installed capacity of 3,600 MTPA for manufacturing both standardised as well as customised products (with single piece forging up to 4 MT). Sanghvi Forging tapped the equity capital markets in May 2011, through an initial public offer and raised ~Rs 400 mn. The IPO proceeds will be utilised to expand its manufacturing capacity by 15,000 MTPA, which is likely to be completed during FY13 (at a capex of Rs 1,204 mn). Post capacity expansion, Sanghvi Forging will become one of Indias sizeable players in the nonautomotive forging category, with capability to manufacture single piece forging of upto 40 MT.
~75% of products are sold to the domestic market and 25% is exported
Diverse forging capability catering to a variety of industries

Sanghvi Forging currently has facility for open (2,400 MTPA) and closed die (1,200 MTPA) forging. Open-die forging is used for big pieces whereas closeddie is used for smaller pieces. Currently, the company is doing close die forging up to 35 kg and open die forging up to 4,000 kg. Going forward, the company is likely to focus on the open die segment, where it plans to add more capacity.
Table 2: Sanghvi Forgings product portfolio

Product Category Forged Flanges Closed Die Forgings Open Die Forgings Machined Components End-use industries Oil and Gas, petrochemicals, fertilisers and process plants OEMs for valve manufacturers OEM for fabricators and power sector OEMs for instrumentation and valves Kirloskar Ebara Pump, Dorr Oliver, Dresser Rand, GEA Tuchenhagen, Patel Airtemetc Mazagon Dock, L&T, IOT, Punj Loyd, CINDA, Emerson Group BGE Energy, Samsung Engineering, Technimont Major customers IOCL, GAIL, RIL, MRPL, GSFC, KRIBHCO
Demand for non automotive forging products likely to remain strong

The demand for non automotive forging products is likely to remain strong driven by both domestic as well as the export markets. In the domestic market, the business will be driven by increased infrastructure spends. Planning Commission of India believes the infrastructure segment will see an investment of approximately US$500 billion between 2007 and 2012. While there are implementation issues regarding this plan, it is certain that India will need massive investments in infrastructure to sustain a healthy and long-term GDP growth.
CRISIL RESEARCH | 3

In the export markets, there has been an increase in demand for non automotive components in the oil and gas segment primarily due to increased activities in shale oil explorations in North America. Also, high oil prices and environmental concerns are driving the need to seek renewable sources of power generation such as wind and hydro. Our interaction with the industry revealed there has been considerable traction in the export markets across sectors such as oil and gas, construction equipment, railways and marine.
Massive investments in infrastructure to drive demand for non auto forging components
Demand for forged components linked to growth of capital goods sector

Indias capital goods sector has gained immensely from the buoyancy witnessed in the domestic economy in the past two decades. Almost all segments within capital goods heavy electrical machinery, textile machinery, machine tools, earth-moving and construction equipment including mining equipment,
manufacturing machinery and others have had capacity creation. This has in turn boosted the forging industry, which supplies components to OEMs in the capital goods sector.
Figure 1: Historical IIP growth (1993-94 base)

70%
Figure 2: Growth of Indias forging industry

('000 tonnes) 1,500 1,200 900 600 40% 28% 16% 4% -8% -20%
45%
20%
-5%
300 0
2000-01
2001-02
2002-03
2003-04
2004-05
2005-06
2006-07
Apr-95
Apr-96
Apr-97
Apr-98
Apr-99
Apr-00
Apr-01
Apr-02
Apr-03
Apr-04
Apr-05
Apr-06
Apr-07
Apr-08
Apr-09
Apr-10
IIP - Capital Goods
IIP - Manufacturing
Apr-11
Production
Growth (RHS)
Source: CSO, CRISIL Research
Source: AIFI, CRISIL Research
CRISIL RESEARCH | 4
2007-08
-30%
Table 3: Prospects of major end user industries

Industry Power Applications Electrical shafts, motors, wind rotors, rotors for generators, gas and steam turbines components Growth Prospects Planned capacity addition of 82 GW over the next five years. Additionally, captive capacity of 13 GW is also likely to be commissioned. According to CRISIL Research, this sizeable capacity addition is expected to translate into an investment potential US$130 bn (generation). Traction in the nuclear power sector in India is likely to result in an increased demand for specialised components, benefitting open die forging companies. Nuclear Power Corporation of India has indicated a capacity addition of about 11,000 MW during the 12th plan. In addition, NTPC has also expressed its intention to enter into the nuclear power arena and proposed an addition of 2,000 MW during 12th plan period. India has an estimated renewable energy potential of around 85,000 MW from commercially exploitable sources. Ministry of New and Renewable Energy has set a target to create 17,000 MW of renewable energy generation entailing an investment of US$37 bn, much of which will go towards wind generation capacity. Oil & Gas Tee connectors, Yconnectors, lateral trees, casting heads, wellhead forgings, flanges, nozzles, valves, stub-ends Global oil use is expected to grow from about 80 million barrels per day (mbpd) in 2003 to 98 mbpd in 2015 and 118 mbpd in 2030 as per Energy Information Administration (EIA). Natural gas, accounting for 24% of the total global primary energy supply, is the third largest contributor to the global energy basket. Natural gas consumption is expected to increase at an average of 2.4% per year from 2003 to 2030 as per EIA Projected high demand for oil & gas in India as well as globally is expected to lead to higher investments in the oil and gas value chain exploration and production, refining and transportation. Marine Propeller shafts, intermediate shafts, thrust bearing Total investment in the hydrocarbon sector is likely to be US$ 100-120 bn In 2008-09, the share of Indian shipping lines in India's total trade was around 9%. India's overseas trade is expected to grow at a CAGR of 10.5% from 2009-10 to 2013-14, which will provide opportunities to the domestic companies to gain market share in the movement of Indian cargo. According to the Working Group on Shipping Sector, to achieve the five year tonnage growth target of 10 million GT, it will be necessary to add 279 ships of 4.16 million GT to the Indian fleet over and above the new acquisitions/replacements of 560 ships of 4.67 million GT. The investment required in this scenario is US$8 bn. Aerospace & Defence Gun barrels, valve bodies, missiles & torpedo components, impeller hubs With rising passenger traffic and increasing military and defence expenditures, the demand for aircraft is expected to increase. Boeing expects a demand for 900 to 1,000 commercial aircraft worth US$ 100 bn in the next 20 years. This also suggests that a significant portion of business opportunity could accrue to India, due to the associated offsets. The defence offset policy has been under implementation and a formal civil offset policy is also expected to follow shortly. The total spending in the next five years is expected to be US$25 bn (assuming uniform demand) for commercial aircraft and US$100 bn as defence expenditure. Out of the defence expenditure, approximately 15-20% (US$15-20 bn) is expected to be spent on military aircraft. Assuming an offset of 30% for the civil sector too, the total offset opportunity for the aerospace sector is valued to be at least US$ 10-15 bn. Source: Industry, CRISIL Research
CRISIL RESEARCH | 5

