Bharat Forge Limited Initiating Coverage Research Report By Stewart & Mackertich (SMIFS)

We initiate coverage on Bharat Forge Limited (BFL) with BUY ra?ng. Bright growth prospects in US Class 8 Trucks, global economic growth, greenfield expansion and ge?ng future Electronic Vehicle (EV) ready are the major growth drivers for the company. On the back of higher exports, we expect margins to expand further leading to increase in profitability. Looking ahead there is still room for further surge and hence could be a good buying opportunity.

Investment Rationale

Seeng up new Greenfield Project: BFL has acquired 100 acers land in Andhra Pradesh to set up state of the art large mega site called Centre for Light Weight Technology (LWT). In phase-I they are going to invest around 200 crores. Currently, the project is on track and expected to commence commercial produc?on by March FY19. To cater strong demands and immense opportuni?es this site is going to develop components, subsystems of aluminum, magnesium and future carbon fiber which are expected to be light weighted and which finds applica?on especially in BS VI norms and upcoming arena of EV’s. Besides these, this plant is going to develop products for various sectors like automobiles, industrial, marines, aerospace etc. Also, the company is spending around INR300 crores spread over FY18 and FY19 for debo?lenecking and maintenance which is going to improve existing capacity utilization by 10-12%.

Valuation: Considering the positive opportunities for the company coupled with greenfield expansion and US truck sales picking up, we expect the EPS of the company to grow at a CAGR of more than 30% for the next 2 years and accordingly we assign a PE mul?ple of 24.5 to FY20E EPS, to arrive at a price target of INR859.