Bharat Forge Ltd Result Update: Q3 FY 11

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Bharat Forge Ltd Result Update: Q3 FY 11 C.M.P: Rs.314.90 Target Price: Rs.362.00 Date: 17 th Frb 2011 BUY Stock Data: Sector: Auto components Face Value Rs. 2.00 52 wk. High/Low (Rs.) 412.90/232.

, the flagship company of the US $ 2.4 billion Kalyani Group, is a leading global Full Service Supplier of forged and machined - engine & chassis components.

1 Bharat Forge Ltd Result Update: Q3 FY 11 C.M.P: Rs Target Price: Rs Date: 17 th Frb 2011 BUY Stock Data: Sector: Auto components Face Value Rs wk. High/Low (Rs.) / Volume (2 wk. Avg.) BSE Code Market Cap (Rs.In mn) Share Holding Pattern 1 Year Comparative Graph Bharat Forge Ltd BSE SENSEX SYNOPSIS Bharat Forge Ltd., the flagship company of the US $ 2.4 billion Kalyani Group, is a leading global Full Service Supplier of forged and machined - engine & chassis components. During the quarter, the company has registered highest exports of Rs.359cr, an impressive growth of 80% on YOY basis. During the quarter ended, the robust growth of revenue is increased by 53% Rs million. The company s revenue and PAT are expected to grow at a CAGR of 20% and 55% over 2009 to 2012E respectively. Domestic revenues grew by 35.3% on a YoY basis but marginally declined by 6.1% sequentially, less than the underlying market. Years Net sales EBITDA Net Profit EPS P/E FY FY 11E FY 12E

2 Peer Group Comparison Name of the company CMP(Rs.) Market Cap.(Rs.Mn.) EPS(Rs.) P/E(x) P/Bv(x) Dividend (%) Bharat Forge Ltd Denso India Bosch Ltd Wheels India Company Profile Bharat Forge Ltd., the flagship company of the US $ 2.4 billion Kalyani Group, is a leading global Full Service Supplier of forged and machined - engine & chassis components. It is the largest exporter of auto components from India and leading chassis component manufacturer in the world. With manufacturing facilities spread across 12 locations and 6 countries - four in India, three in Germany, one each in Sweden, Scotland, USA and two in China, the company manufactures a wide range of safety and critical components for passenger cars, SUV s, light, medium & heavy commercial vehicles, tractors and diesel engines. The company also manufactures specialized components for the aerospace, power, energy, oil & gas, rail & marine, mining & construction equipment, and other industries. It is capable of producing complex large volume parts in both steel and aluminium. Over the years, Bharat Forge has been investing in creating State-of-the-art facilities, world-class capacities and capabilities. Provide facilities include, fully automated forging and machining lines, the largest of its kind and comparable to the best in the industry. Bharat Forge has built up a strong capability in design and engineering, including a full fledged product testing and validation facility, which gives Bharat Forge a Full Service Supply Capability - from product conceptualization to designing to manufacturing and product testing & validation. 2

3 Business Areas Business Area Automotive Non Automotive Capital Goods Customers: Domestic Customers Global Customers 3

4 Investment Highlights Q3 FY11 Results Update Bharat Forge has posted a phenomenal jump of 117% in standalone net profit for the quarter ended Dec. 31, The company has posted a net profit of Rs million for the quarter ended Dec. 31, 2010 as compared to Rs million for the same quarter last year, a jump of 2.17 times. Net sales for the quarter are surged by 53% to Rs million from Rs million for the same quarter last year. Meanwhile, total Income has increased by 52.72% to Rs million for the quarter ended Dec. 31, 2010 from Rs. 5, million for the quarter ended Dec. 31, The EPS of the company is stood at Rs.3.55 for the quarter ended December

5 Quarterly Results - Standalone (Rs in mn) As At Dec-10 Dec-09 %change Net sales PAT Basic EPS Break up of expenditure Segment wise Revenue Particulars Q3 FY11 Q3 FY10 Steel Forging Gen.Engg.. Trading etc Total

