RESULT UPDATE 9 th November 2017
Nov-14 May-15 Nov-15 May-16 Nov-16 May-17 Nov-17 160 130 100 India Equity Institutional Research II Result Update Q2FY18 II 9 th November, 2017 CMP INR 738 Target INR 840 Result highlights Bharat Forge Limited s (BFL) Net Sales in Q2FY18 stood at INR 12,580 Mn which was up by 34.42% y-o-y and remained flat as compared to Q1FY18. Top line growth of the company was driven by 40.9% growth in passenger vehicle segment and 36.5% growth in commercial vehicle segment. EBIDTA stood at INR 3,694 Mn which grew by 49.17% y-o-y and 10.84% q-o-q. EBIDTA margin came in at 29.4% which were above our estimate of 25.5%. EBIDTA margins reported robust growth of 290 bps y-o-y and 287 bps q-o-q. PAT stood at INR 1,592 Mn which de-grew by 11.19% y-o-y but increased by 5.90% q-o-q. PAT was affected mainly on account of increase in Tax provision by 70.52% y-o-y. PAT Margin stood at 16.2% against our estimates of 13.8%. PAT margins improved by 264bps y-o-y and 227bps q-o-q. 70 MARKET DATA Shares outs (Mn) 466 Equity Cap (INR Mn) 931 Mkt Cap (INR Mn) 339065 52 Wk H/L (INR) 738/383 Volume Avg (3m K) 1840.0 Face Value (INR) 2 Bloomberg Code SHARE PRICE PERFORMANCE Sensex MARKET INFO Potential Upside 13.8% BHFC IN Bharat Forge SENSEX 33219 NIFTY 10303 Market Cap (INR Mn) 339,065 KEY FINANCIALS Pickup in exports and new business to drive the growth Recommendation ACCUMULATE Sector AUTO Particulars (INR Mn) FY16 FY17 FY18E FY19E FY20E Net Sales 68091.5 63961.44 68771.1 75691.95 84825.34 EBITDA 14286.5 12634.53 13920.65 15214.08 17092.31 PAT 6657.5 6030.04 7498.086 8901.515 10559.65 EPS 28.6 25.9 16.1 19.1 22.7 OPM (%) 20.98% 19.75% 20.24% 20.10% 20.15% NPM (%) 9.78% 9.43% 10.90% 11.76% 12.45% PE (x) 25.8 28.5 45.8 38.6 26.4 Robust growth in exports, passenger vehicle segment and US markets aided the top line growth : BFL posted a top-line of INR 12,580 Mn in Q2FY18 reporting a robust growth of 34.42%. While, the domestic business of the company grew by 26.0% y-o-y, exports of the company reported a robust growth of 56%. Company witnessed about 97.4% y-o-y increase in sales from American markets, on the back of revival in demand from all sectors but majorly on account of revival in demand for class-8 trucks. The company s passenger vehicle segment also reported a growth of 40.9% y-o-y and Commercial vehicles grew by 36.5% y-o-y. BFL gearing up for E-vehicles and BS-VI variant: BFL acquired 100 acres land in Andhra Pradesh for setting up Light weight technology (LWT) manufacturing facility to carter the needs from BS IV to BS VI in India and also growing buzz for EV. This facility will focus on producing aluminum and magnesium components and products for various sectors like automotive, industrial, aerospace etc. BFL is planning to invest INR 2,000 Mn in phase-1 of this new plant, Also the management of the company aims at ramping up the production at this new facility by end of FY19. Hence we expect Top line to grow at a CAGR of 10% from FY17 to F20E EBIDTA margins to remain under pressure, while PAT margins likely to improve : Going forward we believe company to post EBIDTA of INR 17,092.31 Mn in FY20 as against INR 12,634.53 Mn in FY17 reporting a CAGR of 11%. However EBIDTA margins are likely to remain stagnant account of increase in company s spending in R&D, also increase in input costs are likely to keep EBIDTA margins under pressure. PAT margins are likely to improve from 9.43% in FY17 to 12.45% in FY20 on back of reduction in interest cost and increase in other income. Valuations & Views: We remain optimistic on BFL on back of company s revival in demand from US, improving sentiments globally and revival in crude and commodity linked economies should result in healthy order inflow for company. We have assigned a P/E of 30x for FY20 EPS of INR 28. At the current market price of INR 738, the stock is trading at 28.5x FY17 EPS of INR. 25.9, 45.8x on FY 18 EPS of 16.1, 38.6x FY19E EPS of INR 19.1 and 26.4x on FY 20 EPS of 28. We recommend a Accumulate rating on the stock and value the stock at 30x FY20E EPS of INR 28 with a target price of INR 840 showing an upside of 13.8%. 