BUY CMP 412.60 Target Price 454.00 BHARAT FORGE LTD Result Update: Q3 FY14 MARCH 26 th 2014 ISIN: INE465A01025 Index Details Stock Data Sector Industrial Products BSE Code 500493 Face Value 2.00 52wk. High / Low (Rs.) 421.00/185.55 Volume (2wk. Avg.) 66000 Market Cap (Rs. in mn.) 96073.91 Annual Estimated Results (A*: Actual / E*: Estimated) YEARS FY13A FY14E FY15E Net Sales 31512.30 33174.72 35165.20 EBITDA 8177.70 9591.38 10336.51 Net Profit 3055.90 3758.44 4115.94 EPS 13.12 16.14 17.68 P/E 31.44 25.56 23.34 Shareholding Pattern (%) 1 Year Comparative Graph BHARAT FORGE LTD S&P BSE SENSEX SYNOPSIS Bharat Forge Ltd. (BFL), the flagship company of the USD 2.5 billion Kalyani Group is a global provider of high performance, innovative, safety & critical components and solutions to various industries. The company s net profit jumps to Rs. 939.70 mn against Rs. 475.20 mn in Q3 FY13, an increase of 97.75%. Revenue for the quarter rose by 23.72% to Rs. 8320.80 mn from Rs. 6725.70 mn, when compared with the prior year period. EBITDA for Q3 grew by 54.7% to Rs. 2144.8 mn compared to Q3 FY13. EBITDA margins expanded by 520 bps on back of improvement in turnover. PBT before Exchange gain/ (loss) increased by 119.1% in Q3 FY14 to Rs 1,413 mn compared to Q3 FY13. Bharat Forge has declared an interim dividend of Rs. 2/- per share on the face value of Rs. 2/- each for the financial year 2013-14. BFL Q3 shipment tonnage at 42,702 tons and increased by about 14% compared to Q3 FY13. The Company continues to win new orders across auto & non-auto segments. During Q3 FY14, the International operations have registered strong performance driven by cost controls, productivity improvements and innovative new products Operating Profit and PAT of the company are expected to grow at a CAGR of 4% and 4% over 2012 to 2015E respectively. PEER GROUPS CMP MARKET CAP EPS P/E (X) P/BV(X) DIVIDEND Company Name (Rs.) Rs. in mn. (Rs.) Ratio Ratio (%) Bharat Forge Ltd 412.60 96073.91 13.12 31.44 4.16 170.00 Ahmednagar Forgings Ltd 129.15 4746.30 40.33 3.20 0.52 10.00 Carborundum Universal Ltd 138.70 26040.40 3.62 38.31 3.80 125.00 Grindwell Norton Ltd 279.85 15492.50 15.52 18.03 2.97 130.00
Recommendation & Analysis - BUY Bharat Forge Ltd (BFL) continues to do well despite the domestic slowdown because of a diversified product mix and strategic entry in to the non-automotive sectors in 2008. The Company continues to win new orders across auto & non-auto segments. Revenues increased by 23.7% in Q3 FY14 to Rs. 8320.8 mn as compared to Q3 FY13 on back of 54.5% increase in export revenues. EBITDA for Q3 grew by 54.7% to Rs. 2144.8 mn compared to Q3 FY13. EBITDA margins expanded by 520 bps on back of improvement in turnover. PBT before Exchange gain/ (loss) increased by 119.1% in Q3 FY14 to Rs 1,413 mn compared to Q3 FY13. PAT for the quarter at Rs. 939.7 mn grew by 97.75% compared to Q3 FY13. In the quarter gone by, sales developed in line with expectations while it witnessed a strong improvement over the weak 3 rd quarter previous year. The International operations have also registered strong performance driven by cost controls, productivity improvements and innovative new products. Looking ahead, the company will see demand levels across geographies stabilizing with an upward bias. Overall demand is expected to be moderately better in Q4 FY14 driven by exports & early signs of recovery in India. Over FY2012-15E, we expect the company to post a CAGR of 4% and 4% in its EBIDTA and net profit respectively. Hence, we recommend BUY for Bharat Forge Ltd with a target price of Rs.454.00 for medium to long term investment. QUARTERLY HIGHLIGHTS (STANDALONE) Results updates- Q3 FY14, Bharat Forge Ltd (BFL) is a global provider of high performance, innovative, safety & critical components and solutions to various industry sectors including Automotive, Construction & Mining, Agriculture components, Oil and Gas, Power, Locomotive and Marine, Aerospace. It is one of the largest global Engine and Chassis components manufacturers, reported its financial results for the quarter ended 31 st Dec, 2013. Months Dec-13 Dec-12 % Change Net Sales 8320.80 6725.70 23.72 