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Bharat Forge – BUY‘Diversification Gains’
June 27, 2011
Sector: Auto components Sensex: 18,241
CMP (Rs): 300
Target price (Rs): 353
Upside (%): 17.5
52 Week h/l (Rs): 413 / 280
Market cap (Rscr) : 6,992
6m Avg vol (‘000Nos): 392
No of o/s shares (mn): 233
FV (Rs): 2
Bloomberg code: BHFC IB
Reuters code: BFRG.BO
BSE code: 500493
NSE code: BHARATFORG
Prices as on 24 Jun, 2011
Shareholding pattern March '11 (%)
Promoters 42.1
Institutions 32.1
Non promoter corp hold 10.5
Public & others 15.4
Performance rel. to sensex (%) 1m 3m 1yr
BFL (3.1) (12.5) (0.8)
Bosch (0.5) 13.7 24.2
MSSL (4.0) 5.2 47.5
Amtek Auto (3.8) 9.5 (9.9)
Share price trend
75
100
125
150
Jun-10 Oct-10 Feb-11 Jun-11
Bharat Forge Sensex
Research Analyst Prayesh Jain [email protected]
Non-auto business to drive growth in the near term Contribution of non-auto business to Bharat Forge Ltd (BFL) standalone revenue has increased from 30% in FY10 to 37% in FY11. The segment caters to the needs of oil and gas, power, aerospace and mining sectors. With substantial capex seen across all these segments in the medium term, we expect non-auto contribution to BFL revenues to increase further to about 50% over the next couple of years. With utilization at 50% levels no major capex is envisaged for the segment in the medium term.
Domestic auto business to witness a slowdown Since March 2010, Reserve Bank of India has raised the repo rate 10 times resulting in hardening of interest rates. Contribution of financed Commercial Vehicles (CV) sales to total volumes is more than 90%. Furthermore, the industrial activity in the country has not kept pace with expectations. This has resulted in a slowdown in CV volumes. If diesel prices are raised further, economics for fleet operators will worsen. We expect CV volume growth to be at 10% following 38% and 27% in FY10 and FY11 respectively. With CVs accounting for bulk of the revenues of BFL’s automotive segment, domestic auto business will slow down.
US and Europe auto business seeing a decent recovery Following the financial crisis in 2008, CV volumes in US and Europe witnessed a marked slowdown. CV sales in Europe declined by 10% in CY08 and 21% in CY09, while in US, the fall was steeper at 25% in CY08 and 22% in CY09. Since then volumes have recovered following some signs of economic recovery and replacement demand increasing. Foreign subsidiaries of BFL achieved break-even in FY11 and are likely to see improved profitability in FY12 and FY13.
Valuations at reasonable levels, Recommend BUY BFL currently trades at EV/EBIDTA of 7x on FY13E EBIDTA of Rs11.8bn. Over the past six months, the stock has corrected by 28% owing to a slowdown in domestic CV sales and widening impact of European debt crisis. We believe the European CV volume growth recovery would continue, while domestic automotive business impact would be more than offset by the surge in non-automotive revenues. Considering a PAT CAGR of 42% during FY11-13E, we find the current valuations reasonable and recommend BUY with a 9-month price target of Rs353 (EV/EBIDTA of 8x on FY13E EBIDTA).
