Bharat Forge

Background

Bharat Forge Limited is engaged in the business of steel forgings, finished machined crankshafts, and front axles assembly and components. The Company's segments include Forgings and Projects (Capital goods). Forgings produce and sells steel forging products comprising forgings, finished machined crankshafts, front axle assembly and components, and ring rolling, among others. Projects (Capital goods) include engineering, procurement, and commissioning business for power and infrastructure-related projects. It manufactures a range of components for various sectors, including automobiles (across commercial and passenger vehicles), oil and gas, aerospace, locomotives, marine, energy (across renewable and non-renewable sources), construction, mining, and general engineering. It has factories at Pune, Satara, and Baramati. Its manufacturing facilities are spread across India, Germany, France, and Sweden. It operates in Delhi, Noida, Hyderabad, Jamshedpur, Kolkata, Chennai, and Mumbai

Bharat Forge Limited - Investment Rationale

• Decline in steel price

• Increase in Demand for CV segment

• Expansion in Europe and US through active M&A Strategy

• Highly diversified clientele

Bharat Forge Limited - Risks and Concerns

• Uncertainty in crude oil price

• Stringent Emission Norms

• Implementation of Demonetization

Conclusion & Recommendation

Bharat Forge Limited is a global player with strong presence in foreign markets because of product quality in its Passenger and commerce vehicle business. With healthy balance sheet, superior linkage of OEMs, strong product pipeline we expect company to outperform the industry in the both medium term and long term future.

At the current market price of Rs.935 the stock is trading at ~17x FY20E EPS. Investors could buy the stock at CMP and add on dips to around Rs.900 to Rs.930 levels (~16x FY18E EPS) for our sequential targets of Rs.1251 and Rs.1267 (~22x to ~23x FY20E EPS).

Financial Summary Standalone [ MP -935rs]

Bharat Forge Limited - Business Profile

Bharat forge Ltd is a Pune base manufacturing company established in 1961,which has a strong presence in the automotive, power, oil and gas, construction and mining, locomotive, marine and aerospace industries. It has manufacturing facility across the global in 10 locations. It has 4,766 permanent employees working across the globe. It has filed 22 patents till date out of which 2 were granted last year.

Automotive:

Automotive segment is the main contributor with 63% of revenue coming from passenger vehicle and commercial vehicle combined together. It has tie up with foreign truck manufactures which increases the exports of the company in CV market. It manufactures more than 10 components which cater to both passenger and commercial vehicles.

Along with this it manufactures pistons, rocker arms, control arms, swivel hubs, wheel carriers and brackets.

Industrial Sector

Bharat forge in industrial sector has concentrated in three sector mainly Energy, transportation, Construction and mining. Each of these segments are gaining more traction in domestic markets because of the support from the government for private companies in the field of Defense and Energy sector. On International markets oil and Energy market is gaining more prominence in Europe as it has acquired companies to increase it market share.

Revenue Contribution:

America is the major contributor and majority of the revenue coming from Commercial vehicle market but growth rate is expected to be high in Europe because of its presence in Oil and Energy segment along with automotive sector.

EQUITY FUND HOLDING: