Bharat Forge. Strong traction in exports. (our estimate Rs730m). Source: Company Data; PL Research

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1 Strong traction in exports January 24, 2011 Surjit Arora Rating Accumulate Price Rs348 Target Price Rs415 Implied Upside 19.3% Sensex 19,008 (Prices as on January 21, 2011) Trading data Market Cap. (Rs bn) 81.0 Shares o/s (m) M Avg. Daily value (Rs m) Major shareholders Promoters 42.06% Foreign 14.14% Domestic Inst % Public & Other 24.04% Stock Performance (%) 1M 6M 12M Absolute (9.1) Relative (3.9) (1.6) 11.2 Price Performance (RIC: BFRG.BO, BB: BHFC IN) Sequential recovery in standalone top line driven by robust exports: Bharat Forge (BFL) reported 8.1% QoQ growth in its top line at Rs7.7bn on account of a sequential improvement of 31.1% in export revenues at Rs3.6bn. Tonnage production for the quarter stood at 48,116MT compared to 46,140MT in Q2FY11. EBITDA was in line with our estimate at Rs1.8bn, whereas EBITDA margin improved by 10bps QoQ on account of robust top line. Due to higherthan expected other income and lower interest cost, PAT doubled to Rs826m (our estimate Rs730m). Overseas subsidiaries report 16.7% QoQ growth in revenues: The subsidiaries reported a top line of Rs4.6bn for Q3FY11 (Rs3.9bn in Q2FY11). Overseas subsidiaries reported an EBITDA of Rs346m and an EBITDA margin of 7.5% (an improvement of 240bps QoQ), with a loss of Rs12m (loss of Rs74m in Q2FY11). Consolidated EBITDA improves 60bps QoQ: Top line, on a consolidated basis, grew by 11.2% sequentially, with EBITDA performance improving by 14.9% QoQ. Consolidated EBITDA margins improved by 60bps sequentially at 18.1% on account of strong performance on the subsidiaries front. Adj. PAT, on a consolidated basis for Q3FY11, stood at Rs814m (Rs607m in Q2FY11). Outlook and Valuation: Operating leverage, coupled with higher utilization at the new non auto facility in FY12E, will lead to EBITDA margins in excess of 25% on a standalone basis by FY12E. We value the company on SOTP basis, with standalone business valued at Rs354/share and subsidiaries/jvs valued at Rs61/share. With a strong traction in the domestic as well as export markets and the likely recovery in North America and Europe, we maintain Accumulate. Key financials (Y/e March) E 2012E 2013E Revenues (Rs m) 33,276 46,382 58,342 66,372 Growth (%) (30.3) EBITDA (Rs m) 3,385 8,264 11,242 13,205 PAT (Rs m) 156 2,766 4,790 5,949 EPS (Rs) Growth (%) (92.3) 1, Net DPS (Rs) Source: Company Data; PL Research Q3FY11 Result Update (Rs) Jan 10 Mar 10 May 10 Jul 10 Sep 10 Nov 10 Jan 11 Profitability & Valuation E 2012E 2013E EBITDA margin (%) RoE (%) RoCE (%) EV / sales (x) EV / EBITDA (x) PE (x) P / BV (x) Net dividend yield (%) Source: Bloomberg Source: Company Data; PL Research Prabhudas Lilladher Pvt. Ltd. and/or its associates (the 'Firm') does and/or seeks to do business with companies covered in its research reports. As a result investors should be aware that the Firm may have a conflict of interest that could affect the objectivity of the report. Investors should consider this report as only a single factor in making their investment decision. Please refer to important disclosures and disclaimers at the end of the report