Financial summary Y/e 31 Mar (Rs m) FY10 FY11E FY12E FY13E Revenues 33,276 50,873 60,082 68,233 yoy growth (%) (30.3) 52.9 18.1 13.6 Operating profit 3,385 7,851 10,407 11,793 OPM (%) 10.2 15.4 17.3 17.3 Pre-exceptional PAT 153 2,976 5,080 5,839 Reported PAT (634) 2,899 5,080 5,839 yoy growth (%) - - 75.2 14.9 EPS (Rs) 0.7 12.8 21.8 25.1 P/E (x) 436.4 23.5 13.8 12.0 P/BV (x) 4.6 3.6 2.8 2.7 EV/EBITDA (x) 24.6 10.9 7.8 7.0 Debt/Equity (x) 1.5 1.0 0.6 0.6 ROE (%) 1.0 17.4 23.0 23.2 ROCE (%) 3.6 14.9 19.7 21.9
Source: Company, India Infoline Research
Bharat Forge
Company Report 2
We expect non-auto business contribution to BFL’s standalone revenues to increase from 37% in FY11 to about 50% by FY13 The company is taking steps to increase utilization in non-automotive business by targeting new customers and product lines Further diversification with JV with David Brown Group, UK for gear box manufacturing
Non-automotive business to gain momentum Leveraging on its technological expertise in forging components for the automotive space, BFL now has been supplying similar components for sectors such as Oil & Gas, Nuclear and Thermal power generation, Aerospace, Wind mill turbines, engine components for construction and mining equipments, marine vehicles and railways. This has resulted in further diversification of the company’s revenue base. We see a strong growth in most of the segments, where BFL plans to build its presence. We expect non-auto business contribution to BFL’s standalone revenues to increase from 37% in FY11 to about 50% by FY13. The first phase of the company’s non-auto foray has been completed with the commercialization of the ring rolling facility and is currently operating at about 50% utilization levels. The company is taking steps to increase it by targeting new customers and product lines. As a result, BFL is witnessing significant traction globally and especially within India and has won several new orders in thermal power, nuclear power, oil & gas and rail sector. To further diversify its non-automotive business, BFL has entered into a 50:50 JV with David Brown Group, UK for gear box manufacturing. The JV will manufacture gear boxes for various industries, supplying both new build gearboxes and aftermarket services to power, mining, defense, wind, rail and steel sectors.
Outlook for BFL’s non-auto business Sector Domestic International
Oil and Gas
Substantial work commitments of NELP II - VIII yet to be completed, resulting in increasing pace of capex spend in the near term
Energy security is a key agenda for most of the developed and developing economies. With crude oil reserves from most giant blocks on a natural decline exploration activities would continue increase
With success of KG-D6, deepwater exploration is expected to gain momentum in India translating into huge spends
With onshore and shallow water resources utilized on declining mode, efforts to explore difficult oil from deepwater and ultra-deepwater will rise
Aerospace According to a PricewaterhouseCoopers’ report MRO industry within India is estimated to grow at 10% and reach US$1.17bn and US$2.6bn by 2020.
Airbus expects about 25,000 new cargo and passenger planes will be bought around the world by 2028. Out of which, Asia-Pacific airlines will buy around 8,000 new planes over this period, which is worth about US$1.2trillion.
Nuclear Power India plans to add 12.8GW of nuclear capacity over the XII and XIII plan. This will be further aided by import of fuel.
World Nuclear Association expects the world to add 192GWe of Nuclear power capacity by 2030 from current levels of 367GWe.
Wind Power With the government incentivising renewable energy, we believe growth in wind energy will be highest
In order to honour the climate control measures, we believe major opportunities will emerge in Europe and USA as they will lead the way
Thermal Power Country plans to add over 135GW over the XII & XIII five year plans, this should translate into strong demand for power equipments
Huge capacity additions continues in emerging markets
Shipping Average of Indian vessels is at 18.2 years v/s 11.8 years global average. This would entail huge investments in shipbuilding.
With global economic recovery expected to gather momentum, international trade is expected to increase substantially, requiring higher number of marine vessels.
Source: India Infoline Research
Bharat Forge
Company Report 3
JV with Alstom will design, engineer, manufacture and deliver turbine and Generator Island of 600-800 MW supercritical range The JV has received a LoI (Letter of Intent) for supplying five turbine generator sets of 660MW each for NTPC and Damodar Valley Corporation JVs with Alstom and NTPC along with Alstom’s boiler business capable of setting up an entire power plant BFL’s EPC subsidiary has secured orders worth Rs18bn for setting up a 3X 150 MW power plant executable over next two years
Alstom JV to commence operations in FY13E BFL’s JV with Alstom will design, engineer, manufacture and deliver turbine and Generator Island of 600-800 MW supercritical range with a total installed capacity of 5GW per annum. Both the partners have agreed to explore manufacture of turbines and generators in sub-critical range as well as for gas and nuclear applications. The manufacturing infrastructure will include plants for manufacturing of turbine, generators and all the auxiliaries that go into turbine generator. The arrangement between Alstom and Bharat Forge involves setting up of two companies – the first JV Company for manufacturing of core turbine and generators and the other for manufacturing of all the auxiliaries. The ventures have been approved by the Government of India and the facility is being constructed at the Mundra SEZ. The JV has received a LoI (Letter of Intent) for supplying five turbine generator sets of 660MW each for NTPC and Damodar Valley Corporation. The LoA (Letter of acceptance) is expected in the near term. First of the units is expected to be delivered in FY13E. The JV expects to earn an operating profit margin of 15-16%. The JV has also bid for 9 x 800MW turbine generator sets for NTPC projects at Kudgi in Karnataka, Darlapalli in Orissa and Lara in Chhattisgarh. JV with NTPC to add to the value chain The Joint Venture will initially be engaged in manufacturing forgings, castings, casings, fittings and high pressure pipings required for Power and other industries, Balance of Plant (BOP) equipment for the power sector etc. and will induct technology-related strategic partners wherever needed. The company would also manufacture other power plant equipments & machinery, in due course. BFL has so far invested Rs1bn in the two JVs. Further investments would be made in due course. Two ventures together can set up an entire power project The three critical aspects of a power project are 1) Boiler, 2) Turbine and Generator and 3) Balance of Plant (BOP). The two JVs when operational along with Alstom will have expertise in all three aspects. Alstom will provide the boiler, BFL-Alstom JV will provide turbine and generator and BFL-NTPC JV will provide BOP services. The forging components for turbine & generator and BOP activities would be provided by BFL. Expanding into EPC projects as well In order to extend the value chain, BFL has set up a separate subsidiary for EPC projects. The company has secured orders worth Rs18bn for setting up a 3X 150 MW power plant which will be executed over a span of two years starting FY12.
