Buy Bharat Forge For A Gain of 23% In 1 Year Says ICICI Direct

ICICI Direct has made a buy recommendation on Bharat Forge's stock, with a target price of Rs 950. The stock is now trading at a market price of Rs 775, and the brokerage expects a decent gain of 23% over the next year. Bharat Forge Ltd. is a world-class technology-driven engineering company with over 50 years of expertise in the manufacturing of high-performance, critical, and safety components. Bharat Forge is India's largest automotive forging firm, manufacturing and exporting automotive components as well as being the world's leading maker of chassis components. With 10 manufacturing centers in India, Germany, Sweden, France, and North America, the company has a worldwide presence.

Q2FY22 results of Bharat Forge

According to ICICI Direct, the company's "Standalone revenues came in at Rs 1,607 crore (up 17.1% QoQ), amid 6.7% tonnage growth to 57,094 MT. The growth was led by India operations where revenues grew 40.3% to Rs 620 crore (CV up 30.5%, PV up 35%, industrial up 62.8%). Export revenues rose 4.2% QoQ to Rs 954 crore (CV up 5.3%, PV down 32.9%, industrials up 22%)."

The brokerage has stated that the company's "Standalone EBITDA for the quarter was at Rs 485 crore, with consequent margins at 30.2% (up 168 bps QoQ). Margin performance was positively impacted by operating leverage, with gross margin contraction at 170 bps vs. our expectation of ~30 bps."

ICICI Direct has reported in its research report that the company's "standalone PAT was at Rs 311.7 crore, up 87.1% QoQ, aided by lower effective tax rate for the quarter at 22.2%. At the consolidated level, the company reported a share of loss from subsidiaries/associates at Rs 10.7 crore vs. loss of Rs 9.1 crore in Q1FY22."

Key triggers for future price performance of Bharat Forge according to ICICI Direct

• Expected cyclical rebound in India CV, US Class 8 truck revival, healthy outlook for PV segment across geographies and pick-up in drilling activity amid higher oil prices lead to robust 32% FY21-23E net sales CAGR.
• Defence, e-mobility, aluminium growth to de-risk away from CV, oil & gas.
• Operating leverage, mix improvement to expand margins to 21.8% (FY23E).

Buy Bharat Forge with a target price of Rs 950

According to the brokerage "BFL's share price has grown at ~12% CAGR over the past five years (from ~Rs 450 in November 2016), outperforming Nifty Auto index."

"We retain BUY rating on BFL, tracking strong demand across user segments. We value the company at a revised target price of Rs 950 i.e. 36x P/E on FY23E EPS of Rs 26.4/share (earlier target price Rs 1,000)" said ICICI Direct in its research report.

Disclaimer

This stock is picked from the brokerage report of ICICI Direct. Investing in equities poses a risk of financial losses. Investors must therefore exercise due caution. Greynium Information Technologies, the author, and the brokerage house are not liable for any losses caused as a result of decisions based on the article.