6 Highlights during the quarter Sequential volume growth of 4.3% driven by strong growth in export revenues, continued ramp up of non automotive capacities. Non Auto segment continues to grow with strong traction across sectors. Non Auto contribution increased from 26% in Q3 FY10 to 37% in Q3 FY11. Highest Exports of Rs 3,593 million recorded, driven by growth in new products & customers from both US & European markets. Historical high PBT of Rs 1,214 million for the quarter, a growth of 110.4% compared to corresponding period previous year. 6

7 Financial Results 12 Months Ended Profit & Loss Account (Standalone) Value(Rs.in.mn) FY09 FY10 FY11E FY12E Description 12m 12m 12m 12m Net Sales Other Income Total Income Expenditure Operating Profit Interest Gross profit Depreciation Profit Before Tax Tax Profit After Tax Equity capital Reserve Face value (Rs.) EPS

8 Quarterly Ended Profit & Loss Account (Standalone) Value(Rs.in.mn) 30-Jun Sep Dec Mar-11 E Description 3m 3m 3m 3m Net sales Other income Total Income Expenditure Operating profit Interest Gross profit Depreciation Profit Before Tax Tax Profit After Tax Equity capital Face value (Rs.) EPS

9 Key Ratios Particulars FY09 FY10 FY11E FY12E No. of Shares(In Million) EBITDA Margin (%) 19.80% 24.13% 26.08% 25.73% PBT Margin (%) 7.66% 9.73% 15.28% 15.74% PAT Margin (%) 5.02% 6.84% 10.40% 10.67% P/E Ratio (x) ROE (%) 6.95% 8.32% 16.89% 17.21% ROCE (%) 16.90% 18.12% 25.85% 26.81% EV/EBITDA (x) Debt equity ratio Book Value (Rs.) P/BV

10 Charts: 10

11 11

12 Outlook and Conclusion At the current market price of Rs , the stock is trading at x FY11E and x FY12E respectively. Earning per share (EPS) of the company for the earnings for FY11E and FY12E is seen at Rs and Rs respectively. Net Sales and PAT of the company are expected to grow at a CAGR of 20% and 55% over 2009 to 2012E respectively. On the basis of EV/EBITDA, the stock trades at 9.41 x for FY11E and 7.94 x for FY12E. Price to Book Value of the stock is expected to be at 3.99 x and 3.30 x respectively for FY11E and FY12E. We expect that the company will keep its growth story in the coming quarters also. We recommend BUY in this particular scrip with a target price of Rs for Medium to Long term investment. Industry Overview The Indian auto component industry is expected to grow by over four-fold to US$ 113 billion by 2020, according to Automotive Component Manufacturers' Association (ACMA). The total passenger car production in the country will jump four times to reach 9 million cars by 2020, the industry body said in its forecast report. Although a major chunk of this will come from the fast growing domestic market, exports are likely to form around 35 per cent of the total market by "India would be among the top-five vehicle producing countries in the world by 2020," said Vinnie Mehta, Executive Director, ACMA. As per a report by ACMA, the turnover of the auto component industry is being estimated at around US$ 26 billion in , up 18 per cent from US$ 22 billion in