India heavily dependent on imports due to low forging capacity
The Indian forging industry (including auto forgings) can be categorised into four sectors large, medium, small and tiny. The industry is highly fragmented, with around 400 units (out of which only 9 -10 are large units scattered all over India). The organised sector accounts for about 65-70% of the total forging production in the country, while unorganised players (mainly small and tiny units) cater mainly to job work and the replacement market or to tier 3 or tier 4 component manufacturers. Our industry research revealed that most players are capable of manufacturing small non automotive forged products; there are very few players with capacity to manufacture large components, particularly with weight in excess of 10 tonnes. Therefore, most of Indias non automotive forging requirement is met through imports. As per the management, India imports ~Rs 90 bn worth nonauto forging, while the domestic supply is only worth Rs 3-4 bn. Therefore, it is expected that import substitution will also be sizeable, benefitting Indian non automotive forging companies. While there is no official data about the industry size, based on our industry sources, there is a significant import of forging, which can be substituted by domestic players.
Capacity expansion can help domestic market through import substitution
Other players too opt for capacity expansion

In the recent past, we have seen some Indian players setting up dedicated capacity for industrial forging.
Table 4: Players with single die forging capability of >10 tonnes

Company Bharat Forge Description Bay Forge Mackeil Ispat Has invested over US$100 million in setting up a modern state-of-the-art non-auto forging and complementary machining facility The company has the capability to process max ingot weight upto 70 tonne single piece Non automotive segment contributed 37% to Bharat Forges revenue in FY11 Promoted by Italys Fomas Group, Bay Forge has been operating in the Indian market since 1996 The company operates a plant in Tamil Nadu with a 3,500 tonne hydraulic press Has manufacturing capacity of upto 30 tonne single die forging Owned by the Kolkata-based Mackeil Group, the company operates one plant in Durgapur Has manufacturing capacity of upto 20 tonne single die forging
Source: Industry, CRISIL Research
CRISIL RESEARCH | 6

Recently, Larsen & Toubro has announced plans to invest Rs 20 bn to setup a 100 tonne single die forging capacity largely to cater to nuclear power plants. Bharat Heavy Electricals Ltd also intends to set up a 40-tonne single die forging capacity. With a large import substitution opportunity, there is enough room for all the players to operate in the non-auto forging sector.
Capacity expansion Sanghvi Forgings big leap

The company is currently in the process of setting up a 15,000 MTPA open-die forging unit (with single piece forging up to 40 MT) to manufacture products like stepped shafts, bars & hollows, blocks, flanged shafts, gear blanks, shells, disks, etc. which are generally imported. The total cost of the project is Rs 1,204 mn, to be financed by a debt to equity mix of ~2:1. The project is expected to be commissioned in May 2012. Under this project, the company will be installing:
One state-of-the-art 4,000 MT open-die hydraulic press: The press can exert large enough force to press the metal into required shape. One 60 MT rail bound manipulator: It holds and rotates the hot ingot while forging. In this case, it can hold ingot of 60 MT weight. Six furnaces: Out of this, three will be used in heating the ingot at the preforging stage and three will be used for post-forging heat treatment.
Focusing on open-die forging manufacturing to cater to its clients increasing needs for large forged products
Since furnace capacity determines the eventual capacity for finished goods, the company may undertake further expansion depending on the demand. An additional investment of Rs 200 mn in furnace capacity will be required to expand the capacity of this plant to 30,000 MTPA.
Strategy
to
mine
existing
clients,
thanks
to
strong
relationships and approvals

Sanghvi Forging is an approved vendor of various leading companies including IOC, L&T, HPCL, BPCL, GNFC, General Electric (US & Europe), Petroleum Development Oman LLC EIL, KNPC, NPCIL and others (BAARC and ISRO) as well as industry bodies for its upto 4MT products. Once the new plant is in advanced stage of completion, the company plans to approach these clients for extending their approvals for large components also. To get an approved vendor status, it normally takes about four to five years, but enhancing the status normally takes three to six months, as confirmed by our industry sources. Also, given that the new plant is likely to be state-of-the-art, with components purchased from leading forging equipment manufacturers, the company expects that getting approvals for large products should not be a significant hurdle. However, this is a key monitorable.
CRISIL RESEARCH | 7