Bharat Forge
Company Report 4
Trend in domestic CV volume growth Trend in domestic passenger car volume growth
-30%
-20%
-10%
0%
10%
20%
30%
40%
50%
FY
03
FY
04
FY
05
FY
06
FY
07
FY
08
FY
09
FY
10
FY
11
FY
12E
0%
5%
10%
15%
20%
25%
30%
35%
FY
03
FY
04
FY
05
FY
06
FY
07
FY
08
FY
09
FY
10
FY
11
FY
12E
Source: SIAM, Crisil, India Infoline Research
We expect another 50bps interest rate hike over the next six months Lack of finance availability will keep infrastructure activity muted Higher interest rates and inflation has impacted aggregate demand in the economy Hike in diesel prices will worsen economic viability for fleet operators The company expects 10% growth in CV market in FY12 Passenger car volumes to be impacted by higher interest rates and petrol prices
Domestic automotive business to witness a slowdown CV and passenger car volume growth in India has slowed down over the past couple of months. The key triggers for the slowdown have been the rising interest rates, slowdown in infrastructure activity and weakening industrial production in the country. Furthermore, an upsurge in crude oil prices has increased the probability of a hike in diesel prices. This would weaken the economic viability for fleet operators. 1) Higher interest rates: Since March 2010, The Reserve Bank of India
has raised interest rates 10 times resulting in the repo rate increasing by 275bps. With inflation not expected to cool off anytime soon, we expect another 50bps hike over the next six months.
2) Slowdown in infrastructure activity: A prominent slowdown is being witnessed in infrastructure activity, especially so in building of roads and real estate construction. One of the key reasons for the slowdown is the lack of finance availability. Considering the liquidity situation and interest rate scenario, we believe a meaningful recovery will take some time.
3) Weak industrial production: Rising interest rates and inflation have weakened the aggregate demand in the economy. We believe the trend will continue in the near term.
4) Hike in diesel prices: The government has raised the prices of diesel by Rs3/litre. This move is expected to further worsen the economic viability for CV fleet operators.
Based on the above mentioned factors, we believe that domestic commercial vehicle business will see a marked slowdown in FY12 as compared to FY11. BFL derives about 11% of its consolidated revenues from the domestic CV market. The company expects about 10% growth in its domestic CV market. With 70% of the passenger car volumes also based on finance, higher interest rates would cause the growth in passenger car sales to slowdown. Higher petrol prices is among the other key headwinds. BFL derives about 9% of its consolidated revenues from the domestic passenger car market.
