Primed for recovery
Earnings growth to accelerate with ~27% CAGR (FY14-17E)
– Bharat Forge (BHFC) has emerged stronger, leaner and healthier from the downcycle, driven by its proactive strategic shift towards a stable, broad-based and greater value-adding business model. It is now one of India’s largest engineering exporters.
– It is primed for recovery in the global investment cycle. This, coupled with an expanded product/market mix, would drive strong revenue CAGR of 16% CAGR over FY14-17. EPS would grow at a CAGR of ~27%, aided by robust margin expansion.
– 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. Our target price of ~INR710 (~22x FY16E EPS) suggests an upside of ~23%.
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I compliment Axxxxx Gxxxxx here.
Out of the thousands of stocks s he recommend and which go south as usual this stock held high though after one year… so he went wrong in his usual analysis