PAT 939.70 475.20 97.75 EPS 4.04 2.04 97.75 PBIDT 2398.70 1618.30 48.22 The company s net profit jumps to Rs. 939.70 million against Rs. 475.20 million in the corresponding quarter ending of previous year, an increase of 97.75%. Revenue for the quarter rose by 23.72% to Rs. 8320.80 million from Rs. 6725.70 million, when compared with the prior year period. Reported earnings per share of the company stood at Rs. 4.04 a share during the quarter, registering 97.75% increase over previous year period. Profit before interest, depreciation and tax is Rs. 2398.70 million as against Rs. 1618.30 million in the corresponding period of the previous year.
Break up of Expenditure Break up of Expenditure Rs. In Millions Q3 FY14 Q3 FY13 Cost of Material Consumed 3401.40 2713.20 Employee Benefit Expenses 697.10 629.60 Depreciation & Amortization Expenses 616.60 574.20 Manufacturing expenses 1600.90 1325.20 Other Expenses 682.30 442.30 Segment Revenue Latets Updates Bharat Forge Ltd has declared an interim dividend for the financial year 2013-14 at the rate of Rs. 2/- per share (100% on the face value of Rs. 2/- each). Bharat Forge Hongkong Limited is a indirect subsidiary of Bharat Forge Ltd in Hong Kong has divested its 51.85% stake in its Chinese JV operations (FAW Bharat Forge (Changchun) Company Limited) to its Joint Venture partner, China FAW Corporation Limited, for US$ 28.208 mn (Rs. 1750 mn) ending its 8 years old Joint Venture in China.
BFL Q3 shipment tonnage at 42,702 tons was flat compared to the previous quarter while it increased by about 14% compared to Q3 FY13 despite the domestic CV market witnessing the worst quarter in the last 2 years. The Wholly Owned Subsidiaries have recorded another strong performance driven by concentrated focus on productivity & cost control. Total Income grew by 34.5% while EBITDA grew by an impressive 121.8%. EBITDA margins at 8.6% during the quarter expanded by 340 bps. The operations registered PAT of Rs. 133 million as against a loss of Rs. 56 million in the corresponding period previous year. Bharat Forge Ltd has earned recognition as a Partner-level supplier for 2013 in the John Deere Achieving Excellence Program. The Partner-level status is Deere & Company s highest supplier rating. COMPANY PROFILE Bharat Forge Limited (BFL), the Pune based Indian multinational is a technology driven global leader in metal forming having transcontinental presence across eight manufacturing locations, serving several sectors including automotive, power, oil and gas, construction & mining, locomotive, marine and aerospace. Part of Kalyani Group - a USD 2.5 billion conglomerate with 10,000 global work force; BFL today has the largest repository of metallurgical knowledge in the region and offers full service supply capability to its geographically dispersed marquee customers from concept to product design, engineering, manufacturing, testing and validation. The world's largest forging company with manufacturing facilities spread across India, Germany and Sweden, Bharat Forge manufactures a wide range of high performance, critical & safety components for the automotive & non-automotive sector. It is India's largest manufacturer and exporter of automotive components and leading chassis component manufacturer in the world. BFL's customer base includes virtually every global automotive backed by several decades of experience in component manufacturing & metallurgy, the company is now looking beyond automotive and has embarked on an ambitious and exciting journey to redefine its already existing presence across several critical business verticals such as oil & gas, power, locomotive & marine, aerospace, metals & mining, construction and general engineering. Bharat Forge will use its strong platform of metallurgical knowledge, design & engineering capability and manufacturing prowess, to create a strong position for itself in these sectors. Expanding into new horizons will give Bharat Forge a completely new growth perspective. It will begin the transformation of the company from an auto component supplier to an engineering company with diverse complementary businesses in new high growth sectors.