13 The report states that 40 per cent of the auto component industry was dominated by body and structural products in 2009, 20 per cent by engines and exhaust, and 10 per cent each by suspension and braking parts, transmission and steering parts, electronics a d electrical and interiors. By 2015, body and structural will account for 35 per cent of the auto component industry, engines and exhaust 20 per cent, suspension and braking parts, transmission and steering parts and electronics and electrical will account for 13 per cent each and interiors 9 per cent. The potential compounded annual growth rate (CAGR) of the auto component industry is likely to be around 18 per cent in the period Exports from the auto component industry are estimated to be worth US$ 5 billion in , according to the ACMA report. Europe is likely to account for 36.9 per cent of India's auto components exports in , followed by Asia with 28.1 per cent and North America with 24 per cent. The industry has witnessed a shift in the composition of exports over the years. Investments in the auto component industry are estimated at US$ 12 billion in , according to ACMA. Destination India India is turning out to be an attractive destination as a global outsourcing hub and manufacturing base for original equipment manufacturers (OEMs), especially after the global economic downturn. With the finalisation of the Automotive Mission Plan (AMP) India is expected to become a preferred destination for design and manufacture of automobile. The plan envisaged an investment of US$ 40 billion and provided a road map to help transform India into a global automobile player. The AMP proposed a 25-point plan that included making India a manufacturing and export hub for small cars, multiutility vehicles, two and three-wheelers, tractors and components. Furthermore, Indian companies are compliant with global automotive standards, e.g. the Japanese Industrial Standard Committee (JISC) and Deutsches Institut für Normung (DIN). India offers the advantage of low manufacturing costs due to economies of scale, low design, research and labour costs, and local sourcing of tools 13

14 and components. Large Indian players contribute around 43 per cent of the total production, while foreign companies such as Magna, Visteon, Valeo, Bosch, Federal- Mogul Corporation and Denso contribute 15 per cent. Moreover, foreign direct investments (FDI) inflow in for the auto components sector was recorded at US$ 1.2 billion. FDI inflow in the same period was 4 per cent of the total FDI inflow in the country. Auto component exports from India were estimated at US$ 3.8 billion for , witnessing a CAGR of 17.5 per cent over the last five years. Exports are expected to grow to US$ 30 billion by India s share in the global auto components market is expected to rise from 0.9 per cent in to 2.5 per cent in Investments Auto component maker, Ashok Minda Group has completed the acquisition of specialist composite moulding manufacturer Aksys Koengen of Germany. After the acquisition, Aksys has been renamed Minda Schenk Plastic Solutions GmbH, Plant Koengen. The plant is a major supplier of components to Daimler, VW Group, Renault, PSA and GM. Motherson Sumi Systems Ltd (MSSL) would invest US$ million-us$ 108 million this fiscal on capacity expansion and new plants. Out of the total, US$ million will be invested in India. JK Tyre & Industries Ltd has signed a memorandum of understanding (MoU) with the Government of Tamil Nadu for setting up US$ million greenfield facility at Sriperumbudur. The facility would generate US$ million every year for the exchequer and create 1,000 skilled jobs, said Raghupati Singhania, Vice Chairman and Managing Director of the company. Toyota Kirloskar Motor (TKM) will invest US$ 107 million to make engines and gearboxes for Toyota's new small car, Etios, which is expected to be launched by yearend. TKM subsidiary, Toyota Kirloskar Auto Parts (TKAP), would set up the plant with an annual capacity to produce 52,000 engines and 170,000 gearboxes, which would also be exported to Thailand and Argentina. 14

15 Australian auto component firm, MtM is exploring the possibility of setting up a manufacturing facility in India to meet the growing demand for automatic transmissions. The company recently started supplying automatic gear boxes for the Mahindra Scorpio SUVs to be exported to the US. Finnish firm KWH Mirka Ltd, maker of abrasives used in automotive sector and for other industrial applications, has announced the setup of a fully-owned subsidiary in India. With a base in New Delhi, the company has already tied up with 10 distributors and appointed 100 distributors across the country. It has also obtained approval from several automotive OEMs such as Maruti Suzuki, Honda, Toyota, Nissan, Mahindra & Mahindra and Swaraj Mazda. Rieter Nittoku Automotive Sound Proof Products India Pvt Ltd, a joint venture (JV) between Rieter Group of Switzerland (51 per cent holding) and Nihon Tokushu Toryo Co Ltd of Japan (49 per cent holding), has invested US$ 15 million in a new facility at Oragadam, near Chennai. Germany-based auto parts maker, Continental Automotive has shortlisted India as one of its key growth drivers and is looking at setting up a plant in India to manufacture complete diesel injection systems and another one for making sensors for air bags. German auto component major and industry technology provider Bosch Group has made an upward revision in its Indian investment programme for on the back of booming domestic auto market. VK Viswanathan, President,Bosch India said the group had decided to increase its investment quantum to US$ million from the proposed US$ 450 million. The group will utilise this investment for its six separate entities in India. Auto components manufacturer Steel Strips and Wheels Limited (SSWL) has bagged export orders worth US$ million from French car-maker Renault. As per the agreement, SSWL will supply 20,000 wheels per month to Renault. Policy Initiatives 15

