Buy Bharat Forge, target price Rs 348: Emkay Global
The brokerage is of the view that near-term woes shall pass for the company.
By ETMarkets.com | Updated:
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Emkay Global has retained its buy rating on Bharat Forge with a target price Rs 348 (Rs 550 earlier), based on 20 times FY22E EPS (25 times earlier) for standalone business and 10 times FY22 EPS (12 times earlier) for subsidiaries. Valuations have notably corrected, with FY21E P/B at 2 timses, versus historical average of 4 times.
Recovery can be gradual in key segments, but the upcycle can last for 3-4 years based on historical trends. Also, there is potential for nascent segments such as defence, aerospace and railways to reach $100 million in revenues over the medium term.
The company’s share price moved up by 19.02 per cent from its previous close of Rs 238.45. The last traded price is Rs 283.80. Incorporated in 1961, Bharat Forge has a market cap of Rs 13215.73 crore.
Investment Rationale
The brokerage is of the view that near-term woes shall pass for the company. The positive view is underpinned on BHFC’s leadership position in automotive forgings, focus on diversification and expected cyclical recovery in the core segments.
A gradual recovery is expected in major segments by FY21 end, led by low base, new products, addition of new customers and gradual pickup in economic activity. In addition, there remains significant growth potential for nascent segments such as defence, aerospace and railways to reach $100 million in revenues over the medium term.
The brokerage expects revenue growth of 4 per cent and earnings growth of 13 per cent over FY20-22E, driven by sales upcycle and margin expansion. The earnings estimates have been reduced by 32 per cent/20 per cent for FY21E/F22E to factor in near-term demand pressures.
Financials
For the quarter ended December 31, 2019, the company reported consolidated sales of Rs 1830.86 crore, down -15.05 per cent from last quarter sales of Rs 2155.20 crore and down -25.70 per cent from last year's same quarter sales of Rs 2463.99 crore. The company reported net profit after tax of Rs 49.04 crore in the latest quarter.
Recovery can be gradual in key segments, but the upcycle can last for 3-4 years based on historical trends. Also, there is potential for nascent segments such as defence, aerospace and railways to reach $100 million in revenues over the medium term.
The company’s share price moved up by 19.02 per cent from its previous close of Rs 238.45. The last traded price is Rs 283.80. Incorporated in 1961, Bharat Forge has a market cap of Rs 13215.73 crore.
Investment Rationale
The brokerage is of the view that near-term woes shall pass for the company. The positive view is underpinned on BHFC’s leadership position in automotive forgings, focus on diversification and expected cyclical recovery in the core segments.
A gradual recovery is expected in major segments by FY21 end, led by low base, new products, addition of new customers and gradual pickup in economic activity. In addition, there remains significant growth potential for nascent segments such as defence, aerospace and railways to reach $100 million in revenues over the medium term.
The brokerage expects revenue growth of 4 per cent and earnings growth of 13 per cent over FY20-22E, driven by sales upcycle and margin expansion. The earnings estimates have been reduced by 32 per cent/20 per cent for FY21E/F22E to factor in near-term demand pressures.
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Financials
For the quarter ended December 31, 2019, the company reported consolidated sales of Rs 1830.86 crore, down -15.05 per cent from last quarter sales of Rs 2155.20 crore and down -25.70 per cent from last year's same quarter sales of Rs 2463.99 crore. The company reported net profit after tax of Rs 49.04 crore in the latest quarter.
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