Subsidiary Companies CDP Bharat Forge GmbH Bharat Forge America Inc. BF-NTPC Energy Systems Limited Kalyani ALSTOM Power Limited BF Infrastructure Limited BF Infrastructure Ventures Limited BF Power Equipment Limited BF Elbit Advanced Systems Private Limited Kalyani Polytechnic Private Limited
FINANCIAL HIGHLIGHT (STANDALONE) (A*- Actual, E* -Estimations & Rs. In Millions) Balance Sheet as at March31, 2012-2015E SOURCES OF FUNDS Shareholder's Funds FY12A FY13A FY14E FY15E Share Capital 465.70 465.70 465.70 465.70 Reserves and Surplus 20965.27 22645.64 26404.04 30519.98 1. Sub Total - Net worth 21430.97 23111.34 26869.74 30985.68 Non Current Liabilities Long Term Borrowing 16003.97 14489.80 14779.60 15075.19 Deferred Tax Liabilities 1271.52 1364.29 1609.86 1770.85 Other Long term Liabilities 7.15 7.40 6.29 6.79 Long Term Provisions 327.90 332.92 349.57 370.54 2. Sub Total - Non Current Liabilities 17610.54 16194.41 16745.31 17223.37 Current Liabilities Short term borrowings 840.98 390.11 2050.15 2296.17 Trade Payables 6656.17 4541.14 4359.49 4446.68 Other Current Liabilities 5375.78 6282.11 7978.28 9015.46 Short Term Provisions 1367.26 908.04 998.84 1078.75 3. Sub Total - Current Liabilities 14240.19 12121.40 15386.77 16837.06 Total Liabilities (1+2+3) 53281.70 51427.15 59001.82 65046.11 APPLICATION OF FUNDS Non-Current Assets Fixed Assets Tangible assets 17961.99 19988.08 22602.12 24862.33 Capital Work in Progress 2887.57 2228.06 2539.99 2768.59 a) Sub Total - Fixed Assets 20849.56 22216.14 25142.11 27630.92 b) Non- Current Investments 5115.52 5453.46 5726.13 5955.18 c) Long Term loans and advances 4036.89 3863.35 3631.55 4067.33 d) Other non-current assets 588.05 423.89 402.70 442.97 1. Sub Total - Non Current Assets 30590.02 31956.84 34902.49 38096.40 Current Assets Current Investment 4246.97 3852.99 7855.50 9112.38 Inventories 5031.34 4757.01 4661.87 5034.82 Trade receivables 4911.75 4742.32 5216.55 5633.88 Cash and Bank Balances 5005.94 2790.78 2455.89 2775.15 Short-terms loans & advances 2702.42 2570.55 2956.13 3281.31 Other current assets 793.26 756.66 953.39 1112.18 2. Sub Total - Current Assets 22691.68 19470.31 24099.33 26949.71 Total Assets (1+2) 53281.70 51427.15 59001.82 65046.11
Annual Profit & Loss Statement for the period of 2012 to 2015E Value(Rs.in.mn) FY12A FY13A FY14E FY15E Description 12m 12m 12m 12m Net Sales 36859.80 31512.30 33174.72 35165.20 Other Income 661.00 916.30 1085.06 1193.56 Total Income 37520.80 32428.60 34259.77 36358.76 Expenditure -28396.30-24250.90-24668.39-26022.25 Operating Profit 9124.50 8177.70 9591.38 10336.51 Interest -1504.60-1533.60-1526.63-1587.70 Gross profit 7619.90 6644.10 8064.75 8748.82 Depreciation -2149.30-2239.40-2508.60-2709.28 Profit Before Tax 5470.60 4404.70 5556.16 6039.53 Tax -1849.90-1348.80-1797.72-1923.59 Net Profit 3620.70 3055.90 3758.44 4115.94 Equity capital 465.70 465.70 465.70 465.70 Reserves 20965.30 22645.60 26404.04 30519.98 Face value 2.00 2.00 2.00 2.00 EPS 15.55 13.12 16.14 17.68 Quarterly Profit & Loss Statement for the period of 30 th June, 2013 to 31 st March, 2014E Value(Rs.in.mn) 30-Jun-13 30-Sep-13 31-Dec-13 31-Mar-14E Description 3m 3m 3m 3m Net sales 7915.60 8451.10 8320.80 8487.22 Other income 354.20 212.90 253.90 264.06 Total Income 8269.80 8664.00 8574.70 8751.27 Expenditure -5954.60-6223.30-6176.00-6314.49 Operating profit 2315.20 2440.70 2398.70 2436.78 Interest -354.30-393.50-399.40-379.43 Gross profit 1960.90 2047.20 1999.30 2057.35 Depreciation -610.70-627.70-616.60-653.60 Profit Before Tax 1350.20 1419.50 1382.70 1403.76 Tax -444.20-455.70-443.00-454.82 Net Profit 906.00 963.80 939.70 948.94 Equity capital 465.70 465.70 465.70 465.70 Face value 2.00 2.00 2.00 2.00 EPS 3.89 4.14 4.04 4.08
