Buy Bharat Forge For A Gain of 23% In 1 Year Says ICICI Direct

Q2FY22 results of Bharat Forge

According to ICICI Direct, the company’s “Standalone revenues came in at Rs 1,607 crore (up 17.1% QoQ), amid 6.7% tonnage growth to 57,094 MT. The growth was led by India operations where revenues grew 40.3% to Rs 620 crore (CV up 30.5%, PV up 35%, industrial up 62.8%). Export revenues rose 4.2% QoQ to Rs 954 crore (CV up 5.3%, PV down 32.9%, industrials up 22%).”

The brokerage has stated that the company’s “Standalone EBITDA for the quarter was at Rs 485 crore, with consequent margins at 30.2% (up 168 bps QoQ). Margin performance was positively impacted by operating leverage, with gross margin contraction at 170 bps vs. our expectation of ~30 bps.”

ICICI Direct has reported in its research report that the company’s “standalone PAT was at Rs 311.7 crore, up 87.1% QoQ, aided by lower effective tax rate for the quarter at 22.2%. At the consolidated level, the company reported a share of loss from subsidiaries/associates at Rs 10.7 crore vs. loss of Rs 9.1 crore in Q1FY22.”

Key triggers for future price performance of Bharat Forge according to ICICI Direct

• Expected cyclical rebound in India CV, US Class 8 truck revival, healthy outlook for PV segment across geographies and pick-up in drilling activity amid higher oil prices lead to robust 32% FY21-23E net sales CAGR.
• Defence, e-mobility, aluminium growth to de-risk away from CV, oil & gas.
• Operating leverage, mix improvement to expand margins to 21.8% (FY23E).

Buy Bharat Forge with a target price of Rs 950

According to the brokerage “BFL’s share price has grown at ~12% CAGR over the past five years (from ~Rs 450 in November 2016), outperforming Nifty Auto index.”

“We retain BUY rating on BFL, tracking strong demand across user segments. We value the company at a revised target price of Rs 950 i.e. 36x P/E on FY23E EPS of Rs 26.4/share (earlier target price Rs 1,000)” said ICICI Direct in its research report.

Disclaimer

This stock is picked from the brokerage report of ICICI Direct. Investing in equities poses a risk of financial losses. Investors must therefore exercise due caution. Greynium Information Technologies, the author, and the brokerage house are not liable for any losses caused as a result of decisions based on the article.