Bharat Forge
Company Report 5
Trend in European LCV volumes Trend in European M&HCV volumes
-
20,000
40,000
60,000
80,000
100,000
120,000
140,000
160,000
Jan-
06
Jul-0
6
Jan-
07
Jul-0
7
Jan-
08
Jul-0
8
Jan-
09
Jul-0
9
Jan-
10
Jul-1
0
Jan-
11
-40%
-30%
-20%
-10%
0%
10%
20%
30%LCV Volume yoy grow thNos
-
5,000
10,000
15,000
20,000
25,000
30,000
35,000
40,000
Jan-
06
Jul-0
6
Jan-
07
Jul-0
7
Jan-
08
Jul-0
8
Jan-
09
Jul-0
9
Jan-
10
Jul-1
0
Jan-
11
-60%
-40%
-20%
0%
20%
40%
60%
80%
100%M&HCV Vol yoy grow thNos
Source: Bloomberg, India Infoline Research Correlation between Euro GDP and CV vol Trend in European passenger car volumes
(6)(5)(4)(3)(2)(1)
-12345
Q1
CY
04
Q3
CY
04
Q1
CY
05
Q3
CY
05
Q1
CY
06
Q3
CY
06
Q1
CY
07
Q3
CY
07
Q1
CY
08
Q3
CY
08
Q1
CY
09
Q3
CY
09
Q1
CY
10
Q3
CY
10
Q1
CY
11
(30)(25)(20)(15)(10)(5)-5101520
GDP grow th (LHS) CV Vol grow th (RHS)(%) (%)
-
200,000
400,000
600,000
800,000
1,000,000
1,200,000
1,400,000
Jan-
06
Jul-0
6
Jan-
07
Jul-0
7
Jan-
08
Jul-0
8
Jan-
09
Jul-0
9
Jan-
10
Jul-1
0
Jan-
11
-30%
-20%
-10%
0%
10%
20%
30%
40%Pass Car vol yoy grow th
Nos
Source: Bloomberg, India Infoline Research
In its latest update on World Economic Outlook, IMF has upgraded its CY11 GDP growth estimate for Euro Area from 1.6% to 2%
European automotive volumes recovering from the lows Following the financial distress of 2008, CV sales in Europe witnessed a marked slowdown with annual volumes declining by 10% in CY08 and 21% in CY09. During CY10, the volumes rose by 4% but remained way below the historical levels. During Jan-April 2011, CV volumes rose 8% on yoy basis. Correlation between European GDP growth and CV volume growth is as high as 84%. In its latest update on World Economic Outlook, IMF has upgraded its CY11 GDP growth estimate for Euro Area from 1.6% to 2%. This would translate into sustained volume growth momentum for CVs resulting in robust business opportunity for BFL as it derives 17% of its consolidated revenues from the European CV market. European passenger car market, after witnessing a fall of 7% in CY08, recovered partially in CY09 with a 3% growth (led by incentives offered by the governments). However, in CY10 the volumes fell 8%. Since then the volumes have stabilized and for 5m CY11, volumes remained flat. In fact, for May 2011 the volumes were higher by 8% on a yoy basis. If the recovery sustains, BFL European revenues would gain additional traction as it derives 13% of its consolidated revenues from the European passenger car market. Amongst European markets, the company garners maximum portion of its revenues from Germany and Sweden. These two economies have been relatively unscathed amidst the current debt turmoil in the European region.
Bharat Forge
Company Report 6
Correlation between US GDP and CV vol Trend in US total CV volumes
(5)(4)(3)(2)(1)
-12345
Q1
CY
01Q
3 C
Y01
Q1
CY
02Q
3 C
Y02
Q1
CY
03Q
3 C
Y03
Q1
CY
04Q
3 C
Y04
Q1
CY
05Q
3 C
Y05
Q1
CY
06Q
3 C
Y06
Q1
CY
07Q
3 C
Y07
Q1
CY
08Q
3 C
Y08
Q1
CY
09Q
3 C
Y09
Q1
CY
10Q
3 C
Y10
Q1
CY
11
(50)
(40)
(30)
(20)
(10)
-
10
20
30US GDP grow th (LHS) US CV vol grow th (RHS)
(%) (%)
-
100,000
200,000
300,000
400,000
500,000
600,000
700,000
800,000
900,000
Jan-
06
Jul-0
6
Jan-
07
Jul-0
7
Jan-
08
Jul-0
8
Jan-
09
Jul-0
9
Jan-
10
Jul-1
0
Jan-
11
-50%-40%-30%-20%-10%0%
10%20%30%40%50%Total CV vol yoy grow th
Nos
Source: Bloomberg, India Infoline Research
The June release of the ACT North American Commercial Vehicle OUTLOOK reflects solid commercial vehicle demand through 2011 and well into 2012
Ageing of CV fleet to cause sustained demand recovery in US Following sharp declines of 25% and 22% in CY08 and CY09 respectively, US CV market recovered with a 19% growth in CY10. The trajectory was maintained in 5m CY11 with a 15% growth. This has been driven by the need to replace the aging fleet profile with more modern and fuel efficient vehicles. The manufacturing data in the recent past has also shown a marked recovery. We believe the momentum would continue causing a strong revenue growth for BFL.