Competition analysis
Indian forging industry can be broadly classified into automotive and non automotive sectors. The majority of the players are present in the automotive segment which has been the primary demand driver for the industry. However, due to increased competition, margins are lower in the automotive sector. Sanghvi Forging enjoys higher margins compared to its peers in the nonautomotive segment. As per the management, the same is on account of diverse customer base, good pricing fetched owing to prompt delivery and well planned raw material procurement. These, we believe, are not sustainable competitive advantages. Accordingly, sustainability of the high margins remains a key monitorable. We also note that the company is likely to incur higher marketing costs to penetrate and spend on approvals and accreditation process. Competition is also likely to catch up fast.
Table 5: Peer comparison

Rajkumar Company Mkt Cap (Rs mn) Sanghvi Forging 200 fertilisers, power, water treatment, ship building, defence, etc Product forged flanges, closed die and open die forgings, machined components Capacity (tonnes) Location 3,600 Waghodia (Vadodara) Raw material imports Power source Working Capital Ratios Current ratio Debtors days Finished Goods days Raw material days Creditors days Purchased; captive ~ 60% FY11 2.3 108 2 31 79 FY10 1.6 76 0 84 38 FY10 1.5 49 38 203 57 FY11 1.5 43 14 43 101 FY11 1.8 78 0 106 49 FY10 1.9 50 0 62 134 Indigenous 13% in FY10 (12% in FY09) Purchased Purchased 6,000 Khed (Pune) Forge Ltd 161 Sugar, steel, cement, power, oil field, gears, chemicals & fertilisers, etc medium and heavy open die forging forgings, flanges, screwed fittings, seamlesss stubends, etc 11,100 Ghonsani (Thane) Indigenous 320,000 Jalgaon, Satara and three in Pune 4% in FY11 (4% in FY10) Purchased Indigenous (1% in FY10) Purchased Purchased rotor forgings, headers, crankshafts, portal axles, etc Hilton Metal Forging Ltd 212 Oil and gas, petro chemical, engineering fields, etc Bharat Forge Ltd 79,767 Automotives, locomotives, oil and gas, power, etc Pradeep Metals Ltd 389 Defence, automobile, engineering and petrochemical industries closed die steel forgings, semifinished machined components 12,000 Rabale (Thane) 225,000 Ahmednagar, Solan (HP) and 2 in Pune Indigenous forgings, cold forged parts, fasteners, hub, crankshafts, etc Ahmednagar Forgings 4,467 Automotives
Presence in segment Oil and gas,
Source: Company, Industry, CRISIL Research
CRISIL RESEARCH | 8

Table 6: Peer financials Sales of industry players
Company Name Sanghvi Forging Rajkumar Forge Hilton Metals Bharat Forge Pradeep Metals Ahmednagar Forgings 5,977 6,603 5,165 6,559 NA Source: Company, Industry, CRISIL Research FY07 190 414 594 43,409 550 FY08 230 440 869 48,270 708 FY09 292 471 819 48,993 832 FY10 291 345 557 34,175 528 FY11 401 330 651 52,433 899
Sales growth (y-o-y)

Company Name Sanghvi Rajkumar Forge Hilton Metals Bharat Forge Pradeep Metals Ahmednagar Forgings 60% 10% -22% 27% NA Source: Company, Industry, CRISIL Research FY07 43% 24% 81% 38% 19% FY08 21% 6% 46% 11% 29% FY09 27% 7% -6% 1% 18% FY10 0% -27% -32% -30% -37% FY11 38% -4% 17% 53% 70%
EBITDA per tonne of industry players

Company Name Sanghvi Rajkumar Forge Hilton Metals Bharat Forge Pradeep Metals Ahmednagar Forgings 20,996 19,634 19,803 22,309 NA Source: Company, Industry, CRISIL Research FY07 NA 33,956 56,443 74,056 18,686 FY08 46,517 20,495 42,441 65,932 13,897 FY09 26,510 43,929 39,739 57,357 22,755 FY10 29,597 56,935 38,178 34,869 22,176 FY11 36,743 NA NA 73,298 30,000
PAT per tonne of industry players

Company Name Sanghvi Rajkumar Forge Hilton Metals Bharat Forge Pradeep Metals Ahmednagar Forgings 11,260 11,407 6,434 8,110 NA Source: Company, Industry, CRISIL Research FY07 NA 21,422 28,792 29,944 6,756 FY08 18,097 5,766 17,042 24,711 9,240 FY09 13,029 18,869 6,478 5,153 26,563 FY10 12,628 27,097 3,867 -9,815 1,260 FY11 17,488 NA NA 25,975 7,048
Figure 3: EBITDA margins of industry players

30% 25% 20% 15% 10% 5% 0% FY06 FY07 Sanghvi Hilton Metals Pradeep Metals FY08 FY09 FY10 FY11 Rajkumar Forge Bharat Forge Ahmednagar Forgings
Figure 4: PAT margins of industry players

14% 12% 10% 8% 6% 4% 2% 0% -2% -4% FY06 FY07 Sanghvi Hilton Metals Pradeep Metals FY08 FY09 FY10 FY11 Rajkumar Forge Bharat Forge Ahmednagar Forgings
Figure 5: ROE of industry players

(%)
Figure 6: ROCE of industry players

(%) 70 60 50
110 90 70 50 30 10 -10 FY06 FY07 Sanghvi Hilton Metals Pradeep Metals FY08 FY09 FY10 FY11 Rajkumar Forge Bharat Forge Ahmednagar Forgings
40 30 20 10 0 -10 FY06 FY07 FY08 FY09 FY10 FY11 Sanghvi Hilton Metals Pradeep Metals Rajkumar Forge Bharat Forge Ahmednagar Forgings
CRISIL RESEARCH | 9