Ratio Analysis Particulars FY12A FY13A FY14E FY15E EPS (Rs.) 15.55 13.12 16.14 17.68 EBITDA Margin (%) 24.75% 25.95% 28.91% 29.39% PBT Margin (%) 14.84% 13.98% 16.75% 17.17% PAT Margin (%) 9.82% 9.70% 11.33% 11.70% P/E Ratio (x) 26.53 31.44 25.56 23.34 ROE (%) 16.89% 13.22% 13.99% 13.28% ROCE (%) 29.45% 27.42% 27.69% 26.98% Debt Equity Ratio 0.79 0.64 0.63 0.56 EV/EBITDA (x) 11.83 13.23 11.52 10.71 Book Value (Rs.) 92.04 99.25 115.40 133.07 P/BV 4.48 4.16 3.58 3.10 Charts
OUTLOOK AND CONCLUSION At the current market price of Rs.412.60, the stock P/E ratio is at 25.56 x FY14E and 23.34 x FY15E respectively. Earning per share (EPS) of the company for the earnings for FY14E and FY15E is seen at Rs.16.14 and Rs.17.68 respectively. Operating Profit and PAT of the company are expected to grow at a CAGR of 4% and 4% over 2012 to 2015E respectively. On the basis of EV/EBITDA, the stock trades at 11.52 x for FY14E and 10.71 x for FY15E. Price to Book Value of the stock is expected to be at 3.58 x and 3.10 x respectively for FY14E and FY15E. We recommend BUY in this particular scrip with a target price of Rs.454.00 for Medium to Long term investment. INDUSTRY OVERVIEW India s automobile industry India s automobile industry faced significant headwinds in 2012-13, owing to high interest rates, rising energy prices and spiralling inflation. Besides, poor consumer sentiment added to the sector s woes. Only the utility vehicle segment witnessed robust growth, on back of strong demand and new product introduction. However, the country s long-term automobile industry outlook remains optimistic, with favourable demographics, scope for penetration and rising disposable income expected to drive future growth.
Industrial, Capital goods & infrastructure India s power (wind and thermal), and capital goods industries witnessed a considerable decline. The capital goods and infrastructure business segments are important aspect of the Company s plan to grow with India s expanding economy. India s annual capital goods demand exceeds Rs. 300,000 crore. (Source: Ministry of Heavy Industries) However, only one-third of this is met domestically, with the rest being supported by imports. A robust capital goods industry, which caters to 15 percent of India s GDP, will drive sustainable growth in manufacturing. Outlook Economic uncertainties, along with a decline in automotive and industrial sectors in its primary markets, namely India, the US and the Eurozone nations, adversely impacted BFL s performance in FY13. Despite the Company s recovery initiatives through cost control and increased productivity, the domestic as well as export outlook for FY14 remain sluggish. 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.
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