Extract from press release of ACT Research dated June 14, 2011 ACT Research is a leading publisher of new and used commercial vehicle (CV) industry data, market analysis and forecasting services for the North American market, as well as the U.S. tractor-trailer market and the China CV market. Despite some recent easing in freight growth and a softening in the path of the U.S. economy, demand for commercial vehicles continues to be strong. Widespread strength was apparent across all segments of the commercial vehicle market, according to the most recent data reported by ACT Research Co. (ACT). The June release of the ACT North American Commercial Vehicle OUTLOOK reflects solid commercial vehicle demand through 2011 and well into 2012; this demand reflects pent-up replacement needs and improved financial performance at the fleets, supported by improved credit availability for well-qualified customers. “While we have reduced our expectations for US economic growth somewhat, we still expect the overall economy to progress close to trend over during 2011 and into 2012,” stated Sam Kahan, ACT’s chief economist. “There might be a soft patch in freight over the next month or two, but demand for Class 8 trucks continues to be strong. We feel that the industry’s ability to “build” might actually be a volume constraint in 2011,” added Kahan.
Bharat Forge
Company Report 7
Trend in consolidated revenues Trend in standalone revenues
-
10,000
20,000
30,000
40,000
50,000
60,000
70,000
80,000
FY
06
FY
07
FY
08
FY
09
FY
10
FY
11
FY
12E
FY
13E
-40%-30%-20%-10%0%10%
20%30%40%50%60%
Revenues yoy grow th
Rs mn
-
5,000
10,000
15,000
20,000
25,000
30,000
35,000
40,000
45,000
FY
06
FY
07
FY
08
FY
09
FY
10
FY
11
FY
12E
FY
13E
-20%
-10%
0%
10%
20%
30%
40%
50%
60%
70%Revenues yoy grow th
Rs mn
Source: Company, India Infoline Research
BFL is investing Rs3bn to increase forging capacity by 15% and machining capacity by 35% Strong growth in domestic non-auto business and international auto volumes to drive revenue growth
Expanding capacity in the domestic market BFL is currently operating at 75% utilization rate at its domestic plants catering to automotive sector. A 10% growth in FY12 would mean near peak utilization levels. Hence, BFL is investing Rs3bn in raising its capacities through by setting up a heavy press line which will increase capacity and simultaneously improve productivity by de-bottlenecking existing lines. This would lead to 15% increase in forging capacity and 35% higher machining capacity. Forging capacity is being increased at Mundra plant, while machining capacity would be added at both Mundra and Baramati plants. The expanded capacity would be available within a 2-year timeframe. The non-automotive plants are currently operating at 50% utilization levels, while the international subsidiaries are operating at about 60% utilization levels. With enough headroom for growth in production, no major incremental investments are required in these segments in the near term. Revenue growth to be driven by international automotive and domestic non-automotive segments During FY11-13E, we expect BFL to report a revenue CAGR of 15.8%. The growth would be driven by 16.4% CAGR in standalone revenues and 15% CAGR in subsidiary revenues. Surge in standalone revenues will be on the back of strong traction in the non-automotive revenues in the domestic market and near 20% CAGR in exports. The non-automotive business currently accounts for 37% of the standalone revenues and 25% of the consolidated revenues. We expect this to increase to close to 50% in the next few years.