Figure 7: Debt-to-equity of industry players
(Times)
5 5 4 4 3 3 2 2 1 1 0 FY06 FY07 Sanghvi Hilton Metals Pradeep Metals FY08 FY09 FY10 FY11 Rajkumar Forge Bharat Forge Ahmednagar Forgings 2 1 0 FY06 FY07 Sanghvi Hilton Metals Pradeep Metals FY08 FY09 FY10 FY11 Rajkumar Forge Bharat Forge Ahmednagar Forgings 5 4 3
Figure 8: Asset turnover of industry players

(Times)
6
CRISIL RESEARCH | 10

Key risks
Project execution risks
The proposed capacity expansion by Sanghvi Forging is critical, especially in the context of its size in relation to the companys current scale of operations. Any delay in the commissioning of the project may increase the capital cost and impact profitability. Also, post implementation of the project, rejection rates will be a key monitorable, given the output will be high value low volume items any rejection will be a strain on the financials and reputation. However, the company has taken on board people with relevant background are likely to help the company to execute the project. Sanghvi Forging is importing the major part of its plant and machinery requirement from Danieli & Company, Italy and Dango & Dinenthal
Maschinenbau GMBH, Germany. The company has placed the order for furnace, costing US$ 2.4 mn, with Schlager, Germany. While the company has placed orders for the necessary equipment to set up the plant, timely delivery of the same remains to be seen. Generally it is observed that order book of equipment manufacturers is full and there are delays in execution, which impacts the capex of end-users. The same translates into project execution risk.
Absence of track record in large open-die products may hamper ability to bag orders
Most end users require forging manufacturers to undergo pre-qualification processes, which generally take time to complete and involve significant upfront expenses in learning and meeting customer qualification requirements. While Sanghvi Forging has experience in manufacturing small open and closed die components, its lack of experience in manufacturing large open-die products may affect its prospects of bagging lucrative orders.
Exposed to cyclicality of end-user industries

End-user industries such as power, oil and gas, shipping, aerospace and construction are highly susceptible to economic cycles, change in interest rate and varying demand patterns. These factors can hamper the consumers ability to spend or result in postponement of consumption and have a negative impact on the business (revenues) and hence demand for components.
Likely to import 60% of its raw material to manufacture large forged products. This increases foreign exchange volatility risk
and to fluctuations in currency

The company is importing plant and machinery for its new project under the EPCG scheme, where capital goods may be imported at a concessional / NIL rate of custom duty. Under the EPCG scheme, the company is required to export goods aggregating in value to eight times of the import duty saved within eight years, failing which an amount equivalent to the duty amount saved along with the interest at applicable rates will be required to be paid to the government. Therefore, we expect the company is likely to have some export revenue going forward, and therefore will be exposed to risk of foreign currency fluctuations. CRISIL Limited. All Rights Reserved. CRISIL RESEARCH | 11

Financial Outlook
Capacity expansion to drive growth in revenues
Revenues are expected to increase at a four-year CAGR of ~56% to ~Rs 2.4 bn by FY15 primarily driven by growth in volumes. The growth in volume is expected to be driven by capacity enhancement of 15,000 MTPA at an investment of Rs ~1.2 bn.
Figure 9: Revenues to grow at four-year CAGR of 55.7% ...

(Rs mn)
2,500 2,000 1,500 1,000 500 230 292 291 401 426 614 38% 0% 6% 44% 21% 50% 0% -50% 218% 250% 200% 150% 100% 21% 27%
Figure 10: ... driven by 52.3% CAGR in volumes during FY11-FY15...

( tonnes)
14,000 12,000 10,000 8,000 6,000 4,000 2,000 1,203 1,919 2,250 2,340 3,200 12,090 10,020
1,952
FY12E
FY13E
FY14E
FY15E
2,355
2,070
FY12E
FY13E
FY14E
Revenues
growth % (RHS)
Volume
Figure 11: ... and due to firm realisations

(Rs/tonne) 200 180 160 140 120 100 80 60 40 20 183 146 123 171 178 187 189 189
Strong demand to result in firm prices
FY12E
FY13E
FY14E
Realisations
EBITDA margins likely to remain stable

Realisations or saleable price is vulnerable to movement in raw material prices. Considering the fact that Sanghvi Forging largely caters to manufacturers requirements (end-users), the variation in raw material prices is factored in the bids submitted. We expect Sanghvi Forgings operating profits to grow on account of expected change in product portfolio that will enable it to cater to rising demand for large forgings, which otherwise are imported. Though the company is focusing on high margin businesses, we expect EBITDA margins to hover around 20% on account of the initial higher marketing costs incurred to penetrate and expected increase in competition.
FY15E
FY08
FY09
FY10
FY11
FY15E
FY08
FY09
FY10
FY11
FY08
FY09
FY10
FY11

Figure 12: Operating profits to grow at CAGR of 54.5% (FY11-FY15)
(Rs mn) 500 450 400 350 300 250 200 150 100 50 FY08 FY09 FY10 FY11 FY12E FY13E FY14E FY15E
30% 24.3% 21.0% 17.4% 20.5% 17.9% 25% 19.1% 19.8% 19.9% 20% 15% 10% 5% 56 51 61 82 76 117 387 468 0%
Economies of scale and focus on open die forging to boost profits
EBITDA
EBITDA Margin (RHS)
however, PAT margins to contract

