We attended Bharat Forge’s analyst meeting on Tuesday (December 8) where the company discussed potential future growth drivers. Overall, management expects the near term to remain challenging with standalone revenues likely to remain flat in FY16F (versus our estimate of ~6% growth). The company maintained its FY18 target of R70bn revenues driven by the passenger vehicle (PV) segment (share of revenues to increase from ~5% currently to 15% in the next 18 months), strong growth from transmission segment and execution in the domestic non-auto segment (aerospace, mining, defence, railways). We factor in R66bn standalone revenues by FY18F and given the slowdown in demand, we believe it will be tougher for the company to achieve its target.
Overall, after the event, we continue to maintain that weak US truck demand, sharp decline in global non-auto segment orders and tepid capex cycle recovery in India will impact near term earnings. We believe there can be downside risks to our implied 2HFY16 revenue growth of 4%. The global demand environment continues to be sluggish and could pose a risk to our 15% export revenue CAGR FY17-18F. However, we maintain our Neutral rating on the stock as positives from non-auto order wins in the domestic segment and the ramp up of global PV revenues should cushion downside.
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