Trend in non auto revenues
-
2,000
4,000
6,000
8,000
10,000
12,000
FY06 FY07 FY08 FY09 FY10 FY11
Rs mn
Source: Company, India Infoline Research
Bharat Forge
Company Report 8
Improvement in international subsidiaries performance to result in OPM increase Considering a PAT CAGR of 42% during FY11-13E, we find the valuations reasonable at 7x FY13E EV/EBIDTA
Operating margins to remain resilient We expect operating margins for the standalone entity to remain at the current levels as better margins in the non-automotive space will be offset by some pressures in the automotive space. On the consolidated level though, we expect a 190bps jump in OPM as increased utilization at international subsidiaries (which achieved break-even in FY11) would translate into benefits of operating leverage. Trend in consolidated OPM
-
5
10
15
20
25
30
FY
05
FY
06
FY
07
FY
08
FY
09
FY
10
FY
11
FY
12E
FY
13E
%
Company, India Infoline Research Valuations at reasonable levels BFL currently trades at EV/EBIDTA of 7x on FY13E EBIDTA. Valuations are currently at lowest levels in the recent past. Over the past six months, the stock has corrected by 28% due to slowdown in domestic CV sales and widening impact of European debt crisis. As mentioned above, we believe the European CV volume growth trajectory would remain strong, while domestic automotive business impact would be more than offset by the surge in non-automotive revenues. Considering a PAT CAGR of 42% during FY11-13E, we find the current valuations reasonable and recommend BUY with a 9-month price target of Rs353 (EV/EBIDTA of 8x on FY13E EBIDTA). 1-year forward EV/EBIDTA band
0
100
200
300
400
500
600
700
800
900
Mar
-04
Mar
-05
Mar
-06
Mar
-07
Mar
-08
Mar
-09
Mar
-10
Mar
-11
Mar
-12
6x
9x
12x
15x
18xRs
Source: Company, Bloomberg, India Infoline Research Concerns Slower than anticipated growth in the domestic CV market
Delay in setting up of new power capacities
Wider than expected impact of the current European debt crisis
Bharat Forge
Company Report 9
Company background Bharat Forge Ltd, the flagship company of the US$2.4bn Kalyani Group, is a leading global supplier of forged and machined - engine & chassis components. It is the largest exporter of auto components from India and leading chassis component manufacturer in the world. With manufacturing facilities spread across 12 locations and 6 countries - four in India, three in Germany, one each in Sweden, Scotland, USA and two in China, the company manufactures a wide range of safety and critical components for 4-Ws, SUVs, light, medium & heavy CVs, tractors and diesel engines. The company also manufactures specialized components for the aerospace, power, energy, oil & gas, rail & marine, mining & construction equipment, and other industries. It is capable of producing complex large volume parts in both steel and aluminium. BFL’s facilities include, fully automated forging and machining lines, the largest of its kind and comparable to the best in the industry. It has built up a strong capability in design and engineering, including a full fledged product testing and validation facility, which gives Bharat Forge a Full Service Supply Capability - from product conceptualization to designing to manufacturing and product testing and validation. Its customer base includes virtually every global automotive OEM and tier-I supplier. Daimler Chrysler, Toyota, BMW, General Motors, Volkswagen, Audi, Renault, Ford, Volvo, Caterpillar - Perkins, Iveco, Arvin Meritor, Detroit Diesel, Cummins, Dana Corporation, Honda, Scania and several others source their complex forging requirements including machined crankshafts, front axle beams and steering knuckles from Bharat Forge. Key milestones
Year Milestone
1961 Incorporation
1962 Technical agreement with SIFCO, USA for hammer forging technology
1966 Start of hammer shop commercial production
1972 Execution of maiden export order to Greece
1984 Technical agreement with Tokyo Drop Forge, Japan
1985 Entry in the erstwhile USSR market
1986 Technical agreement with Jidosha Buhin Kogyo, Japan
1990-91 Major breakthrough in the developed markets of Japan, USA and UK