Strong double digit growth in operating profits is less likely to flow down to bottom-line due to higher interest and depreciation costs. The same is on account of outlined capital expenditure plan, the benefit of which is expected to flow from FY14 onwards. PAT is expected to decline till FY13 due to higher interest and depreciation; EPS expected to decline to Rs 1.6 in FY13 from Rs 4.9 in FY11 due to lower profits and dilution of equity. However, as benefit of planned capex start flowing from FY14, we expect EPS to improve to Rs 10.8 in FY15.
Figure 13: Outlined capex plans to put PAT margins under pressure
(Rs mn) 160 140 120 100 80 60 40 20 FY08 FY09 FY10 FY11 FY12E FY13E FY14E FY15E
Figure 14: EPS to decline till FY13 & then improve as benefits of capex start flowing from FY14
(Rs ) 12% 12 10 8 6 4 0.2% 2% 2 3.4 0% 0
FY08 FY09 FY10 FY11
9.5% 8.6%
9.8% 9.0% 7.4% 5.6% 5.8% 6% 4% 3.3% 10% 8%
433.9%
500% 400% 300% 200%
10.5% 0.1% 3.8 3.8
31.0% -49.7% 4.9 2.5

FY12E
25.3% -34.6% 1.6

FY13E
100% 0%
22
25
26
39
31
21
110
137
8.6
FY14E
10.8 -100%
FY15E
PAT
PAT Margin (RHS)
EPS
EPS growth (RHS)

Figure 15: RoCE and RoE subside owing to expansion plans
50% 45% 40% 35% 30% 25% 20% 15% 10% 5% 0%
FY12E FY08 FY09 FY10 FY11
43%
Lower earnings to impact returns to shareholders in

34%
38% 26% 26% 27% 26% 18% 8% 6% 7% 3%

FY13E FY14E FY15E
the medium term
25%
18% 17%
16%
RoCE
RoE
Figure 16: Debt-equity and interest coverage ratio trends

(x) 6.0 5.0 4.0 3.0 2.0 1.0 FY08 FY09 FY10 FY11 FY12E FY13E FY14E FY15E
4.8 4.4 3.9
4.9
D/E to increase in the medium term owing to

3.5
planned capex; as
1.9 2.1
investments start generating returns, ability to service debt expected to improve
1.6
1.3 0.9 0.8
1.4
1.5 1.8 1.4 1.5
Debt-equity
Interest coverage ratio

Management Overview
CRISIL's fundamental grading methodology includes a broad assessment of management quality, apart from other key factors such as industry and business prospects, and financial performance.
Key managerial positions rest with promoters

Sanghvi Forging is promoted by Mr Babulal Sanghvi and his three sons - Mr Jayanti Sanghvi, Mr Naresh Sanghvi and Mr Vikram Sanghvi. They share various functional responsibilities among themselves. Mr Babulal Sanghvi, who is also the chairman, has more than 21 years of experience in the forging industry and is responsible for implementing the overall strategy. Mr Jayanti Sanghvi (Managing Director) leads the domestic marketing, finance and sales. Mr Naresh Sanghvi looks after exports, whereas Mr Vikram Sanghvi is responsible for supervision of factory and production activities. While the managerial bandwidth may be sufficient for companys current scale of operations, lack of an experienced and professional second line of
management may become a bottleneck in the future, especially post the commissioning of the new plant.

Corporate Governance
CRISILs fundamental grading methodology includes a broad assessment of corporate governance and management quality, apart from other key factors such as industry and business prospects, and financial performance. In this context, CRISIL Research analyses the shareholding structure, board
composition, typical board processes, disclosure standards and related-party transactions. Any qualifications by regulators or auditors also serve as useful inputs while assessing a companys corporate governance. Overall, corporate governance at Sanghvi Forging is below desired levels. As the company has recently listed, we expect the corporate governance practices to evolve gradually.
Board composition
Sanghvi Forgings board consists of eight members, of whom four are independent directors, in line with the requirement under Clause 49 of SEBIs listing guidelines. Mr Babulal Sanghvi is the chairman and his three sons are also on the board. Audit and the shareholder/investor grievance committees are headed by Mr R.S. Kaushal, who has 38 years of experience in the banking sector. Audit committee also has Mr Vikram Sanghvi as a member.
Corporate governance practices expected to evolve gradually
Mr Shantaram Yarlagadda, who is an independent director, has around forty years of experience in nuclear power plant construction activities. Other independent directors are Mr Baba Pai (Head of Metallurgical and Materials faculty, MS University Kalabhavan, Vadodara) and Mr R.C. Prasad (Professor, Indian Institute of Technology, Bombay).
Boards processes
The companys quality of disclosure can be improved. While the level of information provided in the red herring prospectus is good, disclosures in the companys annual report is below industry standards. The company does not have nomination and remuneration committees. Also, all the independent directors have been appointed on the board only since June-July 2010, and are therefore fairly new to the companys operations.
Others
Sanghvi Forging has started publishing quarterly results. However, earlier it had not maintained its quarterly results that we believe are important to analyse the business performance.

Valuation Grade: 5/5
We assign a fair value of Rs 43 per share to Sanghvi Forging and initiate coverage with a valuation grade of 5/5
We have used price-to-earnings (PER) method to value Sanghvi Forging and arrived at a fair value of Rs 43 per share. The stock is currently trading at Rs 25 per share. Consequently, we initiate coverage on Sanghvi Forging with a valuation grade of 5/5, indicating that the current market price has strong upside with the fair value. We have assigned a multiple of 6x to Sanghvi Forgings FY15 EPS of Rs 10.8 and discounted at the rate of 23% to arrive at FY13 fair value. Our PER multiple factors in low liquidity for the stock and the growth opportunities in the nonautomotive sector for which Sanghvi Forging is preparing itself.
One-year forward P/E band

