Stock Recommendation - Bharat Forge - Reliance Securities

By Mitul Shah, Head of Research, Reliance Securities

Bharat Forge (BHFC) delivered a very strong performance in 4QFY21 with its EBITDA margin coming in at strong 25.5% as against our estimate of 23.3%.

Standalone revenue grew by 26% YoY to Rs13.1bn vs. our estimate of Rs10.5bn due to better-than-expected exports. Its export revenue surged by 43% YoY, while domestic revenue grew by just 10% YoY.

EBITDA margin expanded by 870bps YoY and 300bps QoQ to 25.5% led by better-than-expected top-line and improved gross margin.

Adjusted PAT grew by 9x YoY and ~100% QoQ to Rs1.8bn as against our estimate of Rs1.3bn owing to higher operating margin.

Our View: Strong rebound in automobile business post major slump and strong double-digit growth in high-margin engineering business will be the key triggers for BHFC's earnings and valuation re-rating close to engineering conglomerates, going forward. Its standalone and consolidated margins are expected to improve by 660bps (270bps below peak) and 950bps (160bps below peak), respectively over FY20-FY23E. We expect healthy growth in domestic M&HCV industry as well as strong volume from Class 8 trucks in FY22E. BHFC's leadership position in automotive forgings, focus on diversification and expected cyclical recovery in the core segments vindicate our positive view. BHFC's re-rating would continue and it would start trading at its historical up-cycle multiple of 35x. The stock continues to remain our top investment idea. We reiterate BUY on BHFC with a 2-Year Target Price of Rs690. Considering BHFC's steadily improving performance and likely further rerating, we would revisit our estimates and TP in our detailed note to be released soon.

Shares of Bharat Forge Limited was last trading in BSE at Rs. 689.60 as compared to the previous close of Rs. 668.75. The total number of shares traded during the day was 34663 in over 1466 trades.

The stock hit an intraday high of Rs. 693.75 and intraday low of 667.85. The net turnover during the day was Rs. 23651777.00.

Source : Equity Bulls

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BharatForge INE465A01025 StockRecommendation RelianceSecurities