Bharat Forge - From bad to worse - AXIS Capital

Sharp decline in tonnage (32% YoY and 19% QoQ) to 37,483 tons led to a disappointing Q3 for Bharat Forge Ltd (BFL). EBIDTA (Rs 1.4bn) and PAT (Rs 475 mn) were 31% and 53% below estimate. India business was affected due to steep fall in OEM demand; exports too were affected due to destocking at BFL and its customers. Only positive was 40 bps QoQ improvement in gross margin to 56.8% despite lower machining mix.

Management expects pressure to continue across geographies for two quarters post which it sees a gradual recovery in demand. We lower our FY13 and FY14 EPS by 57% and 50% to Rs 6 and Rs 10 to factor in lower volumes. We introduce FY15 estimates and roll over our valuation to FY15E EPS of Rs 15. Downgrade to HOLD with revised SOTP-based TP of Rs 222.

Source : Equity Bulls

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