(Rs) 140 120 100 80 60 40 20 0
One-year forward EV/EBITDA band

(Rs mn) 1,400 1,200 1,000 800 600 400
20-May-11
25-May-11
30-May-11
20-May-11
25-May-11
30-May-11
04-Jul-11
09-Jul-11
14-Jul-11
19-Jul-11
24-Jul-11
29-Jul-11
04-Jul-11
09-Jul-11
14-Jul-11
19-Jul-11
24-Jul-11
04-Jun-11
09-Jun-11
14-Jun-11
19-Jun-11
24-Jun-11
29-Jun-11
04-Jun-11
09-Jun-11
14-Jun-11
19-Jun-11
24-Jun-11
03-Aug-11
08-Aug-11
13-Aug-11
18-Aug-11
23-Aug-11
29-Jun-11
29-Jul-11
03-Aug-11
08-Aug-11
13-Aug-11
18-Aug-11 18-Aug-11
Sanghvi Forging
10x
20x
30x
40x
EV
8x
12x
16x
Source: NSE, BSE, Company, CRISIL Research
P/E premium / discount to NIFTY

250% 200% 150% 100% 50% 0% -50% -100%
P/E movement
(Times) 60 50 40 30 20 10 -1 std dev 0
20-May-11 25-May-11 30-May-11 04-Jul-11 09-Jul-11 14-Jul-11 19-Jul-11 24-Jul-11 04-Jun-11 09-Jun-11 14-Jun-11 19-Jun-11 24-Jun-11 29-Jun-11 29-Jul-11 03-Aug-11 08-Aug-11 13-Aug-11
+1 std dev
02-Jun-11
07-Jun-11
12-Jun-11
17-Jun-11
22-Jun-11
23-May-11
28-May-11
27-Jun-11
01-Aug-11
06-Aug-11
11-Aug-11
16-Aug-11
21-Aug-11
Premium/Discount to NIFTY
Median premium/discount to NIFTY
1yr Fwd PE (x)
Median PE
Peer comparison - Valuations

Company Sanghvi Forging & Engineering Ltd Bharat Forge Ltd Ramkrishna Forgings Ltd Taewoong Co Ltd Hyunjin Materials Co Ltd 5.0 1438 36 582 176 27.9 16.3 41.9 NA 5.1 17.8 8.4 21.0 15.0 10.1 13.6 7.8 11.9 9.9 15.5 13.1 6.7 8.2 8.1 3.9 1.5 2.1 1.4 1.1 3.3 1.2 1.8 1.4 0.5 2.7 0.9 1.6 1.3 0.5 2.5 1.8 1.3 1.0 1.7 11.7 8.0 16.8 14.8 4.2 9.2 5.5 14.7 9.9 14.7 7.7 4.6 8.2 7.5 10.3 7.4 4.0 5.7 6.0 26.2 15.7 10.3 5.5 -1.0 26.2 20.0 15.7 9.4 8.4 7.9 21.4 14.6 14.1 13.4 3.3 20.5 13.0 17.5 13.8 M.Cap US$ FY10 P/E FY11 FY12E FY13E FY10 P/BV FY11 FY12E FY13E FY10 EV/EBITDA FY11 FY12E FY13E FY10 ROE FY11 FY12E FY13E
Source: Company, CRISIL Research CRISIL Limited. All Rights Reserved. CRISIL RESEARCH | 17
23-Aug-11
02-Jul-11
07-Jul-11
12-Jul-11
17-Jul-11
22-Jul-11
27-Jul-11
23-Aug-11

Company Overview
Sanghvi Forging is a manufacturer of forging products for the non-automotive sector. The company has an installed capacity of 3,600 MTPA for manufacturing of forged flanges and precision machined components (with single piece forging up to 4 MT) in the area of open and closed die forgings. Key raw materials used for manufacturing these products are carbon steel, alloy steel and stainless steel. The company operates from its plant based in Vadodara, Gujarat. Key product lines include forged flanges, forgings and machined components for various industries like oil & gas, fertilisers, power, desalination & water treatment, ship building, defence, fabrication is capable of of process equipment, both
instrumentation
etc. Sanghvi Forging
manufacturing
standardised as well as customised products. The company has also established a market for its products overseas and regularly exports to Europe, Middle East and Canada. The existing manufacturing plant consists of forging shop, die shop, heat treatment shop, conventional and CNC machining shop backed by related quality assurance equipments. Presently, steam hammer technology is being used for the open die forging and can produce single forged piece upto 4 MT.
Proceeds from recent IPO for funding major capacity expansion

In May 2011, Sanghvi Forging raised funds from equity markets through an initial public offer for funding increase in manufacturing capacity by 15,000 MTPA.
Proceeds of the Issue

Amount Raised Particulars Proceeds from pre-IPO placement Public Issue Gross Proceeds of the issue Issue related expenses Net proceeds of the issue Source: Company, CRISIL Research (a) (b) (a+b) (Rs mn) 56 369 425 30 395
Financing for the project

Amount Raised Particulars Gross proceeds from IPO Term loans Unsecured loans Internal accruals Total Source: Company, CRISIL Research (Rs mn) 425 720 6 53 1,204

Pre IPO shareholding pattern* Post IPO shareholding pattern*
Public 32% Dango & Dienenthal 9%
Promoters 86%
Others 5% Others 4% Dango & Dienenthal 6%
Promoters 58%
Source: Company, CRISIL Research Forging for the proposed expansion
* Dango Dienenthal Maschinenbau GMBH KG (Germany) is also a vendor for the plant and machinery being procured by Sanghvi
Milestones
1992 1996 2002 2005 2006 2008 2009 2010 2011 Set-up existing factory at Vadodara with an installed capacity of 300 MTPA for close die forgings Obtained first major approval from the Technical Development Committee of India Obtained Canadian Registration Number (CRN) for 13 provinces of Canada enabling the company to market its products in Canada Enhancement of closed die forging installed capacity upto 1,200 MTPA Establishment of new open die forging plant with an installed capacity of an installed capacity of 2,400 MTPA Implementation of SAP-Enterprise resource planning Obtained approval from GE , PDIL and EIL Placed firm order for import of forging press and manipulator for the current capacity expansion IPO