16 The Government has taken many initiatives to promote foreign direct investment (FDI) in the industry: Automatic approval for foreign equity investment up to 100 per cent of manufacture of automobiles and components is permitted The automobile industry is delicensed Import of components is freely allowed The Ministry of Heavy Industries and Public Enterprises has envisaged the Automotive Mission Plan to promote growth in the sector. It targets to: Increase turnover to US$ 122 billion US$ 159 billion by 2016 from US$ 34 billion in 2006 Increase export revenue to US$ 35 billion by 2016 Provide employment to additional 25 million people by 2016 Disclaimer: This document prepared by our research analysts does not constitute an offer or solicitation for the purchase or sale of any financial instrument or as an official confirmation of any transaction. The information contained herein is from publicly available data or other sources believed to be reliable but do not represent that it is accurate or complete and it should not be relied on as such. Firstcall India Equity Advisors Pvt. Ltd. or any of it s affiliates shall not be in any way responsible for any loss or damage that may arise to any person from any inadvertent error in the information contained in this report. This document is provide for assistance only and is not intended to be and must not alone be taken as the basis for an investment decision. 16

17 Firstcall India Equity Research: C.V.S.L.Kameswari Pharma U. Janaki Rao Capital Goods B. Prathap IT D. Ashakirankumar Automobile A. Rajesh Babu FMCG H.Lavanya Oil & Gas A.Prathibha Diversified Dheeraj Bhatia Diversified Manoj kotian Diversified Nimesh Gada Diversified Firstcall India also provides Firstcall India Equity Advisors Pvt.Ltd focuses on, IPO s, QIP s, F.P.O s,takeover Offers, Offer for Sale and Buy Back Offerings. Corporate Finance Offerings include Foreign Currency Loan Syndications, Placement of Equity / Debt with multilateral organizations, Short Term Funds Management Debt & Equity, Working Capital Limits, Equity & Debt Syndications and Structured Deals. Corporate Advisory Offerings include Mergers & Acquisitions(domestic and cross-border), divestitures, spin-offs, valuation of business, corporate restructuring-capital and Debt, Turnkey Corporate Revival Planning & Execution, Project Financing, Venture capital, Private Equity and Financial Joint Ventures Firstcall India also provides Financial Advisory services with respect to raising of capital through FCCBs, GDRs, ADRs and listing of the same on International Stock Exchanges namely AIMs, Luxembourg, Singapore Stock Exchanges and other international stock exchanges. For Further Details Contact: 3rd Floor,Sankalp,The Bureau,Dr.R.C.Marg,Chembur,Mumbai Tel. : / / Telefax : info@firstcallindiaequity.com 17

SYNOPSIS. C.M.P: Rs Target Price: Rs Date: July 16 th 2011 BUY

SYNOPSIS. C.M.P: Rs Target Price: Rs Date: July 16 th 2011 BUY SUDARSHAN CHEMICAL INDUSTRIES LTD Result Update: Q4 FY 11 C.M.P: Rs. 760.00 Target Price: Rs. 859.00 Date: July 16 th 2011 BUY Stock Data: Sector: Specialty Chemicals Face Value Rs. 10.00 52 wk. High/Low