2 SHARE HOLDING PATTERN (%) Particulars Sep 17 Jun 17 Mar 17 Promoters 45.75 45.75 45.75 FIIs 20.58 19.77 15.18 DIIs 12.52 15.69 19.77 Others 21.17 18.81 19.3 Total 100 100 100 10.0% Revenue CAGR between FY 17 and FY 20E 20.5% PAT CAGR between FY 17 and FY 20E
Q2FY18 Result Snapshot Exhibit 1 Standalone Result Update (INR Mn) 3 Particulars Q2 FY18 Q1 FY18 Q2 FY17 Q-o-Q change % Y-o-Y change % Gross Sales 12580 12578 9359 0.02% 34.42% Sales & Other Operating Income 12580 12578 9359 0.02% 34.42% Total Expenditure 8886 9245 6882-3.88% 29.11% (Increase) / Decrease In Stocks -98 83-103 -219.01% -4.84% Cost of Raw Materials 4507 4125 3172 9.26% 42.12% Employee Cost 1071 1064 904.2 0.59% 18.39% Excise duty paid on sales 570 450-100.00% -100.00% Other Expenses 3406 3403 2460 0.10% 38.48% PBIDT (Excl OI) 3694 3333 2477 10.84% 49.17% EBITDA Margins (%) 29.4% 26.5% 26.5% 287bps 290bps Depreciation 781 774 726.1 0.92% 7.57% EBIT & Exceptional Item 2913 2559 1751 13.84% 66.42% Other Income 366 259 309.1 41.19% 18.44% EBIT 3279 2818 2060 16.36% 59.22% Interest 217 185 189.4 16.88% 14.41% EBT 3063 2633 1870 16.32% 63.75% Tax 1026 882 601 16.24% 70.52% Net Profit from ordinary activity after tax 2037 1751 1269 16.36% 60.55% Other Comprehensive Income -445-247 523.80 79.91% -184.98% PAT 1592 1503 1793 5.90% -11.19% PAT Margin (%) 16.2% 13.9% 13.6% 227bps 264bps EPS 4.37 3.76 2.72 16.22% 60.66% Key Con-call Highlights: BFL acquired 100 acres land in Andhra Pradesh for setting up Light weight technology (LWT) manufacturing facility. This facility will focus on producing aluminum and magnesium components and products for various sectors like automotive, industrial, aerospace etc. BFL will invest INR 2,000 Mn in phase-1 of this new plant, Also the management of the company aims at ramping up the production at this new facility by end of FY19. Currently the production capacity of the company for forging stands at 75% and machining capacity stands at 80%. Company s other expenses in Q2FY18 were on higher side, the management stated these are one off expenses which mainly relate to forex. BFL s management specified that in H1FY18 industry de grew by 20%, where as Bharat Forge reported a growth of 12% The company is actively working for manufacturing new technology for e-vehicles and also for BS-VI vehicles. BFL has been working on prototypes for their global customers. Going forward the management expects company to see continued improvement on back of increase in demand across geographies, better product mix, and new customers.
4 Key Financials Exhibit 2: Income Statement Total Sales 67158.5 76222.0 76465.3 63961.5 Total Raw Materials 24609.0 28825.7 26017.4 24357.8 COGS 28995.6 33554.8 30233.5 24357.8 EBITDA 9904.3 14367.4 14132.9 12510.6 Depreciation 3571.5 3623.3 4187.2 4520.5 Interest & Finance charges 1691.5 1355.8 1402.6 999.6 Other Income 2283.9 1794.1 1335.5 1192.8 Extraordinary items 0.0 0.0 0.0 1284.3 EBT (as reported) 6925.2 11182.4 9878.6 9467.6 Tax 2100.1 3586.9 3408.4 2491.7 PAT 4825.1 7595.5 6470.2 6975.9 Min. Int. -160.4-29.8-29.6 61.0 Share in gain/loss of assoc. 