Annexure: Financials
Income statement (Rs mn) Operating income EBITDA EBITDA margin Depreciation EBIT Interest Operating PBT Other income Exceptional inc/(exp) PBT Tax provision Minority interest PAT (Reported) Less: Exceptionals Adjusted PAT Ratios FY09 Growth Operating income (%) EBITDA (%) Adj PAT (%) Adj EPS (%) Profitability EBITDA margin (%) Adj PAT Margin (%) RoE (%) RoCE (%) RoIC (%) Valuations Price-earnings (x) Price-book (x) EV/EBITDA (x) EV/Sales (x) Dividend payout ratio (%) Dividend yield (%) B/S ratios Inventory days C reditors days Debtor days Working capital days Gross asset turnover (x) Net asset turnover (x) Sales/operating assets (x) C urrent ratio (x) Debt-equity (x) Net debt/equity (x) Interest coverage Per share FY09 Adj EPS (Rs) C EPS Book value Dividend (Rs) Actual o/s shares (mn) 3.8 4.6 12.9 6.8 FY10 3.8 4.7 16.6 0.3 7.2 FY11 4.9 5.7 22.6 8.0 FY12E 2.5 3.1 48.5 12.7 FY13E 1.6 3.8 50.1 12.7 76 28 82 118 2.5 2.9 2.9 4.9 1.3 1.2 3.9 90 44 140 147 2.3 2.7 2.7 3.9 0.9 0.8 4.4 98 79 108 108 3.0 3.7 2.4 2.3 0.8 0.8 4.9 105 75 94 102 3.1 4.0 0.6 3.1 1.4 1.3 3.5 106 68 95 96 0.9 0.9 0.5 2.8 1.4 1.4 1.5 Quarterly financials* (Rs mn) Net Sales Change (q-o-q) EBITDA Change (q-o-q) EBITDA margin PAT Adj PAT Change (q-o-q) Adj PAT margin Adj EPS Q1FY12 77 NM 13 NM 17% 6 6 NM 8% 0.8 2.2 0.4 1.7 0.4 9.1 5.1 1.1 4.2 1.0 10.1 0.5 14.7 2.7 15.5 0.5 10.3 2.0 17.4 8.7 33.8 24.9 20.8 21.0 9.3 26.2 25.8 18.7 20.5 9.8 26.2 27.3 20.3 17.9 7.4 7.9 7.5 5.9 19.1 3.3 3.3 5.9 5.5 Cash flow (Rs mn) Pre-tax profit Total tax paid Depreciation Working capital changes Net cash from operations Cash from investments Capital expenditure Investments and others Net cash from investments Cash from financing Equity raised/(repaid) Debt raised/(repaid) Dividend (incl. tax) Others (incl extraordinaries) Net cash from financing Change in cash position Closing cash 13 (0) 13 1 3 9 (10) (3) (1) (5) (1) 3 (35) 68 4 6 56 47 398 715 6 1,119 60 66 50 50 (39) 27 (17) (0) (17) (11) (1) (11) (127) (1) (128) (1,080) (1,080) (70) (70) FY09 34 (8) 6 (26) 6 FY10 42 (14) 6 (20) 15 FY11 61 (21) 6 17 64 FY12E 48 (17) 8 (18) 21 FY13E 29 (9) 28 (68) (19) 27.2 (9.0) 13.9 10.5 (0.3) 20.4 NM NM 37.5 34.1 44.5 31.0 6.2 (7.2) (20.2) (49.7) 44.3 53.6 (34.6) (34.6) FY10 FY11 FY12E FY13E 25 (1) 26 FY09 292 51 17.4% 6 45 12 34 0 (1) 34 8 26 (1) 27 FY10 291 61 21.0% 6 55 12 42 (1) (1) 41 15 39 0 39 FY11 401 82 20.5% 6 76 15 60 0 0 61 21 31 31 48 17 21 21 FY12E 426 76 17.9% 8 68 20 48 0 29 9 FY13E 614 117 19.1% 28 89 60 29 1 Balance Sheet (Rs mn) Liabilities Equity share capital Reserves Minorities Net worth Convertible debt Other debt Total debt Deferred tax liability (net) Total liabilities Assets Net fixed assets Capital WIP Total fixed assets Investments Current assets Inventory Sundry debtors Loans and advances Cash & bank balance Marketable securities Total current assets Total current liabilities Net current assets Intangibles/Misc. expenditure Total assets 217 139 28 111 47 69 20 3 173 44 129 2 240 53 105 13 3 205 90 116 2 348 79 108 12 6 289 95 194 2 1,498 93 117 13 66 135 168 18 27 348 125 223 2 1,569 106 106 0 108 0 108 1 111 118 229 1 103 1,198 1,301 1 1,215 128 1,343 1 39 49 88 113 113 15 217 48 72 120 104 104 16 240 180 150 150 17 348 80 101 127 489 616 865 865 17 1,498 127 510 636 915 915 17 1,569 FY09 FY10 FY11 FY12E FY13E
Note: All ratios are computed on Adj PAT *Historical quarterly financials not available Source: CRISIL Research

Focus Charts
Revenue and growth trend
(Rs mn) 2,500 2,000 1,500 1,000 500 230
FY08
EBITDA and EBITDA margin over the years

(Rs mn) 218% 250% 200% 150% 100% 500 450 400 350 300 250 200 150 100 50 FY12E FY13E FY14E FY15E FY08 FY09 FY10 FY11
30% 24.3% 21.0% 20.5% 17.4% 17.9% 19.1% 19.8% 19.9% 25% 20% 15% 10% 5% 56 51 61 82 76 117 387 468 0%
21%
27% 0% 292
FY09
38% 6%
44% 21%
1,952 2,355
50% 0% -50%
291
FY10
401
FY11
426
FY12E
614
FY13E
FY14E
Revenues
growth % (RHS)
FY15E
EBITDA
EBITDA Margin (RHS)
PAT and PAT margin trend

