Valuations attractive for global leader in forgings; Buy
Bharat Forge is primed for recovery in the global investment cycle. While the stock has outperformed over the last six months, there are several triggers for continued outperformance. These include: (a) volume recovery led benefit of operating leverage, (b) improving segment mix, (c) balance sheet deleveraging, and (d) improvement in capital efficiencies. Valuations at ~17.9x/14.9x FY16/FY17E consolidated EPS of INR32/INR39 are attractive for a global leader in forgings and at a discount to the 5/10 year average of 22x/26x. We initiate coverage with a Buy rating.