0.0 0.0 0.0 1167.7 RPAT 4985.5 7625.3 6499.8 8082.6 Extraordinaries adj. 485.9 316.7-63.6 0.0 APAT 4499.6 7308.6 6563.4 8082.6 RPAT after pref. div. 4985.5 7625.3 6499.8 8082.6 APAT after pref. div. 4499.6 7308.6 6563.4 8082.6 Exhibit 3: Balance Sheet Equity Share Capital 465.7 465.7 465.7 465.7 Reserves 26366.7 33976.0 35291.9 40698.0 Net worth 26832.4 34441.7 35757.6 41163.7 Minority Interest 170.2 0.0 0.0 100.4 Total loans 25613.1 25464.2 29594.9 23212.5 Deferred tax liability (Net) 1644.6 1637.6 1830.9 2606.2 Capital Employed 55598.3 63335.9 69598.5 68967.6 Gross Block 53944.6 56983.6 70719.8 72095.6 Depreciation 28604.3 30696.8 35366.2 39886.7 Net block 25340.3 26286.8 35353.6 32208.9 CWIP 5826.7 8696.4 5827.7 3997.3 Goodwill 0.0 0.0 0.0 424.2 Intangible 0.0 0.0 0.0 669.3 Investments 8012.0 4955.4 8037.1 3683.8 Inventories 10385.8 10339.0 11825.7 10752.0 Sundry debtors 8659.7 8534.7 11464.2 13410.7 Cash and bank 4227.4 6819.9 4755.1 3360.9 Loans and advances 10270.2 14071.5 9092.9 392.0 Other Current Assets 0.0 0.0 0.0 6053.3 Total Current assets 33543.1 39765.1 37137.9 42203.5 Total Current liabilities 19746.9 19023.2 19918.0 19439.8 Net Current assets 13796.2 20741.9 17219.9 22763.7 Capital Deployed 55598.3 63335.9 69598.5 68967.6
Exhibit 4 : Cash flow statement PAT 7595.5 6470.2 6975.9 0.0 Depriciation & Amortization 1230.8 2092.5 4669.4 4520.5 Incr/(Decr) in Deferred Tax Liability 299.2-7.0 193.3 775.3 (Incr)/Decr in Working Capital -2463.3-4353.2 1457.2-6938.0 Cash Flow from Operating 3731.4 5298.0 12760.5 5394.7 (Incr)/ Decr in Gross PP&E 2527.4-3039.0-13736.2-1375.8 (Incr)/Decr In Work in Progress 497.4-2869.7 2868.7 1830.4 (Incr)/Decr In Investments -3852.4 3056.6-3081.7 4353.3 (Incr)/Decr in Other Non-Current Assets -15.4-32.3-504.8-3153.7 Cash Flow from Investing -843.0-2884.4-14454.0 1654.2 (Decr)/Incr in Debt -2346.0 305.5 4753.4-6912.7 (Decr)/Incr in Minority Int. -1311.9-140.4 29.6 39.4 (Decr)/Inc in Other reserves -4825.1-7595.5-6470.2-6975.9 Dividend 0.0 0.0 0.0 0.0 Cash Flow from Financing -4214.5 178.9-371.3-8443.1 Incr/(Decr) in Balance Sheet Cash -1326.1 2592.5-2064.8-1394.2 Cash at the Start of the Year 5553.5 4227.4 6819.9 4755.1 Cash at the End of the Year 4227.4 6819.9 4755.1 3360.9 5 Exhibit 5 : Ratio Analysis Growth (%) Total Sales 30.0 13.5-10.7-6.1 EBITDA 42.9 45.1-0.6-11.6 APAT 54.5 62.4-8.9-9.4 Profitability (%) EBITDA Margin 14.7 18.8 21.0 19.8 Adj. Net Profit Margin 6.7 9.6 9.8 9.4 ROIC 7.8 11.9 9.6 7.9 ROE 18.2 23.9 19.4 26.1 Per Share Data (Rs.) AEPS 19.3 31.4 28.6 25.9 Reported CEPS 37.5 48.1 48.2 49.0 BVPS 115.2 147.9 146.6 174.8 Valuations (x) PER (x) 38.2 23.5 25.8 28.5 PEG (x) 0.7 0.4 (2.9) (3.0) P/BV (x) 6.4 5.0 5.0 4.2 EV/EBITDA (x) 20.0 13.7 14.4 16.1 EV/Net Sales (x) 2.9 2.6 3.0 3.2 Dividend Yield (%) 0.0 0.0 0.0 0.0 Turnover days Debtor Days 45.2 41.2 47.7 71.0 Payable Days 257.1 210.9 235.1 294.9 Gearing Ratio D/E 1.0 0.7 0.8 0.6
6 Rating Legend Date CMP (INR) TP (INR) Recommendation Our Rating Upside 09-Nov-17 738 840 ACCUMULATE Buy More than 15% 11-Aug-17 1165 1267 ACCUMULATE Accumulate 5% 15% 25-May-17 1114 1177 ACCUMULATE Hold 0 5% 09-Feb-17 967 1126 BUY Reduce -5% 0 09-Nov-16 850 924 ACCUMULATE Sell Less than 5% 08-Aug-16 814 924 ACCUMULATE CERTIFICATION: We, Ankit Merchant (M.Com, BMS), research analyst and Udit Gaijiwala (B.Com), research associate, author and the name subscribed to this report, hereby certify that all of the views expressed in this research report accurately reflect my views about the subject issuer(s) or securities. I also certify that no part of our compensation was, is, or will be directly or indirectly related to the specific recommendation(s) or view(s) in this report. Terms & Conditions and other disclosures: KRChoksey Shares and Securities Pvt. 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