(Rs mn) 160 140 120 100 80 60 40 20 FY08 FY09 FY10 FY11 FY12E FY13E FY14E FY15E
RoE and RoCE trend

50% 12% 45% 40% 35% 8% 5.6% 5.8% 6% 4% 3.3% 2% 110 137 0% 30% 25% 20% 15% 10% 5% 0%
FY08 FY09 FY10 FY11 FY12E
43%
9.5% 8.6%
9.8% 9.0% 7.4% 10%
34% 38% 26% 26% 27% 26% 18% 8% 6% 7% 3%

FY13E FY14E FY15E
25%
18% 17%
16%
22
25
26
39
31
21
PAT
PAT Margin (RHS)
RoCE
RoE
Sales growth over the quarters

(Rs mn) 140 120 100 80 60 40 20 Q1FY10
Shareholding pattern over the quarters

100%
120% 100% 80%
95.9% 93.4%
90% 80% 70% 60% 50% 40% 30% 20% 10% 0%
13.7% 0.0% 43.2% 40.4%
36.5%
60% 28.9% -2.4% 40% 20% 0%
0.0% 86.3% 56.8%
2.8%
-12.7% 46
-22.1% -25.1% 52
Q2FY10
50
Q3FY10
131
Q4FY10
59
Q1FY11
102
Q2FY11
97
Q3FY11
128
Q4FY11
-20% -40%
56.8%
Pre-Listing Promoters
May-11 FII
Jun-11 Others
Net sales
% change y-o-y (RHS)
CRISIL Research Team

Senior Director
Mukesh Agarwal +91 (22) 3342 3035 magarwal@crisil.com
Analytical Contacts
Tarun Bhatia Prasad Koparkar Chetan Majithia Sudhir Nair Jiju Vidyadharan Ajay D'Souza Ajay Srinivasan Sridhar C Manoj Mohta Director, Capital Markets Head, Industry & Customised Research Head, Equities Head, Equities Head, Funds & Fixed Income Research Head, Industry Research Head, Industry Research Head, Industry Research Head, Customised Research +91 (22) 3342 3226 +91 (22) 3342 3137 +91 (22) 3342 4148 +91 (22) 3342 3526 +91 (22) 3342 8091 +91 (22) 3342 3567 +91 (22) 3342 3530 +91 (22) 3342 3546 +91 (22) 3342 3554 tbhatia@crisil.com pkoparkar@crisil.com chetanmajithia@crisil.com snair@crisil.com jvidyadharan@crisil.com adsouza@crisil.com ajsrinivasan@crisil.com sridharc@crisil.com mmohta@crisil.com
Business Development
Vinaya Dongre Ashish Sethi Head, Industry & Customised Research Head, Capital Markets +91 (22) 33428025 +91 (22) 33428023 vdongre@crisil.com asethi@crisil.com
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Sanghvi Forging and Engineering Ltd

Enhancing investment decisions

Explanation of CRISIL Fundamental and Valuation (CFV) matrix

CRISIL Fundamental Grade

CRISIL Valuation Grade

CRISIL Limited. All Rights Reserved.

August 29, 2011

KEY STOCK STATISTICS

PERFORMANCE VIS--VIS MARKET

CRISIL Limited. All Rights Reserved.

Sanghvi Forging & Engineering Ltd

Industry growth expectations

Key competitors Key risks

Bharat Forge, Rajkumar Forging, Bay Forge, Hilton Metal Forge

Source: Company, CRISIL Research

CRISIL Limited. All Rights Reserved.

Sanghvi Forging & Engineering Ltd

Diverse forging capability catering to a variety of industries

Table 2: Sanghvi Forgings product portfolio

Source: Company, CRISIL Research

Demand for non automotive forging products likely to remain strong

CRISIL Limited. All Rights Reserved.

Sanghvi Forging & Engineering Ltd

Demand for forged components linked to growth of capital goods sector

Figure 1: Historical IIP growth (1993-94 base)

Figure 2: Growth of Indias forging industry

IIP - Capital Goods

Source: CSO, CRISIL Research

Source: AIFI, CRISIL Research

CRISIL Limited. All Rights Reserved.

Sanghvi Forging & Engineering Ltd

Table 3: Prospects of major end user industries

CRISIL Limited. All Rights Reserved.

Sanghvi Forging & Engineering Ltd

Capacity expansion can help domestic market through import substitution

Other players too opt for capacity expansion

Table 4: Players with single die forging capability of >10 tonnes

Source: Industry, CRISIL Research

CRISIL Limited. All Rights Reserved.

Sanghvi Forging & Engineering Ltd

Capacity expansion Sanghvi Forgings big leap

relationships and approvals

CRISIL Limited. All Rights Reserved.

Sanghvi Forging & Engineering Ltd

Table 5: Peer comparison

Presence in segment Oil and gas,

Source: Company, Industry, CRISIL Research

CRISIL Limited. All Rights Reserved.

Sanghvi Forging & Engineering Ltd

Sales growth (y-o-y)

EBITDA per tonne of industry players

PAT per tonne of industry players

Figure 3: EBITDA margins of industry players

Figure 4: PAT margins of industry players

Source: Industry, CRISIL Research

Source: Industry, CRISIL Research

Figure 5: ROE of industry players

Figure 6: ROCE of industry players

Source: Industry, CRISIL Research

Source: Industry, CRISIL Research

CRISIL Limited. All Rights Reserved.

Sanghvi Forging & Engineering Ltd

Figure 8: Asset turnover of industry players