2 Q3FY11 Result Overview Standalone (Rs m) Y/e March Q3FY11 Q3FY10 YoY gr. (%) Q2FY11 9MFY11 9MFY10 YoY gr. (%) Export 3,594 1, ,739 8,662 4, Domestic 4,311 3, ,665 13,091 8, Net Sales (inc. operational income) 7,770 5, ,187 21,257 12, Expenditure Raw material 3,538 2, ,307 9,651 5, as % of net sales Personnel Cost ,464 1, as % of net sales Mfgr. Expenses 1, ,177 3,533 2, as % of net sales Other Expenses ,396 1, as % of net sales Total Expenditure 5,884 3, ,446 16,043 9, EBITDA 1,886 1, ,741 5,214 2, Margin (%) Depreciation ,454 1, EBIT 1, ,251 3,760 1, Net interest Exceptional item (29 ) Other Income PBT 1, ,017 3, Total tax , Tax Rate (%) Adj. Profit after tax , Extraordinary Expenses Reported Profit , Source: Company Data, PL Research Q3FY11 Result Overview Consolidated (Rs m) Particulars (Rs m) Q3FY11 Q3FY10 YoY gr. (%) Q2FY11 9MFY11 9MFY10 YoY gr. (%) Net Sales 12,353 8, ,112 33,591 21, EBITDA 2,232 1, ,943 6,022 2, Margin (%) Adjusted Profit , ,627.8 Source: Company Data, PL Research January 24,

3 SOTP Valuation Value / Share Standalone operations FY12E EPS (Rs) 19.7 Valued at 18x FY12E earnings 354 JV with Alstom for supplying Power Equipments to Turbine Generators Capacity MW 5,000 Utilization level 60% Saleable MW 3,000 Realisation per MW 12 Value of Turbine Generator project (Rs m) 36,000 14% 4,860 51% stake in Alstom JV 2,381 11x EV / EBITDA 23,814 Debt (Rs m) 4,500 EV (Rs m) 19,314 45% 10,623 Equity Shares (m) 255 Per Share Value (Rs) 42 Subsidiaries Valuation FY12E Subsidiaries EBITDA (Rs m) 1,567 Valued at 5.5x FY12E EV/EBITDA (Rs m) 7,833 Debt (Rs m) 3,000 Equity Value (Rs m) 4,833 Equity Shares (m) 255 Per Share Value (Rs) 19 SOTP valuation (Rs / share) 415 Source: PL Research January 24,

4 Income Statement (Rs m) Net Revenue 33,276 46,382 58,342 66,372 Raw Material Expenses 16,327 22,188 27,646 31,288 Gross Profit 16,949 24,193 30,696 35,084 Employee Cost 5,239 5,554 6,532 7,292 Other Expenses 8,326 10,375 12,922 14,587 EBITDA 3,385 8,264 11,242 13,205 Depr. & Amortization 2,451 2,840 2,898 3,004 Net Interest 1,303 1,491 1,516 1,587 Other Income (276) Profit before Tax (645) 4,403 7,247 9,044 Total Tax 119 1,458 2,407 2,995 Profit after Tax (764) 2,946 4,840 6,049 Ex Od items / Min. Int. (921) Adj. PAT 156 2,766 4,790 5,949 Avg. Shares O/S (m) EPS (Rs.) Cash Flow Abstract (Rs m) C/F from Operations 8,372 8,535 5,929 8,753 C/F from Investing (6,467) (4,359) (3,000) (3,000) C/F from Financing (812) (6,397) (1,792) (2,109) Inc. / Dec. in Cash 1,093 (2,221) 1,136 3,644 Opening Cash 4,883 5,976 3,755 4,892 Closing Cash 5,976 3,755 4,892 8,535 FCFF 5,760 1,698 1,418 3,809 FCFE 6,378 (6,808) 1,918 4,309 Key Financial Metrics Growth Revenue (%) (30.3) EBITDA (%) (39.3) PAT (%) (91.9) 1, EPS (%) (92.3) 1, Profitability EBITDA Margin (%) PAT Margin (%) RoCE (%) RoE (%) Balance Sheet Net Debt : Equity Net Wrkng Cap. (days) Valuation PER (x) P / B (x) EV / EBITDA (x) EV / Sales (x) Earnings Quality Eff. Tax Rate (18.4) Other Inc / PBT Eff. Depr. Rate (%) FCFE / PAT 4,080.6 (246.1) Source: Company Data, PL Research. Balance Sheet Abstract (Rs m) Shareholder's Funds 14,662 22,936 27,827 33,975 Total Debt 22,527 14,020 14,520 15,020 Other Liabilities 1,727 1,804 1,922 2,057 Total Liabilities 38,916 38,760 44,269 51,052 Net Fixed Assets 26,060 28,207 29,296 30,280 Goodwill Investments 2,737 3,737 4,737 5,737 Net Current Assets 10,107 6,807 10,227 15,027 Cash & Equivalents 5,977 3,755 4,892 8,535 Other Current Assets 18,193 20,193 24,565 27,894 Current Liabilities 14,062 17,141 19,230 21,402 Other Assets Total Assets 38,912 38,760 44,269 51,052 Quarterly Financials (Rs m) Y/e March Q4FY10 Q1FY11 Q2FY11 Q3FY11 Net Revenue 5,624 6,301 7,187 7,770 EBITDA 1,406 1,587 1,741 1,886 % of revenue Depr. & Amortization Net Interest Other Income Profit before Tax ,017 1,214 Total Tax Profit after Tax Adj. PAT Key Operating Metrics Production Auto (MT) 88, , , ,000.0 Production New Non Auto (MT) 18, , , ,000.0 New Non Auto Revenues (Rs m) 1, , , ,687.5 % of Standalone Revenues Standalone Net Revenues (Rs m) 18, , , ,992.8 % of consolidated revenues Subs. Net Revenues (Rs m) 14, , , ,379.6 % of consolidated revenues Consolidated Revenues (Rs m) 33, , , ,372.4 Source: Company Data, PL Research. January 24,

