HSBC upgrades Bharat Forge to buy, raises target price

Mumbai: HSBC has upgraded shares of Bharat Forge to buy from hold and raised target price to Rs 1,110 from Rs 940 following a 2.5-11.3% increase in earnings estimates.

The bank believes that it expects the company's earnings to decline by 24% during FY17 due to declining heavy commercial truck builds in North America, weak oil or share related drilling and slower activity in the construction and mining segment driven by low commodity prices. However, it believes that the business cycle is turning back into favour for Bharat Forge .

"NA Class 8 trucks, oil & gas sector, and commodity and capex cycle are heading for a recovery which shall benefit BHFC (Bharat Forge)," said HSBC.

More than 50% of Bharat Forge's revenues are dependent on commodity and capex cycle. North America Heavy Commercial Vehicles account for 15-20% of revenues for Bharat Forge.

"We believe the company has successfully transitioned to a business model based on product quality and innovation. Also, there is significant flexible capacity that can be used to manufacture products. We expect the company to be net cash by FY18," said HSBC.