1991 Implementation of US$50mn forging facility up-gradation programme
1993 ISO 9002 accreditation
1996 Technical agreement with Metalart Corporation, Japan
1999 QS 9000 accreditation
2000 Implementation of US$30mn forging facility expansion programme
2004 Acquired Carl Dan Peddinghaus GmbH & Co. KG
2005 Acquired Federal Forge
2005 Acquired Imatra Kilsta, AB, Sweden along with its wholly owned subsidiary Scottish Stampings
2005 Signed a JV with FAW Corporation
2006 Joined hands with Government of Maharashtra to set up a multi-product SEZ in Pune District
2007 Centre for Advanced Manufacturing takes shape in Baramati
2008 Bharat Forge signed a MOU with NTPC
2009 BFL and AREVA sign MoU for Manufacture of Heavy Forgings in India
2011 BFL enters into a JV with David Brown Group, UK for gear box manufacturing
Source: Company
Bharat Forge
Company Report 10
Financials Income statement
Y/e 31 Mar (Rs m) FY10 FY11E FY12E FY13E Revenue 33,276 50,873 60,082 68,233 Operating profit 3,385 7,851 10,407 11,793 Depreciation (2,451) (2,548) (2,819) (2,999) Interest expense (1,303) (1,529) (1,179) (1,179) Other income 511 672 650 650 Profit before tax 142 4,445 7,059 8,265 Taxes (119) (1,402) (2,155) (2,602) Minorities and other 130 (67) 176 176 Adj. profit 153 2,976 5,080 5,839 Exceptional items (787) (77) - - Net profit (634) 2,899 5,080 5,839
Balance sheet Y/e 31 Mar (Rs m) FY10 FY11E FY12E FY13E Equity capital 445 466 466 466 Reserves 14,185 19,064 24,144 25,283 Net worth 14,630 19,529 24,610 25,749 Minority interest 783 1,542 1,742 1,942 Debt 22,527 18,950 14,734 14,734 Def tax liab (net) 971 1,321 1,321 1,321 Total liabilities 38,911 41,342 42,406 43,745 Fixed assets 26,060 27,662 27,856 29,941 Investments 2,737 3,668 3,668 3,668 Net working cap 4,132 6,868 7,056 7,663
Inventories 6,575 8,115 9,547 10,843 Sundry debtors 5,044 7,539 8,889 10,095 Other curr assets 6,576 9,289 9,578 10,278 Sundry creditors (11,164) (13,369) (15,802) (17,946) Other curr liabilities (2,898) (4,706) (5,156) (5,606) Cash 5,981 3,143 3,827 2,473 Total assets 38,911 41,342 42,406 43,745
Cash flow statement Y/e 31 Mar (Rs m) FY10 FY11E FY12E FY13E Profit before tax 142 4,445 7,059 8,265 Depreciation 2,451 2,548 2,819 2,999 Tax paid (119) (1,402) (2,155) (2,602) Working capital ∆ 4,220 (2,736) (188) (607) Operating cashflow 6,694 2,856 7,536 8,055 Capital expenditure (616) (4,150) (3,013) (5,085) Free cash flow 6,078 (1,294) 4,523 2,970 Equity raised (938) 2,815 815 (3,885) Investments (2,735) (931) - - Debt raised/paid 618 (3,577) (4,216) - Dividends paid (233) (815) (815) (815) Other items (1,700) 965 376 376 Net ∆ in cash 1,091 (2,838) 683 (1,353)
Key ratios Y/e 31 Mar FY10 FY11E FY12E FY13E Growth matrix (%) Revenue growth (30.3) 52.9 18.1 13.6 Op profit growth (19.4) 131.9 32.6 13.3 EBIT growth (39.0) 313.5 37.9 14.6 Net profit growth - - 75.2 14.9 Profitability ratios (%) OPM 10.2 15.4 17.3 17.3 EBIT margin 4.3 11.7 13.7 13.8 Net profit margin 0.5 5.9 8.5 8.6 RoCE 3.6 14.9 19.7 21.9 RoNW 1.0 17.4 23.0 23.2 RoA 0.3 5.3 8.3 8.9 Per share ratios EPS 0.7 12.8 21.8 25.1 Dividend per share 1.0 3.5 3.5 3.5 Cash EPS 11.7 23.7 33.9 38.0 Book value per share 65.7 83.9 105.7 110.6 Valuation ratios P/E 436.4 23.5 13.8 12.0 P/CEPS 25.7 12.6 8.8 7.9 P/BV 4.6 3.6 2.8 2.7 EV/EBIDTA 24.6 10.9 7.8 7.0 Payout (%) Dividend payout 152.1 27.4 16.0 14.0 Tax payout 83.9 31.5 30.5 31.5 Liquidity ratios Debtor days 55 54 54 54 Inventory days 72 58 58 58 Creditor days 122 96 96 96 Leverage ratios Interest coverage 1.1 3.9 7.0 8.0 Net debt / equity 1.1 0.8 0.4 0.5 Net debt / op. profit 4.9 2.0 1.0 1.0
Du-Pont Analysis
Y/e 31 Mar (Rs m) FY10 FY11E FY12E FY13E Tax burden (x) 1.08 0.67 0.72 0.71 Interest burden (x) 0.10 0.74 0.86 0.88 EBIT margin (x) 0.04 0.12 0.14 0.14 Asset turnover (x) 0.63 0.91 0.98 1.04 Financial leverage (x) 3.42 3.29 2.78 2.59 RoE (%) 1.0 17.4 23.0 23.2
Recommendation parameters for fundamental reports:
Buy – Absolute return of over +10%
Market Performer – Absolute return between -10% to +10%
Sell – Absolute return below -10%
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