5 Prabhudas Lilladher Pvt. Ltd. 3rd Floor, Sadhana House, 570, P. B. Marg, Worli, Mumbai , India Tel: (91 22) Fax: (91 22) Rating Distribution of Research Coverage % of Total Coverage 60% 50% 40% 30% 20% 10% 0% 53.8% 30.3% 13.6% 2.3% Buy Accumulate Reduce Sell PL s Recommendation Nomenclature BUY : Over 15% Outperformance to Sensex over 12 months Accumulate : Outperformance to Sensex over 12 months Reduce : Underperformance to Sensex over 12 months Sell : Over 15% underperformance to Sensex over 12 months Trading Buy : Over 10% absolute upside in 1 month Trading Sell : Over 10% absolute decline in 1 month Not Rated (NR) : No specific call on the stock Under Review (UR) : Rating likely to change shortly This document has been prepared by the Research Division of Prabhudas Lilladher Pvt. Ltd. Mumbai, India (PL) and is meant for use by the recipient only as information and is not for circulation. This document is not to be reported or copied or made available to others without prior permission of PL. It should not be considered or taken as an offer to sell or a solicitation to buy or sell any security. The information contained in this report has been obtained from sources that are considered to be reliable. However, PL has not independently verified the accuracy or completeness of the same. Neither PL nor any of its affiliates, its directors or its employees accept any responsibility of whatsoever nature for the information, statements and opinion given, made available or expressed herein or for any omission therein. Recipients of this report should be aware that past performance is not necessarily a guide to future performance and value of investments can go down as well. The suitability or otherwise of any investments will depend upon the recipient's particular circumstances and, in case of doubt, advice should be sought from an independent expert/advisor. Either PL or its affiliates or its directors or its employees or its representatives or its clients or their relatives may have position(s), make market, act as principal or engage in transactions of securities of companies referred to in this report and they may have used the research material prior to publication. We may from time to time solicit or perform investment banking or other services for any company mentioned in this document. For Clients / Recipients in United States of America: All materials are furnished courtesy of Direct Access Partners LLC ("DAP") and produced by Prabhudas Lilladher Pvt. Ltd. ("PLI"). This material is for informational purposes only and provided to Qualified and Accredited Investors. You are under no obligation to DAP or PLI for the information provided herein unless agreed to by all of the parties. Additionally, you are prohibited from using the information for any reason or purpose outside its intended use. Any questions should be directed to Gerard Visci at DAP at January 24,